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                                                                   EXHIBIT 10.24

                            MASTER SECURITY AGREEMENT
                     dated as of June 17, 2003 ("AGREEMENT")

         THIS AGREEMENT is between GENERAL ELECTRIC CAPITAL CORPORATION
(together with its successors and assigns, if any, "SECURED PARTY") and ANADYS
PHARMACEUTICALS, INC. ("DEBTOR"). Secured Party has an office at 401 Merritt 7
Suite 23, Norwalk, CT 06851-1177. Debtor is a Corporation organized and existing
under the laws of the state of Delaware. Debtor's mailing address and chief
place of business is 9050 Camino Sante Fe, San Diego, CA 92121.

1.       CREATION OF SECURITY INTEREST.

         Debtor grants to Secured Party, its successors and assigns, a security
interest in and against all property listed on any collateral schedule now or in
the future annexed to or made a part of this Agreement ("COLLATERAL SCHEDULE"),
and in and against all additions, attachments, accessories and accessions to
such property, all substitutions, replacements or exchanges therefor, and all
insurance and/or other proceeds thereof (all such property is individually and
collectively called the "COLLATERAL"). This security interest is given to secure
the payment and performance of all debts, obligations and liabilities of any
kind whatsoever of Debtor to Secured Party, now existing or arising in the
future, including but not limited to the payment and performance of certain
Promissory Notes from time to time identified on any Collateral Schedule
(collectively "NOTES" and each a "NOTE"), and any renewals, extensions and
modifications of such debts, obligations and liabilities (such Notes, debts,
obligations and liabilities are called the "INDEBTEDNESS").

2.       REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.

         Debtor represents, warrants and covenants as of the date of this
Agreement and as of the date of each Collateral Schedule that:

         (a) Debtor's exact legal name is as set forth in the preamble of this
Agreement and Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the preamble of this
Agreement, has its chief executive offices at the location specified in the
preamble, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations except
where the failure to so qualify would not have a material adverse effect on the
financial condition of Debtor or on its ability to perform its obligations under
this Agreement and any other Debt Document (as defined below);

         (b) Debtor has adequate power and capacity to enter into, and to
perform its obligations under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing are called the "DEBT DOCUMENTS");

         (c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable in accordance with their terms, except to the
extent that the enforcement of remedies may be limited under applicable
bankruptcy and insolvency laws;

         (d) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into, or
performance by Debtor of any of the Debt Documents, except any already obtained;

         (e) The entry into, and performance by, Debtor of the Debt Documents
will not (i) violate any of the organizational documents of Debtor or any
judgment, order, law or regulation applicable to Debtor, or (ii) result in any
breach of or constitute a default under any contract to which Debtor is a party,
or result in the creation of any lien, claim or encumbrance on any of Debtor's
property (except for liens in favor of Secured Party) pursuant to any indenture,
mortgage, deed of trust, bank loan, credit agreement, or other agreement or
instrument to which Debtor is a party;

         (f) There are no suits or proceedings pending in court or before any
commission, board or other administrative agency against or affecting Debtor
which could, in the aggregate, have a material adverse effect on Debtor, its
business or operations, or its ability to perform its obligations under the Debt
Documents, nor does Debtor have reason to believe that any such suits or
proceedings are threatened;

         (g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change in Debtors financial
condition;

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         (h) The Collateral is not, and will not be, used by Debtor for
personal, family or household purposes;

         (i) The Collateral is, and will remain, in good condition and repair,
normal wear and tear exceptedand Debtor will not be negligent in its care and
use;

         (j) Debtor is, and will remain, the sole and lawful owner (or in the
case of Collateral constituting software, licensee), and in possession of, the
Collateral, and has the sole right and lawful authority to grant the security
interest described in this Agreement; and

         (k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of any kind whatsoever, except for (i) liens in favor of
Secured Party, (ii) liens for taxes and other governmental charges of any kind
not yet due or for taxes being contested in good faith and which do not involve,
in the judgment of Secured Party, any risk of the sale, forfeiture or loss of
any of the Collateral, (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent or remain payable without penalty or which are
being contested in good faith by appropriate proceedings, (iv) the rights of the
licensor of any software included in the Collateral, and (v) the rights of any
licensee or sublicensee of any software included in the Collateral (all of such
liens are called "PERMITTED LIENS").

3.       COLLATERAL.

         (a) Until the declaration of any default, Debtor shall remain in
possession of the Collateral (except to Secured Party or for maintenance and
repair); except that Secured Party shall have the right to possess (i) any
chattel paper or instrument that constitutes a part of the Collateral, and (ii)
any other Collateral in which Secured Party's security interest may be perfected
only by possession. Other than the required initial inspection, Secured Party
may at its cost and expense inspect any of the Collateral during normal business
hours after giving Debtor at least ten (10) business days prior notice. If
Secured Party asks, Debtor will promptly notify Secured Party in writing of the
location of any Collateral.

         (b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good operating order and repair, normal
wear and tear excepted, (iii) use and maintain the Collateral only in compliance
with manufacturers recommendations and all applicable laws, and (iv) keep all of
the Collateral free and clear of all liens, claims and encumbrances (except for
Permitted Liens).

         (c) Secured Party does not authorize and Debtor agrees it shall not (i)
part with possession of any of the Collateral (except to Secured Party or for
maintenance and repair), (ii) remove any of the Collateral from the continental
United States, or (iii) sell, rent, lease, mortgage, license, grant a security
interest in or otherwise transfer or encumber (except for Permitted Liens) any
of the Collateral except Permitted Transfers (as defined below).

         (d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on its use, or on this Agreement or any of the other Debt Documents.
At its option, Secured Party may discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance, insurance and preservation of the Collateral and effect
compliance with the terms of this Agreement or any of the other Debt Documents.
Debtor agrees to reimburse Secured Party, on demand, all costs and reasonable
expenses incurred by Secured Party in connection with such payment or
performance and agrees that such reimbursement obligation shall constitute
Indebtedness.

         (e) Debtor shall, at all times, keep accurate and complete records of
the Collateral, and Secured Party shall have the right to inspect and make
copies of all of Debtor's books and records relating to the Collateral during
normal business hours, after giving Debtor reasonable prior notice.

         (f) Debtor agrees and acknowledges that any third person who may at any
time possess all or any portion of the Collateral shall be deemed to hold, and
shall hold, the Collateral as the agent of, and as pledge holder for, Secured
Party. Secured Party may at any time give notice to any third person described
in the preceding sentence that such third person is holding the Collateral as
the agent of, and as pledge holder for, the Secured Party.

4.       INSURANCE.

         (a) Debtor shall at all times bear the entire risk of any loss, theft,
damage to, or destruction of, any of the Collateral from any cause whatsoever.

         (b) Debtor agrees to keep the Collateral insured against loss or damage
by fire and extended coverage perils, theft, burglary, and for any or all
Collateral which are vehicles, for risk of loss by collision, and if requested
by Secured Party, against such other risks as Secured Party may reasonably
require. The insurance coverage shall be in an amount no less than the full
replacement value of the Collateral, and deductible amounts, insurers and
policies shall be acceptable to Secured Party. Debtor shall deliver to Secured
Party policies or certificates of insurance evidencing such coverage. Each
policy shall name Secured Party as a loss payee, shall provide for coverage to
Secured Party regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-insurance, and shall
provide that coverage may not be canceled or materially altered by the insurer
except upon thirty (30) days prior

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written notice to Secured Party. Debtor appoints Secured Party as its
attorney-in-fact to make proof of loss, claim for insurance and adjustments with
insurers, and to receive payment of and execute or endorse all documents, checks
or drafts in connection with insurance payments. Secured Party shall not act as
Debtor's attorney-in-fact unless Debtor is in default. Proceeds of insurance
shall be applied, at the option of Debtor, to repair or replace the Collateral
or to reduce any of the Indebtedness so long as the Collateral is not a total
loss. In the event the Collateral is a total loss or if the Debtor is in
default, proceeds of insurance shall be applied, at the option of Secured Party,
to repair or replace the Collateral or to reduce any of the Indebtedness.

5.       REPORTS.

         (a) Debtor shall promptly notify Secured Party of (i) any change in the
name of Debtor, (ii) any change in the state of its incorporation or
registration, (iii) any relocation of its chief executive offices, (iv) any
relocation of any of the Collateral, (v) any of the Collateral being lost,
stolen, missing, destroyed, materially damaged or worn out, or (vi) any lien,
claim or encumbrance other than Permitted Liens attaching to or being made
against any of the Collateral.

         (b) Debtor will deliver to Secured Party Debtor's complete financial
statements, certified by a recognized firm of certified public accountants,
within ninety (90) days of the close of each fiscal year of Debtor. If Secured
Party requests, Debtor will deliver to Secured Party copies of Debtor's
quarterly financial reports certified by Debtor's chief financial officer,
within ninety (90) days after the close of each of Debtor's fiscal quarter.
Debtor will deliver to Secured Party copies of all Forms 10-K and 10-Q, if any,
within 30 days after the dates on which they are filed with the Securities and
Exchange Commission.

6.       FURTHER ASSURANCES.

         (a) Debtor shall, upon request of Secured Party, furnish to Secured
Party such further information, execute and deliver to Secured Party such
documents and instruments (including, without limitation, Uniform Commercial
Code financing statements) and shall do such other acts and things as Secured
Party may at any time reasonably request relating to the perfection or
protection of the security interest created by this Agreement or for the purpose
of carrying out the intent of this Agreement. Without limiting the foregoing,
Debtor shall cooperate and do all acts deemed necessary or advisable by Secured
Party to continue in Secured Party a perfected first security interest in the
Collateral, and shall obtain and furnish to Secured Party any subordinations,
releases, landlord waivers, lessor waivers, mortgagee waivers, or control
agreements, and similar documents as may be from time to time requested by, and
in form and substance satisfactory to, Secured Party.

         (b) Debtor authorizes Secured Party to file a financing statement and
amendments thereto describing the Collateral and containing any other
information required by the applicable Uniform Commercial Code. Debtor
irrevocably grants to Secured Party the power to sign Debtor's name and
generally to act on behalf of Debtor to execute and file applications for title,
transfers of title, financing statements, notices of lien and other documents
pertaining to any or all of the Collateral; this power is coupled with Secured
Party's interest in the Collateral. Debtor shall, if any certificate of title be
required or permitted by law for any of the Collateral, obtain and promptly
deliver to Secured Party such certificate showing the lien of this Agreement
with respect to the Collateral. Debtor ratifies its prior authorization for
Secured Party to file financing statements and amendments thereto describing the
Collateral and containing any other information required by the Uniform
Commercial Code if filed prior to the date hereof.

         (c) Debtor shall indemnify and defend the Secured Party, its successors
and assigns, and their respective directors, officers and employees
("Indemnitees"), from and against all claims, actions and suits (including,
without limitation, related reasonable attorneys' fees) of any kind whatsoever
arising, directly or indirectly, in connection with any of the Collateral except
to the extent that the claim giving rise to the indemnity results from the gross
negligence or wilful misconduct of an Indemnitee.

7.       DEFAULT AND REMEDIES.

         (a) Debtor shall be in default under this Agreement and each of the
other Debt Documents if:

                  (i) Debtor breaches its obligation to pay when due any
installment or other amount due or coming due under any of the Debt Documents;

                  (ii) Debtor, without the prior written consent of Secured
Party, attempts to or does sell, rent, lease, license, mortgage, grant a
security interest in, or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral;

                  (iii) Debtor breaches any of its insurance obligations under
Section 4;

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                  (iv) Debtor breaches any of its other obligations under any of
the Debt Documents and fails to cure that breach within thirty (30) days after
written notice from Secured Party;

                  (v) Any warranty, representation or statement made by Debtor
in any of the Debt Documents or otherwise in connection with any of the
Indebtedness shall be false or misleading in any material respect;

                  (vi) Any of the Collateral is subjected to attachment,
execution, levy, seizure or confiscation in any legal proceeding or otherwise,
or if any legal or administrative proceeding is commenced against Debtor or any
of the Collateral, which in the good faith judgment of Secured Party subjects
any of the Collateral to a material risk of attachment, execution, levy, seizure
or confiscation and no bond is posted or protective order obtained to negate
such risk;

                  (vii) Debtor breaches or is in default under any other
agreement between Debtor and Secured Party;

                  (viii) Debtor or any guarantor or other obligor for any of the
Indebtedness (collectively "GUARANTOR") dissolves, terminates its existence,
becomes insolvent or ceases to do business as a going concern;

                  (ix) If Debtor or any Guarantor is a natural person, Debtor or
any such Guarantor dies or becomes incompetent;

                  (x) A receiver is appointed for all or of any part of the
property of Debtor or any Guarantor, or Debtor or any Guarantor makes any
assignment for the benefit of creditors;

                  (xi) Debtor or any Guarantor files a petition under any
bankruptcy, insolvency or similar law, or any such petition is filed against
Debtor or any Guarantor and is not dismissed within forty-five (45) days;

                  (xii) Debtor's improper filing of an amendment or termination
statement relating to a filed financing statement describing the Collateral; or

                  (xiii) At any time during the term of this Agreement the
ownership of Debtor or _________________________ ("GUARANTOR") changes such that
_________________________ does not own more than 50% of the outstanding shares
or other ownership interest of Debtor or Guarantor, as the case may be, without
the prior written consent of Secured Party.

         (b)If Debtor is in default unless waived, the Secured Party, at its
option, may declare any or all of the Indebtedness to be immediately due and
payable, without demand or notice to Debtor or any Guarantor. The accelerated
obligations and liabilities shall bear interest (both before and after any
judgment) until paid in full at the lower of eighteen percent (18%)per annum or
the maximum rate not prohibited by applicable law.

         (c)After default unless waived, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) in compliance with applicable law and with legal
process, enter any premises where the Collateral may be and take possession of
and remove the Collateral from the premises or store it on the premises, (iii)
sell the Collateral at public or private sale, in whole or in part, and have the
right to bid and purchase at said sale, or (iv) lease or otherwise dispose of
all or part of the Collateral, applying proceeds from such disposition to the
obligations then in default. If requested by Secured Party, Debtor shall
promptly assemble the Collateral and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties. Secured Party may also render any or all of the Collateral unusable at
the Debtor's premises and may dispose of such Collateral on such premises
without liability for rent or costs. Any notice that Secured Party is required
to give to Debtor under the Uniform Commercial Code of the time and place of any
public sale or the time after which any private sale or other intended
disposition of the Collateral is to be made shall be deemed to constitute
reasonable notice if such notice is given to the last known address of Debtor at
least ten (10) days prior to such action.

         (d)Proceeds from any sale or lease or other disposition shall be
applied: first, to all costs of repossession, storage, and disposition including
without limitation reasonable attorneys', appraisers', and auctioneers' fees;
second, to discharge the obligations then in default; third, to discharge any
other Indebtedness of Debtor to Secured Party, whether as obligor, endorser,
guarantor, surety or indemnitor; fourth, to expenses incurred in paying or
settling liens and claims against the Collateral; and lastly, to Debtor, if
there exists any surplus. Debtor shall remain fully liable for any deficiency.

         (e)Debtor agrees to pay all reasonable attorneys' fees and other costs
incurred by Secured Party in connection with the enforcement, assertion, defense
or preservation of Secured Party's rights and remedies under this Agreement, or
if prohibited by law, such lesser sum as may be permitted. Debtor further agrees
that such fees and costs shall constitute Indebtedness.

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         (f) Secured Party's rights and remedies under this Agreement or
otherwise arising are cumulative and may be exercised singularly or
concurrently. Neither the failure nor any delay on the part of the Secured Party
to exercise any right, power or privilege under this Agreement shall operate as
a waiver, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise of that or any other right,
power or privilege. SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS
RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER
SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY
SECURED PARTY. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any future occasion.

         (g) DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED
HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER
DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

8.       MISCELLANEOUS.

         (a) This Agreement, any Note and/or any of the other Debt Documents may
be assigned, in whole or in part, by Secured Party without notice to Debtor, and
Debtor agrees not to assert against any such assignee, or assignee's assigns,
any defense, set-off, recoupment claim or counterclaim which Debtor has or may
at any time have against Secured Party for any reason whatsoever. Debtor agrees
that if Debtor receives written notice of an assignment from Secured Party,
Debtor will pay all amounts payable under any assigned Debt Documents to such
assignee or as instructed by Secured Party. Debtor also agrees to confirm in
writing receipt of the notice of assignment as may be reasonably requested by
Secured Party or assignee.

         (b) All notices to be given in connection with this Agreement shall be
in writing, shall be addressed to the parties at their respective addresses set
forth in this Agreement (unless and until a different address may be specified
in a written notice to the other party), and shall be deemed given (i) on the
date of receipt if delivered in hand or by facsimile transmission, (ii) on the
next business day after being sent by express mail, and (iii) on the fourth
business day after being sent by regular, registered or certified mail. As used
herein, the term "business day" shall mean and include any day other than
Saturdays, Sundays, or other days on which commercial banks in New York, New
York are required or authorized to be closed.

         (c) Secured Party may correct patent errors and fill in all blanks in
this Agreement or in any Collateral Schedule consistent with the agreement of
the parties.

         (d) Time is of the essence of this Agreement. This Agreement shall be
binding, jointly and severally, upon all parties described as the "Debtor" and
their respective heirs, executors, representatives, successors and assigns, and
shall inure to the benefit of Secured Party, its successors and assigns.

         (e) This Agreement (including any amendments hereto) and its Collateral
Schedules and the Promissory Notes and Confidentiality Agreement constitute the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior understandings (whether written, verbal or
implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL
SCHEDULES AND THE PROMISSORY NOTES AND CONFIDENTIALITY AGREEMENT SHALL NOT BE
CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING
SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been
included for convenience only, and shall not affect the construction or
interpretation of this Agreement.

         (f) This Agreement shall continue in full force and effect until all of
the Indebtedness has been indefeasibly paid in full to Secured Party or its
assignee. The surrender, upon payment or otherwise, of any Note or any of the
other documents evidencing any of the Indebtedness shall not affect the right of
Secured Party to retain the Collateral for such other Indebtedness as may then
exist. Upon satisfaction of Debtor's obligations hereunder and all of the other
Debt Documents, Secured Party will, at Debtor's expense, execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence the
termination of the security interest hereunder and the release of the
Collateral. This Agreement shall automatically be reinstated if Secured Party is
ever required to return or restore the payment of all or any portion of the
Indebtedness (all as though such payment had never been made).

         (g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE

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CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE
EQUIPMENT.

         IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally
bound hereby, have duly executed this Agreement in one or more counterparts,
each of which shall be deemed to be an original, as of the day and year first
aforesaid.

SECURED PARTY:                            DEBTOR:

GENERAL ELECTRIC CAPITAL CORPORATION      ANADYS PHARMACEUTICALS, INC.

By:__________________________________     By:__________________________________

Name:________________________________     Name:_________________________________

Title:_______________________________     Title:________________________________

<PAGE>

                                    AMENDMENT

                  THIS AMENDMENT is made as of the 17th day of June, 2003,
between General Electric Capital Corporation ("Secured Party") and Anadys
Pharmaceuticals, Inc. ("Debtor") in connection with that certain Master Security
Agreement, dated as of June 17, 2003 ("Agreement"). The terms of this Amendment
are hereby incorporated into the Agreement as though fully set forth therein.
Section references below refer to the section numbers of the Agreement. The
Agreement is hereby amended as follows:

                  5. REPORTS.

                  Subsection (b) is hereby amended with the following:

                  "(b) Debtor will deliver to Secured Party financial statements
                  as follows. If Debtor is a privately held company, then Debtor
                  agrees to provide monthly financial statements, certified by
                  Debtor's president or chief financial officer including a
                  balance sheet, statement of operations and cash flow statement
                  within 30 days of each month end and its complete audited
                  annual financial statements, certified by a recognized firm of
                  certified public accountants, within 120 days of fiscal year
                  end or at such time as Debtor's Board of Directors receives
                  the audit. If Debtor is a publicly held company, then Debtor
                  agrees to provide quarterly unaudited statements and annual
                  audited statements, certified by a recognized firm of
                  certified public accountants, within 10 days after the
                  statements are provided to the Securities and Exchange
                  Commission ("SEC"). All such statements are to be prepared
                  using generally accepted accounting principles ("GAAP") and,
                  if Debtor is a publicly held company, are to be in compliance
                  with SEC requirements."

                  7. DEFAULT AND REMEDIES.

                  Subsection (a) is hereby amended with the following:

                  "(a)     Debtor shall be in default under this Agreement and
         each of the other Debt Documents if:

                  (i) Debtor breaches its obligation to pay when due any
                  installment or other amount due or coming due under any of the
                  Debt Documents within ten (10) days after the same becomes due
                  and payable;

                  (ii) Debtor, without the prior written consent of Secured
                  Party, attempts to or does sell, rent, lease, license,
                  mortgage, grant a security interest in, or otherwise transfer
                  or encumber (except for Permitted Liens) any of the
                  Collateral, however Debtor will not be considered in default
                  if it replaces equipment with a value up to $5,000 in any
                  given year without the written consent of Secured Party;

                  (iii) Debtor breaches any of its insurance obligations under
                  Section 4;

                  (iv) Debtor breaches any of its other obligations under any of
                  the Debt Documents and fails to cure that breach within thirty
                  (30) days after written notice from Secured Party;

<PAGE>

                  (v) Any warranty, representation or statement made by Debtor
                  in any of the Debt Documents or otherwise in connection with
                  any of the Indebtedness shall be false or misleading in any
                  material respect when made;

                  (vi) Any of the Collateral is subjected to attachment,
                  execution, levy, seizure or confiscation in any legal
                  proceeding or otherwise and the same shall remain unsatisfied,
                  unvacated or unstayed pending appeal for a period of 60 days
                  after the occurrence thereof, or if any legal or
                  administrative proceeding is commenced against Debtor or any
                  of the Collateral, which in the good faith judgment of Secured
                  Party subjects any of the Collateral to a material risk of
                  attachment, execution, levy, seizure or confiscation and no
                  bond is posted or protective order obtained to negate such
                  risk;

                  (vii) Debtor breaches or is in default under any other
                  agreement between Debtor and Secured Party beyond the period
                  of grace, if any, provided therein unless such default has
                  been waived;

                  (viii) Debtor or any guarantor or other obligor for any of the
                  Indebtedness (collectively "GUARANTOR") dissolves, terminates
                  its existence, becomes insolvent or ceases to do business as a
                  going concern;

                  (ix) A receiver is appointed for all or of any part of the
                  property of Debtor or any Guarantor, or Debtor or any
                  Guarantor makes any assignment for the benefit of creditors;

                  (x) Debtor or any Guarantor files a petition under any
                  bankruptcy, insolvency or similar law, or any such petition is
                  filed against Debtor or any Guarantor and is not dismissed
                  within sixty (60) days;

                  (xi) Debtor's improper filing of an amendment or termination
                  statement relating to a filed financing statement describing
                  the Collateral; or

                  (xii) Debtor defaults under any other material obligation for
                  (A) borrowed money, (B) the deferred purchase price of
                  property or (C) payments due under any lease agreement after
                  giving effect to any grace period.

                  (xiii) At any time during the term of this Agreement Debtor
                  sells more than 50% of its interest in the company to another
                  corporation or business or all or substantially all of its
                  assets (other than the sale by Debtor of Debtor's equity
                  securities in a public offering or to venture capital or
                  strategic investors) without Secured Party's prior written
                  consent

                  (xiv) There is a material adverse change in the Debtor's
                  financial condition; provided, however, that for purposes of
                  determining whether there shall have been any such material
                  adverse change, Secured Party must have notified Debtor, in
                  writing, of the alleged material adverse change and given
                  Debtor a reasonable opportunity to find a mutually agreeable
                  and beneficial solution through discussions and
                  re-negotiations with Secured Party so as to avoid the trigger
                  of this Section 7, and Debtor must have refused to engage in
                  discussions with Secured Party in good faith."

                  TERMS USED, BUT NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE
MEANINGS GIVEN TO THEM IN THE AGREEMENT. EXCEPT AS EXPRESSLY AMENDED HEREBY, THE
AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT. IF THERE IS ANY CONFLICT
BETWEEN THE PROVISIONS OF THE AGREEMENT AND THIS AMENDMENT, THEN THIS AMENDMENT
SHALL CONTROL.

<PAGE>

       IN WITNESS WHEREOF, the parties hereto have executed this Amendment
simultaneously with the Agreement by signature of their respective authorized
representative set forth below.

GENERAL ELECTRIC CAPITAL CORPORATION     ANADYS PHARMACEUTICALS, INC.

By: _________________________________    By: ___________________________________

Name:________________________________    Name:__________________________________

Title:_______________________________    Title:_________________________________

<PAGE>

                                 PROMISSORY NOTE

                           _________________________
                                     (DATE)

FOR VALUE RECEIVED Anadys Pharmaceuticals, Inc., a Delaware Corporation located
at the address stated below ("MAKER") promises, jointly and severally if more
than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any
subsequent holder hereof (each, a "PAYEE") at its office located at 401 MERRITT
7 SUITE 23, NORWALK, CT 06851-1177 or at such other place as Payee or the holder
hereof may designate, the principal sum of FIFTY THOUSAND EIGHT HUNDRED EIGHTY
EIGHT--22/00DOLLARS ($50,888.22), with interest on the unpaid principal balance,
from the date hereof through and including the dates of payment, at a fixed
interest rate of ________________ (__% ) per annum, to be paid in lawful money
of the United States, in forty-two (42) consecutive monthly installments of
principal and interest as follows:

<TABLE>
<CAPTION>
 Periodic
Installment               Amount
--------------------------------
<S>                       <C>
Thirty Six (36)           $
One  (1)                  $
Five (5)                  $
</TABLE>

each ("Periodic Installment") and a final installment which shall be in the
amount of ____________Dollars ($____), plus any outstanding principal and
interest. The first Periodic Installment shall be due and payable on (the first
of following month) and the following Periodic Installments and the final
installment shall be due and payable on the same day of each succeeding month
(each, a "Payment Date"). Such installments have been calculated on the basis of
a 360 day year of twelve 30-day months. Each payment may, at the option of the
Payee, be calculated and applied on an assumption that such payment would be
made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.

The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.

This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "SECURITY
AGREEMENT").

Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) a default has occurred and
is continuing under Section 7(a) of the Security Agreement, then the entire
principal sum remaining unpaid, together with all accrued interest thereon and
any other sum payable under this Note or any Security Agreement, at the election
of Payee, shall immediately become due and payable, with interest thereon at the
lesser of eighteen percent (18%) per annum or the highest rate not prohibited by
applicable law from the date of such accelerated maturity until paid (both
before and after any judgment).

The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of the entire indebtedness plus an additional sum as a premium
equal to the following percentages of the remaining principal balance for the
indicated period:
Prior to the first annual anniversary date of this Note: Six percent (6%)
Thereafter and prior to the second annual anniversary date of this Note: Three
percent (3%)
Thereafter and prior to the third annual anniversary date of this
Note: One percent (1%) and zero percent (0%) thereafter, plus all other sums due
hereunder or under any Security Agreement.

It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the

<PAGE>

provisions of this paragraph shall govern and control, (b) neither Maker nor any
other person or entity now or hereafter liable for the payment hereof shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount of interest permitted by applicable law, (c) any such
excess which may have been collected shall be either applied as a credit against
the then unpaid principal balance or refunded to Maker, at the option of the
Payee, and (d) the effective rate of interest shall be automatically reduced to
the maximum lawful contract rate allowed under applicable law as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Note or any Security
Agreement which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent permitted
by applicable law, by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of the indebtedness evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by Payee in connection with such indebtedness; provided, however,
that if any applicable state law is amended or the law of the United States of
America preempts any applicable state law, so that it becomes lawful for the
Payee to receive a greater interest per annum rate than is presently allowed,
the Maker agrees that, on the effective date of such amendment or preemption, as
the case may be, the lawful maximum hereunder shall be increased to the maximum
interest per annum rate allowed by the amended state law or the law of the
United States of America.

The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "OBLIGOR") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual reasonable
attorneys' fees.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.

<PAGE>

Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.

                                              ANADYS PHARMACEUTICALS, INC.

__________________________________            By:  _____________________________
(Witness)
__________________________________            Name: ____________________________
(Print name)
__________________________________            Title:  __________________________
(Address)
                                              Federal Tax ID #:_________________

                                              Address: 9050 Camino Santa Fe,
                                                       San Diego, CA 92121