<PAGE>

                                                                   EXHIBIT 10.17
September 2, 2004

Dennis Podlesak
95 Ludlowe Road
New Canaan, CT 06840

RE: EMPLOYMENT TERMS

Dear Dennis:

      Peninsula Pharmaceuticals, Inc. (the "Company") is pleased to offer you
the position as President and Chief Executive Officer of the Company, on the
following terms.

      You will have the duties and authority ordinarily associated with the
position of chief executive officer, and such other duties and responsibilities
as the Board of Directors of the Company (the "Board") may assign to you from
time to time. You will report to the Board. You will work at our facility
located at 1751 Harbor Bay Parkway, Alameda, California.

      Your base salary will be $29,166.67 per month (an annual rate of
$350,000), less payroll deductions and all required withholdings, which salary
will be paid semi-monthly. So long as you remain employed by the Company through
the end of the applicable fiscal year, you will also be eligible for an annual
discretionary merit bonus of up to 43% of base salary, or more in the discretion
of the Board. The amount of your bonus, if any, will be based on objectives
mutually agreed upon by you and the Board, and determined within the discretion
of the Board, except that you will be entitled to receive bonuses (prorated for
the applicable calendar years) in the aggregate of $150,000 for the twelve (12)
month period following your commencement of employment (with such bonuses paid
according to the Company's usual merit bonus schedule and provided that you
remain employed through the end of such twelve (12) month period). You will be
eligible for the following standard Company benefits: medical insurance,
vacation, sick leave, and holidays. Details about these benefit plans are
available for your review. The Company may change compensation and benefits from
time to time as it deems necessary. In recognition of your vacation benefits in
prior positions, you will be entitled in any event to five (5) weeks vacation
eligibility annually.

      Effective upon an approved resolution by the Company's Board of Directors
(the "Board"), and pursuant to the Company's Amended and Restated 2001 Equity
Incentive Plan (the "Plan"), the Company shall grant you an option to purchase
791,434 shares of the Company's common stock (equivalent to 4% of the issued and
outstanding shares and outstanding options, warrants and other equity rights,
including this option grant, referred to herein as "the 4% Level") at the fair
market value as determined by the Board as of the date of grant (the "Option").
The fair market value of the Company's common stock, as last determined by the
Board on July 29, 2004, was $4.00 per share. The Company will use best efforts
to obtain such approval of the Board as soon as practicable following your
acceptance of the offer of employment with the Company set forth in this letter
agreement. The Option will be subject to the terms and conditions of the Plan
and your grant agreement. Your grant agreement will

                                       1
<PAGE>

include a four year vesting schedule, under which twenty-five percent (25%) of
your shares will vest after twelve months of employment, with the remaining
shares vesting ratably on a monthly basis thereafter, until either the Option is
fully vested or your employment ends, whichever occurs first. The Company will
file an S-8 covering resale of option shares promptly after any IPO and use
reasonable efforts to make and keep it effective. Your Option grant will include
cashless exercise and early exercise provisions consistent with the Plan, and
will consist of Incentive Stock Options to the maximum extent permitted by law.
It will also include a vesting acceleration provision, consistent with the
Company's standard Executive Change of Control Agreement (which you and the
Company shall execute), that will fully vest your Option in the event that, at
any time following a Change of Control of the Company, either your employment is
terminated without cause or you are constructively terminated (as such terms are
defined in the Company's Executive Change of Control Agreement). In the event
that both this Agreement and the Executive Change of Control Agreement are
applicable in a specific circumstance, you will be entitled to receive the
benefit of the more favorable of the two agreements, but you will not be
entitled to receive duplicative benefits (e.g., two separate vesting
accelerations or two additive cash severance benefits).

      Your Option grant will be subject to anti-dilution protection to the
following extent, in addition to any applicable anti-dilution provisions of the
Plan. In the event that the Company completes a Series D financing and/or an
initial public offering ("IPO"), the Company will grant you, upon each closing
of such a transaction, additional options on the same terms (but excluding
further anti-dilution protection under this paragraph) to purchase shares of the
Company's common stock such that your total number of option shares (including
the original Option grant and such additional grant and both vested and unvested
option shares) shall equal the 4% Level, provided that the Series D financing
and/or IPO will have closed on or before June 1, 2005.

      You will receive a relocation benefit for your move from Connecticut to
the San Francisco Bay Area to cover expenses relating to your relocation, such
as real estate agent fees and commissions, moving expenses, closing costs and
expenses on your new house, such relocation benefit to be payable in two
payments of $125,000 each (the "Relocation Payments"), the first to be made upon
the closing of the sale of your current residence, and the second to be made
upon the closing of your purchase of a residence in the Bay Area after
commencing employment. In the event that you are terminated for cause or you
resign voluntarily within the twelve (12) month period after your receipt of the
last portion of the Relocation Payment (the "Post-Relocation Payment Period"),
you shall be obligated to immediately repay a prorated portion of the Relocation
Payment to the Company, which shall be prorated depending upon the number of
full months of employment with the Company that you have completed upon the
termination of your employment out of the total of twelve (12) months in the
Post-Relocation Payment Period. The Company agrees that, if the Relocation
Payment is treated as taxable income to you, then the Company will pay you an
amount (the "Tax Reimbursement Payment") equal to the additional taxes (federal
and state) you incur in respect of such Relocation Payment, upon your providing
written evidence satisfactory to the Company of the amount of such additional
taxes incurred; however, to the extent any of the costs and expenses related to
your relocation (such as the fees and commissions of real estate agents) may be
tax deductible or otherwise reduce the amount of taxes you owe in connection
with your relocation, you will use good faith diligent efforts to obtain the
benefits of such reduction of your taxes, and any such amounts that reduce the
taxes that you incur shall be subtracted from the total amount of the

                                       2
<PAGE>

Relocation Payment for the purposes of calculating the amount of the Tax
Reimbursement Payment. Notwithstanding the foregoing, the Tax Reimbursement
Payment itself shall not be increased on account of the fact that it is
includible in your taxable income. Further, the Company will pay you $3,500 per
month for up to nine (9) months of temporary housing assistance, commencing as
of the date of your employment and ending at such time as you close on the
purchase of a new house, or nine (9) months after your employment date,
whichever occurs first.

      As a Company employee, you will be expected to abide by Company policies
and procedures as they may be adopted or modified from time to time, and to
read, sign and comply with the Company's Proprietary Information and Inventions
Agreement.

      In your work for the Company, you will be expected not to make
unauthorized use or disclosure of any proprietary or confidential information of
any former employer or other third party. Rather, you will be expected to use
only that information generally known and used by persons with training and
experience comparable to your own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company or by you on behalf of the Company. You agree that you
will not bring onto Company premises or use in your work for the Company, any
unpublished documents or property belonging to any former employer or other
third party that you are not authorized to use and disclose. By accepting
employment with the Company, you are representing that you will be able to
perform your job duties within these guidelines.

      Normal working hours are from 9:00 a.m. to 5:00 p.m., Monday through
Friday. As an exempt salaried employee, you will be expected to work additional
hours as required by the nature of your work assignments.

      Your employment relationship is at will. You may terminate your employment
with the Company at any time and for any reason whatsoever simply by notifying
the Company. Likewise, the Company may terminate your employment at any time and
for any reason whatsoever, with or without cause or advance notice. As required
by law, this offer is subject to satisfactory proof of your right to work in the
United States.

      In the event that the Company terminates your employment without cause,
including constructive termination (as defined in the Company's standard
Executive Change of Control Agreement), you shall be entitled to severance in
the form of continuation of your base salary (subject to standard withholdings
and deductions) for twelve (12) months after termination plus a pro rata share
of the annual bonus you would otherwise have received for the current year
(based on days in such year preceding and following the effective date of
termination), provided that you execute a general release of claims against the
Company and all of its affiliated entities and their officers, directors,
employees, members, and partners, in a form satisfactory to the Company, and
provided that if such termination occurs following a Change in Control, you
shall be entitled to the full annual bonus you would otherwise have received for
the current year, without proration. For the purposes of this Agreement (except
with respect to the Change of Control provision as described above), "cause"
shall mean: (a) conviction of a felony or any crime involving moral turpitude;
(b) participation in any fraud or act of dishonesty against the Company; (c)
willful and persistent neglect of your job duties; (d) your material breach of
any

                                       3
<PAGE>

agreement entered into between you and the Company (including but not limited to
this letter Agreement and the Proprietary Information and Inventions Agreement);
or (e) conduct which demonstrates gross unfitness to serve.

      The Company has not yet entered into an indemnification agreement with any
executive officer or director. Not later than the occurrence of the earlier of
(i) the consummation of an IPO, or (ii) the Company's entry into an
indemnification agreement with any other executive officer or director, the
Company will enter into an indemnification agreement with you in the form of the
Indemnity Agreement attached as an exhibit to the Company's currently pending
Registration Statement on Form S-1.

      To ensure the rapid and economical resolution of disputes that may arise
in connection with your employment, you and the Company agree that any and all
disputes, claims, or causes of action, in law or equity, arising from or
relating to the enforcement, breach, performance, or interpretation of this
Agreement, your employment, or the termination of your employment, shall be
resolved, to the fullest extent permitted by law, by final, binding and
confidential arbitration in San Francisco, California conducted before a single
arbitrator by Judicial Arbitration and Mediation Services, Inc. ("JAMS") or its
successor, under the then applicable JAMS rules. By agreeing to this arbitration
procedure, both you and the Company waive the right to resolve any such dispute
through a trial by jury or judge or by administrative proceeding. The arbitrator
shall: (a) have the authority to compel adequate discovery for the resolution of
the dispute and to award such relief as would otherwise be permitted by law; and
(b) issue a written arbitration decision including the arbitrator's essential
findings and conclusions and a statement of the award. The Company shall pay all
JAMS' arbitration fees. Nothing in this letter agreement shall prevent either
you or the Company from obtaining injunctive relief in court if necessary to
prevent irreparable harm pending the conclusion of any arbitration.

      This letter, together with your Proprietary Information and Inventions
Agreement and the Executive Change of Control Agreement forms the complete and
exclusive statement of your employment agreement with the Company. The terms in
this letter supersede any other agreements or promises made to you by anyone,
whether oral or written. This letter agreement cannot be changed except in a
written agreement signed by you and a duly authorized officer of the Company.
For the purposes of construing this Agreement, any ambiguity shall not be
construed against either party as the drafter. This Agreement shall be governed
by California law, without regard to conflicts of laws principles.

      If you wish to accept employment at Peninsula Pharmaceuticals, Inc. under
the terms described above, please sign and date this letter, and return it to me
by September 3, 2004.

                                       4
<PAGE>


We look forward to your favorable reply and to a productive and enjoyable work
relationship.

Sincerely,

/s/ Eckard Weber
-------------------------
Eckard Weber, M.D.
Chairman of the Board

UNDERSTOOD AND AGREED:

/s/ Dennis Podlesak                             September 2, 2004
-------------------------                       -----------------
DENNIS PODLESAK                                       Date

Attachments: Proprietary Information and Inventions Agreement
             Change of Control Agreement