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                                                                   EXHIBIT 10.18

                              *** 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.

                        RESEARCH COLLABORATION AGREEMENT

THIS RESEARCH COLLABORATION AGREEMENT ("AGREEMENT") is made effective as of June
7, 2002 ("EFFECTIVE DATE") by and between ANADYS PHARMACEUTICALS, INC., a
Delaware corporation ("ANADYS"), with its principal place of business at 9050
Camino Santa Fe, San Diego, CA 92121, USA, and GILEAD SCIENCES, INC., a Delaware
corporation ("GILEAD"), with its principal place of business at 333 Lakeside
Drive, Foster City, California 94404, USA. Anadys and Gilead are sometimes
referred to in this Agreement individually as a "PARTY" and collectively as the
"PARTIES".

                                    RECITALS

         A. Anadys has certain proprietary technology known or referred to as
ATLAS(TM) (Any Target Ligand Affinity Screen) ("ATLAS"), which can be used for
high-throughput screening for protein targets of both known or unknown function
to rapidly identify compounds that bind to protein targets.

         B. Gilead desires to identify small molecule compounds active against a
specific target for all commercial indications and uses.

         C. The Parties desire to utilize ATLAS for the specified target using
one of Gilead's proprietary small molecule compound libraries to identify
potential lead compounds for further research and optimization to generate
compounds for potential preclinical and clinical development by Gilead.

         D. The Parties desire that Gilead should obtain exclusive worldwide
rights to compounds active against the Target identified in this collaboration
in exchange for certain milestone payments and royalties payable to Anadys.

         In consideration of the foregoing recitals and the covenants contained
herein, Anadys and Gilead hereby agree as follows:

                                    AGREEMENT

         1.       DEFINITIONS

                  (a)      "AFFILIATE" means, with respect to a Party, an entity
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Party.

                  (b)      "ASSAY TECHNOLOGY" means all inventions, discoveries,
works of authorship, trade secrets and other know-how or developments, including
observations, conclusions, hypotheses, identifications, data and other
information, and all intellectual property rights (including co-invented or
sole-invented patent rights) appurtenant thereto, that are made, conceived,
reduced to practice, authored, or otherwise generated or obtained directly or
indirectly by one or both Parties in whole or in part in the course of
performance of the Work Plan that are modifications or improvements of screening
assay technology, including assay design, development, validation,
implementation, application, and performance, that are

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generally useful for screening assays without respect to a particular target,
compound, or set of compounds, but expressly excluding ATLAS Technology.

                  (c)      "ATLAS" shall have the meaning given such term in the
first Recital.

                  (d)      "ATLAS TECHNOLOGY" means all inventions, discoveries,
works of authorship, trade secrets and other know-how or developments, including
observations, conclusions, hypotheses, identifications, data and other
information, and all intellectual property rights (including co-invented or
sole-invented patent rights) appurtenant thereto, that are made, conceived,
reduced to practice, authored, or otherwise generated or obtained directly or
indirectly by one or both Parties in whole or in part in the course of
performance of the Work Plan that are modifications or improvements of ATLAS
screening technology (which may include those relating to ATLAS design,
implementation or application) not generally useful for other screening
technologies.

                  (e)      "COMMERCIALLY REASONABLE EFFORTS" shall have the
meaning given such term in Section 3(e)(i).

                  (f)      "CONFIDENTIAL INFORMATION" means, subject to the
limitations set forth in Section 6(b), all proprietary or confidential
information, data, know-how, results, trade secrets, techniques, inventions,
ideas, process, formulas, drawings, or diagrams disclosed by one Party to the
other Party in the course of negotiating or performing under this Agreement,
whether or not marked or identified as confidential or proprietary, and
including all "Confidential Information" as defined in and exchanged pursuant to
the Confidentiality and Non-Disclosure Agreement dated as of December 5, 2001 by
and between the Parties. Notwithstanding any other provision of this Section
1(f), Research Results shall be deemed to be Confidential Information of Gilead.

                  (g)      "CONTROL", "CONTROLS" and "CONTROLLED" mean, with
respect to a particular item of information or intellectual property right, that
the applicable Party owns or has a license to such item or right and has the
ability to grant to the other Party access to and a license or sublicense (as
applicable) under such item or rights as provided for herein without violating
the terms of any agreement or other arrangement with any Third Party existing as
of the Effective Date.

                  (h)      "FIRST COMMERCIAL SALE" means, with respect to a
particular Licensed Product, the first commercial sale of such Licensed Product
in either the United States or a member state of the European Union by Gilead,
or any of its Affiliates or sublicensees, after Regulatory Approval for the
Indication has been granted in such country for such Licensed Product.

                  (i)      "FTE" means an annualized full-time employee or
equivalent, working no less than [...***...] person hours per year.

                  (j)      "HIT COMPOUND" means a Library Compound that in a
Target Assay yields results that meet the Target Assay Criteria, but excluding
any Library Compound that Gilead can document as previously having been shown to
have potential activity against Target.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

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                  (k)      "INDICATION" means any use for diagnosis,
prophylaxis, mitigation or treatment of [...***...] or, on the basis of activity
against [...***...] or [...***...]-like activity, of any other virus in humans.

                  (l)      "INITIATION DATE" means the date on which Gilead
completes provision to Anadys of the specified quantities of Target and Library
Compounds pursuant to Section 2(c)(i), which date the Parties expect to be on or
about August 1, 2002.

                  (m)      "JOINT RESEARCH COMMITTEE" or "JRC" shall have the
meaning given such term in Section 2(b)(i).

                  (n)      "LEAD COMPOUND" means a Hit Compound or a derivative
of a Hit Compound generated by the introduction of one or more structural
changes into a Hit Compound that is designated by Gilead pursuant to Section
3(b) as a "Lead Compound".

                  (o)      "LIBRARY COMPOUNDS" means the approximately
[...***...] small molecule compounds represented in Gilead's proprietary
compound library.

                  (p)      "LICENSED COMPOUND" means any Lead Compound for which
Gilead, any of its Affiliates, licensees or corporate partners conducts
preclinical or clinical development or commercialization activities for the
Indication.

                  (q)      "LICENSED PRODUCT" means any pharmaceutical
composition of a Licensed Compound.

                  (r)      "NET SALES" means the gross billings for the sale to
a Third Party of Licensed Product in finished product form made by Gilead, its
Affiliates or sublicensees, as applicable, less the following deductions:

                           (i)      amounts repaid or credited by reason of
timely rejections or returns;

                           (ii)     taxes, excises or other governmental charges
(other than income taxes) upon or measured by the production, sale,
transportation, delivery or use of goods;

                           (iii)    transportation and delivery charges actually
incurred, including shipping insurance; and

                           (iv)     normal and customary trade, cash and
quantity discounts and allowances granted to Third Parties, including mandatory
rebates to governmental agencies, but expressly excluding discounts or
allowances offered as part of a package of Licensed Products and other products
sold by Gilead, its Affiliates or sublicensees.

Notwithstanding anything else in this Section 1(r), amounts received by Gilead
or its Affiliates or sublicensees for the sale of Licensed Products among Gilead
and its Affiliates or sublicensees for resale shall not be included in the
computation of Net Sales hereunder.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

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                  (s)      "PATENT" means (i) unexpired letters patent
(including inventor's certificates) that have not been held invalid or
unenforceable by a court of competent jurisdiction from which no appeal can be
taken or has been taken within the required time period, including any
substitution, extension, registration, confirmation, reissue, re-examination,
renewal or any like filing thereof and (ii) pending applications for letters
patent, including without limitation any provisional, converted provisional,
continued prosecution application, continuation, divisional or
continuation-in-part thereof.

                  (t)      "REGULATORY APPROVAL" means all governmental
approvals (including pricing and reimbursement approvals), product and/or
establishment licenses, registrations or authorizations necessary for the
manufacture, use, storage, import, export, transport and sale of a Licensed
Product in a jurisdiction.

                  (u)      "RESEARCH RESULTS" means all inventions, discoveries,
works of authorship, trade secrets and other know-how or developments, including
observations, conclusions, hypotheses, identifications, data and other
information, and all intellectual property rights (including co-invented or
sole-invented patent rights) appurtenant thereto, that are made, conceived,
reduced to practice, authored, or otherwise generated or obtained directly or
indirectly by one or both Parties in whole or in part in the course of
performance of this Agreement, excluding Assay Technology and ATLAS Technology.

                  (v)      "RESEARCH TERM" means the period commencing as of the
Initiation Date and ending six (6) months thereafter or at such later time as
the Parties may agree in a writing signed by their duly authorized
representatives, which may be the end date of a Research Term Extension.

                  (w)      "RESEARCH TERM EXTENSION" shall have the meaning
given such term in Section 2(e).

                  (x)      "ROYALTY TERM" shall have the meaning given such term
in Section 5(e)(ii).

                  (y)      "START OF PHASE I CLINICAL TRIALS" means the first
dosing of a patient in a trial, that either is on, or is the first of multiple
trials that collectively will be on, sufficient numbers of normal volunteers and
patients that are designed to establish that a pharmaceutical product is safe
for its intended use, and to support its continued testing in Phase II Clinical
Trials.

                  (z)      "START OF PHASE II CLINICAL TRIALS" means first
dosing of a patient in a trial, that either is on, or is the first of multiple
trials that collectively will be on, sufficient numbers of patients that are
designed to establish the safety, dosage and biological activity of a
pharmaceutical product for its intended use, and to define warnings, precautions
and adverse reactions that are associated with the pharmaceutical product in the
dosage range to be prescribed.

                  (aa)     "START OF PHASE III CLINICAL TRIALS" means first
dosing of a patient in a trial or the first of multiple trials, initiated after
completion of a Phase II Clinical Trial and after such date as the U.S. Food and
Drug Administration (or equivalent regulatory agency in another

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jurisdiction) has indicated that the Party conducting the trial may reasonably
continue such trials, which trial or trials shall be on sufficient numbers of
patients to establish that a pharmaceutical product is safe and efficacious for
its intended use, and to define warnings, precautions and adverse reactions that
are associated with the pharmaceutical product in the dosage range to be
prescribed, and to support Regulatory Approval of such pharmaceutical product or
label expansion of such pharmaceutical product.

                  (bb)     "TARGET" means [...***...], whether in
[...***...],[...***...] or other [...***...] form, and whether or not bound or
associated with [...***...].

                  (cc)     "TARGET ASSAYS" means the assays for use with ATLAS
for the Target that Anadys develops under the Work Plan as described in Section
2(c)(i).

                  (dd)     "TARGET ASSAY CRITERIA" means, as established by the
JRC pursuant to Section 2(c)(i), the minimum or qualitative results from a
Target Assay for a Library Compound that qualify such Library Compound as a Hit
Compound.

                  (ee)     "THIRD PARTY" means any person or entity other than
Gilead, Anadys, and their respective Affiliates.

                  (ff)     "WORK PLAN" means the work plan for the research
collaboration that the Parties have agreed to and exchanged pursuant to Section
2(a), as it may be amended pursuant to Section 2(a), and as it may be amended to
include a Work Plan Addendum pursuant to Section 2(e).

                  (gg)     "WORK PLAN ADDENDUM" shall have the meaning given
such term in Section 2(e).

         2.       RESEARCH COLLABORATION.

                  (a)      WORK PLAN AND GENERAL OBLIGATIONS. By a letter dated
as of the Effective Date, the Parties have exchanged the initial Work Plan,
which sets forth the specific activities that the Parties will undertake in
their research collaboration. Except as set forth in Section 2(e), the Work Plan
may be amended only with the approval of the JRC. Each Party will use diligent,
commercially reasonable efforts to carry out the responsibilities assigned to it
under the Work Plan according to the schedule set forth therein. Neither Party
shall subcontract any of its obligations under the Work Plan to any Third Party
without the prior written consent of the other Party. Each Party will keep
complete and accurate written and other appropriate records of its work under
the Work Plan and of all results thereof.

                  (b)      JOINT RESEARCH COMMITTEE.

                           (i)      FORMATION. The Parties will establish as of
the Effective Date a Joint Research Committee comprised of three (3) members
from each Party ("JOINT RESEARCH COMMITTEE" or "JRC"), which members shall
initially be the persons set forth on Exhibit A. Gilead will designate one of
its members to act as chairperson of the JRC. A Party may designate substitutes
for its JRC members to participate if one or more of such Party's members cannot
attend a meeting. A Party may replace any of its JRC members by giving the other
Party written

                                             ***CONFIDENTIAL TREATMENT REQUESTED

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notice stating the member to be replaced and the replacement. The chairperson
will call meetings as scheduled in Section 2(b)(iii) or as requested by a
Party's members, prepare and circulate an agenda in advance of each meeting, and
prepare and issue minutes of each meeting within thirty (30) days thereafter.

                           (ii)     RESPONSIBILITIES. The JRC shall have overall
responsibility for (1) approving modifications to the Work Plan, including any
Work Plan Addendum under Section 2(e) and subject to Section 2(b)(iv), (2)
monitoring and coordinating communication regarding the Parties' efforts under
the Work Plan, (3) establishing what Target Assay results for Library Compounds
shall qualify a compound as a Hit Compound, (4) facilitating receipt of and
discussing information from Gilead as to Gilead's designation of Lead Compounds,
(5) discussing as required Anadys's capabilities for additional activities
pursuant to Section 2(c)(iii) and 2(e), (6) facilitating the resolution of
disputes that may arise with respect to the Work Plan and its conduct, and (7)
discussing and determining issues regarding Independent Compounds and
Independent Derivatives as set forth in Section 4(e). The rights and
responsibilities of each Party shall be governed by this Agreement, including
the Exhibits hereto. The role of the JRC shall be advisory except with respect
to items (1), (3) and (7) in this Section 2(b)(ii), and the JRC shall not have
any power to amend, modify or waive compliance with this Agreement.

                           (iii)    MEETINGS. The JRC will meet monthly during
the Research Term and thereafter once per calendar quarter, or as requested by a
Party's JRC members, until the earlier of 12 months after completion of the
Research Term or when Gilead notifies Anadys that it will not designate any more
Lead Compounds. The JRC will meet alternately at (i) Gilead's facilities in
Foster City, California, and (ii) Anadys's facilities in San Diego, California,
or at such locations as the Parties may otherwise agree. With the prior consent
of the other Party's JRC members, a Party may include other of its personnel or
consultants in JRC meetings as nonvoting participants. JRC meetings may be held
by audio or video teleconference with the consent of each Party. Each Party
shall be responsible for all of its own expenses of participating in the JRC. To
be effective, meetings of the JRC must have the presence or participation of at
least one (1) member of each Party. Meeting minutes will not be finalized until
one of the Anadys members reviews and confirms the accuracy of such minutes in
writing.

                           (iv)     DECISION-MAKING. The JRC will attempt in
good faith to make decisions by consensus with respect to any matters that
properly come before it. If the JRC cannot reach consensus as to a specific
matter within ten (10) business days, then (A) with respect to approval of Work
Plan modifications (subject to the last sentence in this Section 2(b)(iv)),
establishment of Target Assay Criteria, and determining issues regarding
Independent Compounds and Independent Derivatives as set forth in Section 4(e),
the JRC's final decision as to such matter shall be that of the Gilead JRC
members, (B) with respect to additional Anadys FTEs performing additional or
different activities pursuant to Section 2(e), such FTEs shall be added only
with the consent of both Parties, and (C) with respect to all other matters,
they shall be referred for dispute resolution pursuant to Section 11(a). No Work
Plan modification may be adopted without the consent of the Anadys JRC members
if such modification would materially increase the labor or monetary or other
resources that Anadys would provide for performance of the Work Plan or would
otherwise materially adversely affect Anadys.

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                  (c)      CONDUCT OF RESEARCH COLLABORATION.

                           (i)      On or about August 1, 2002, Gilead will, at
its own expense, supply to Anadys the quantities of the Target set forth in the
Work Plan and the Library Compounds, as selected by Gilead. Anadys will
diligently use its screen development and assay validation capabilities to
develop two (2) validated screening assays for use with ATLAS for the Target
(each, a "TARGET ASSAY") pursuant to the Work Plan. One Target Assay will be for
use with [...***...] and one Target Assay will be for use with no [...***...].
The Work Plan Sets forth guidance for other parameters and specifications for
the Target Assays. Anadys will provide Gilead with monthly oral or written
updates as to the progress of the Target Assay development, will consider in
good faith any guidance or comments that Gilead provides with respect to such
development, and, for any candidate Target Assay, will provide Gilead with a
report on such assay, including relevant testing and validation results,
sufficient for Gilead to evaluate such assay against the required parameters and
specifications and Anadys's description of the assay. Gilead shall have the
right to approve any candidate Target Assay, with such approval not to be
unreasonably withheld. If Gilead does not approve a candidate Target Assay, the
JRC will meet to determine in good faith what additional work, if any, must be
performed to qualify an assay as a Target Assay and shall amend the Work Plan to
include such additional work. Once Gilead has approved the Target Assays, the
JRC will determine the Target Assay Criteria for each Target Assay, according to
the guidelines set forth in the Work Plan. Based on the actual screening
results, the JRC may adjust the Target Assay Criteria so that an appropriate
number of Hit Compounds are generated from the screening.

                           (ii)     Anadys will use the Target Assays to conduct
screening of the Library Compounds provided by Gilead pursuant to 2(c)(i). Each
such compound that yields results in a Target Assay that meet the Target Assay
Criteria shall be deemed to be a "HIT COMPOUND". Anadys will provide Gilead with
monthly oral or written updates as to the progress of the screening and will
identify all Hit Compounds not previously identified to Gilead, and their
relevant Target Assay results, on a monthly basis. At the end of the screening
using a Target Assay, Anadys will provide Gilead with a written report including
results of the screening, including Target Assay results for all Library
Compounds.

                           (iii)    Anadys will devote [...***...] ([...***...])
FTEs ("ANADYS FTEs"), who shall have scientific, technical, and/or other
expertise appropriate to their responsibilities under the Work Plan, exclusively
to performance of Anadys's responsibilities under the Work Plan until the end of
the Research Term. The Anadys FTEs will be dedicated to the development of the
Target Assays pursuant to Section 2(c)(i) and to the use of ATLAS with the
Target Assays for screening of Library Compounds pursuant to Section 2(c)(ii),
provided, however, that if Anadys completes such responsibilities prior to the
end of the Research Term, the JRC shall, pursuant to Section 2(b)(iv), determine
additional activities relating to the Target Assay, Hit Compounds or Lead
Compounds for such Anadys FTEs to perform for the remainder of the Research
Term.

                  (d)      COSTS. Except for funding of [...***...]
([...***...]) or potentially more Anadys FTEs by Gilead pursuant to Section
5(a), each Party will bear its own costs and expenses for its activities under
the Work Plan, including without limitation materials, labor, equipment and
overhead costs.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

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                  (e)      ADDITIONAL ANADYS CAPABILITIES. Gilead shall have the
right to discuss with Anadys increasing the number of funded Anadys FTE(s)
dedicated to performance of activities under this Agreement pursuant to this
Section 2(e). At least thirty (30) days in advance of any such proposed
increase, Gilead may notify Anadys in writing of the number of FTEs that Gilead
would like to be added and the activities Gilead would like them to perform. The
JRC will discuss in good faith any such proposal and the exact timing for its
implementations. Upon approval by the JRC pursuant to Section 2(b)(iv) of the
exact number of Anadys FTEs to be added and the precise activities they will
perform, such agreed Work Plan modification shall be a "WORK PLAN ADDENDUM" and
part of the Work Plan, and Anadys will devote such additional FTEs to generate
additional compounds from Hit Compounds by chemical modification, to
characterize Hit Compounds or compounds generated from Hit Compounds by chemical
modification, including determination of full dose response curves if Gilead
deems it appropriate, or to perform other activities as agreed by the JRC. The
"RESEARCH TERM EXTENSION" means the period, if any, beyond the original Research
Term that will occur if Gilead requests such additional Anadys FTEs perform such
additional activities and shall commence as of the end of the Research Term and
end on the date that Anadys completes its responsibilities under the Work Plan
Addendum.

                  (f)      ADDITIONAL WORK WITH TARGET ASSAYS. After the
Research Term, Gilead shall have the right to request Anadys to conduct
reasonable amounts of additional ATLAS screening using the Target Assays on
terms and conditions substantially similar to those set forth in this Agreement.
If Gilead desires Anadys to perform such activities, it will so notify Anadys in
writing, and the Parties will negotiate in good faith within ninety (90) days a
commercially reasonable agreement under which Anadys would perform such
screening for appropriate compensation, reflecting the Parties' intent that (i)
the specific time of performance and levels of effort shall be set to
accommodate other commitments and priorities of Anadys, and (ii) because Gilead
has no right or access to ATLAS, Anadys shall use commercially reasonable
efforts to perform reasonable amounts of such screening for Gilead.

         3.       GILEAD RESEARCH AND PRECLINICAL AND CLINICAL DEVELOPMENT.

                  (a)      INVESTIGATION AND CHARACTERIZATION OF COMPOUNDS. Once
Anadys identifies Hit Compounds to Gilead, Gilead will be responsible for all
further evaluation, characterization and optimization of such Hit Compounds and
for the generation and designation of Lead Compounds, subject to the possibility
that Anadys may perform certain such activities pursuant to Section 2(e).
Activities included within Gilead's responsibility may include, as determined by
Gilead, undertaking enzymatic and antiviral assay evaluation of all Hit
Compounds, performing initial optimization and other chemical modification of
Hit Compounds in order to generate additional compounds for evaluation as
potential Lead Compounds, characterizing Hit Compounds or potential Lead
Compounds, and other research and investigation work with respect to any such
compound.

                  (b)      DESIGNATION OF LEAD COMPOUNDS. Gilead may, in its
sole discretion and acting in good faith, designate as Lead Compounds any Hit
Compound or any derivative of a Hit Compound generated by the introduction of
one or more structural changes into a Hit Compound, in either case (i) that is
identified on the basis of its activity with respect to the Target in either a
Target Assay or a Gilead proprietary assay for activity against or interaction

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with the Target, and (ii) for which Gilead intends to conduct preclinical or
clinical development or commercialization activities for the Indication. Once
Gilead designates a Lead Compound, it will promptly so notify Anadys and provide
Anadys with a designation for such Lead Compound for future reporting purposes.
Gilead may conduct such further research and optimization and other chemical
modification activities with respect to Lead Compounds, including revising its
list of Lead Compounds, at its sole discretion. Gilead will provide Anadys with
monthly written updates as to any revisions to the list of Lead Compounds.

                  (c)      PRECLINICAL AND CLINICAL DEVELOPMENT. After
designating a Lead Compound, Gilead shall be responsible, at its sole expense,
for all clinical development of Licensed Products worldwide, including the
conduct of any pre-clinical and clinical development of Licensed Products (which
shall be conducted using standard pharmaceutical industry practices) and making
all regulatory filings necessary to obtain Regulatory Approvals of Licensed
Products. Gilead may carry out such development in its sole discretion except as
provided in Sections 3(e) and 3(g).

                  (d)      COMMERCIALIZATION. Gilead shall be responsible, at
its sole expense, for all commercialization of Licensed Products in the
Territory beginning on the Effective Date and may carry out such efforts in its
sole discretion, except as provided in Sections 3(e) and 3(g).

                  (e)      DILIGENCE.

                           (i)      OBLIGATIONS. During the term of this
Agreement, Gilead will devote Commercially Reasonable Efforts with respect to at
least one Licensed Product to performing pre-clinical and clinical development,
obtaining Regulatory Approvals in the European Union and the United States, and
achieving a First Commercial Sale on a timely basis thereafter in those
countries of the European Union and the United States in which Regulatory
Approval is obtained. Efforts by Gilead's Affiliates, licensees or corporate
partners with respect to Licensed Products shall be considered to be efforts of
Gilead under this Section 3(e). "COMMERCIALLY REASONABLE EFFORTS" shall mean
that Gilead is performing its obligations in a sustained manner consistent with
the commercially reasonable efforts that pharmaceutical companies would
typically devote to products of similar market potential, profit potential or
strategic value, in view of conditions then prevailing and taking into account
that scientific, technical, regulatory or business considerations may make it
commercially reasonable to cease, delay or modify development, regulatory or
commercial activities for a product. Such efforts shall include the assignment
of appropriate personnel to develop and commercialize a Licensed Product, the
establishment of specific and meaningful goals regarding such development and
commercialization and the allocation of sufficient resources to achieve such
goals. Gilead's efforts with respect to countries other than the European Union
or the United States shall be determined in the sole discretion of Gilead.

                           (ii)     NON-DILIGENCE. If Anadys believes that
Gilead is failing to satisfy its diligence obligations pursuant to Section
3(e)(i), Anadys shall have the right to notify Gilead of this situation and have
a meeting with appropriate Gilead personnel within thirty (30) days of receipt
of such notice. At such meeting, the Parties will discuss any such potential
noncompliance and Gilead's future plans as to satisfying its obligations under
Section 3(e)(i). If Anadys is not satisfied with the outcome of such meeting, it
may request that Gilead submit a

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written plan setting out a specific, objectively reasonable written plan to
achieve Regulatory Approval and Commercial Launch for one or more Licensed
Products in the European Union and the United States consistent with
Commercially Reasonable Efforts, together with an undertaking to carry out such
plan. Such plan shall be subject to Anadys's written consent, such consent not
to be unreasonably withheld, conditioned or delayed. If Gilead fails to provide
or implement a remedial plan that is reasonably acceptable to Anadys as required
pursuant to this Section 3(e)(ii), then upon thirty (30) days written notice
given by Anadys to Gilead within thirty (30) days of such failure by Gilead, the
negative covenants of Anadys under Sections 4(c)(ii) and (iv) shall terminate;
such termination of such negative covenant shall be Anadys's sole remedy for
Gilead's noncompliance with its diligence obligations under this Section 3(e).

                           (iii)    CESSATION OF DEVELOPMENT AND
COMMERCIALIZATION. If Gilead makes a final determination that it will cease
direct development and commercialization of either (A) a particular Licensed
Product, or (B) all Lead Compounds, Licensed Compounds and Licensed Products, it
will so notify Anadys in writing within thirty (30) days of such determination.
Such information shall be Confidential Information of Gilead.

                           (iv)     FIRST RIGHT OF NEGOTIATION. Gilead grants
Anadys a right of first negotiation with respect to Lead Compounds and Licensed
Products solely as follows:

                                    (1)      If Gilead has made a final
determination to terminate all of its existing and planned programs to research,
develop and commercialize products based on Target activity, such right shall
apply to all Lead Compounds and Licensed Products, other than those, if any,
that Gilead is actively researching, developing and/or commercializing for
indications based on activities other than activity against the Target.

                                    (2)      If Gilead has made a determination
to attempt to out-license development and/or commercialization rights to a
particular Lead Compound or Licensed Product, then such right of first
negotiation shall apply to such particular Lead Compound or Licensed Product.

                                    (3)      Gilead will give Anadys written
notification within thirty (30) days of making a determination set forth in
Section 3(e)(iv)(1) or Section 3(e)(iv)(2). Within thirty (30) days after the
date Anadys receives any such notice as to a Lead Compound or Licensed Product,
Anadys will notify Gilead in writing (i) whether Anadys wishes to negotiate with
Gilead the terms upon which Gilead would grant Anadys the right to clinically
and regulatorily develop and/or commercialize such Lead Compound or Licensed
Product; and (ii) if so, the commercial terms that Anadys proposes for such
rights. Within thirty (30) days after the timely date of such a notice from
Anadys to Gilead, the Parties shall commence negotiations in good faith for an
agreement on commercially reasonable terms (which shall include appropriate
compensation to Gilead for its contributions to the research, clinical and
regulatory development, and commercialization of such Lead Compound or Licensed
Product) under which Gilead would grant such rights for such Lead Compound or
Licensed Product to Anadys. Such negotiation period shall last for at least
sixty (60) days unless such an agreement is reached earlier.

                                    (4)      With respect to any Lead Compound
or Licensed Product for which the Parties do not reach mutually agreeable terms
by the end of the sixty (60) day

                                       10
<PAGE>

negotiation period as set forth in Section 3(e)(iv)(3), Gilead shall be free to
grant to Third Parties license rights to develop and/or commercialize rights to
such Lead Compound or Licensed Product without the consent of Anadys, subject to
the following sentence. Prior to entering into a license agreement with a Third
Party, Gilead will identify to Anadys on a confidential basis the identity of
the intended Third Party licensee. If within fifteen (15) days of such
identification, Anadys does not confirm in writing to Gilead that it elects to
terminate its rights to receive milestones pursuant to Section 5(d) and
royalties pursuant to Section 5(e) in respect of Licensed Products, then such
payment obligations and the negative covenants of Anadys in Sections 4(c)(ii)
and (iv) shall survive until the last to expire Royalty Term for any Licensed
Products actually licensed to a Third Party. However, if Anadys confirms in
writing to Gilead within such fifteen (15) day period that it elects to
terminate such payment rights, such payment rights and the negative covenants of
Anadys pursuant to Sections 4(c)(ii) and (iv) shall terminate effective
immediately.

                  (f)      COMMUNICATIONS WITH ANADYS.

                           (i)      GENERAL REPORTS. Beginning with the first
anniversary of the Effective Date, on or before each anniversary of the
Effective Date, Gilead will submit to Anadys written reports summarizing the
status and progress of the clinical and regulatory development, marketing and
commercialization efforts for Licensed Products in sufficient detail so as to
allow Anadys to monitor Gilead's compliance with Section 3(e). Such reports
shall be deemed to be Confidential Information of Gilead.

                           (ii)     CLINICAL AND REGULATORY DEVELOPMENT. Gilead
shall own all regulatory filings for Licensed Products, including applications
for Regulatory Approval of Licensed Products, and be responsible for all
communications with all Regulatory Agencies in connection with those filings
that may be necessary to obtain Regulatory Approvals of Licensed Products.
Gilead will keep Anadys informed of material developments or events with respect
to preclinical, clinical and regulatory development of Licensed Products,
including without limitation promptly advising Anadys each time that it files an
IND or equivalent thereto for a Licensed Product, doses the first patient in a
clinical trial for a Licensed Product, files an application for Regulatory
Approval, or obtains Regulatory Approval of a Licensed Product anywhere in the
world.

                  (g)      COMPLIANCE WITH LAWS. Each Party shall carry out its
activities pursuant to this Agreement in compliance with all applicable
supranational, national, state, provincial and other local laws, rules,
regulations and guidelines.

         4.       LICENSES AND NEGATIVE COVENANTS.

                  (a)      RESEARCH LICENSES. Each Party hereby grants to the
other Party a nonexclusive, paid up license under all Patents and all other
intellectual property rights Controlled by the granting Party solely for purpose
of performance by the other Party of its responsibilities under the Work Plan in
accordance with this Agreement, which licenses shall terminate automatically at
the end of the Research Term.

                                       11

<PAGE>

                  (b)      RESEARCH RESULTS LICENSE. Gilead hereby grants to
Anadys a non-exclusive, perpetual, irrevocable, paid up, worldwide license to
use the Research Results only for (i) describing generally to Third Parties
results obtained with ATLAS with respect to [...***...] or antiviral targets,
without specific mention of the Target, the Target Assays, Gilead, Hit
Compounds, Lead Compounds OR Licensed Products, or the chemical structure
thereof, or of information that could reasonably permit a Third Party to deduce
the such information, and (ii) compiling information and data about the general
conduct, performance, characteristics and results of ATLAS screens without
regard to particular targets, provided that such information is blinded with
respect to the Target, Gilead, the Target Assays, Hit Compounds, Lead Compounds
or Licensed Products.

                  (c)      NEGATIVE COVENANTS. Subject to Section 9(d):

                           (i)      Anadys shall not use the quantities of
Target supplied by Gilead, the Library Compounds, or the Target Assays for any
purpose other than the conduct of the Work Plan in accordance with this
Agreement or additional screening of the Target on behalf of Gilead pursuant to
a separate agreement made under Section 2(f).

                           (ii)     For a period beginning on the Effective Date
and ending upon the expiration of the last to expire Royalty Term, Anadys shall
not develop or use assays for, or conduct compound screening utilizing ATLAS
for, or permit any Third Party to conduct any such activities with respect to,
the Target on its own behalf or for any Third Party.

                           (iii)    Anadys shall not use, permit the use by a
Third Party, or undertake or permit the undertaking of, any activity to
determine the structure or composition of, any Library Compound or any compound
created therefrom by chemical modification, unless it is required to do so under
a Work Plan, and shall not provide any use, structural or compositional
information with respect to any such compound to any Third Party.

                           (iv)     For a period beginning on the Effective Date
and ending upon the expiration of the last to expire Royalty Term, (1) Anadys
shall not on its own behalf or for any Third Party conduct any research,
preclinical development, clinical development or commercialization of any
compound that is identified through ATLAS using an assay for the Target, and (2)
Anadys shall not grant to any Third Party any license or other right to conduct
any research, preclinical development, clinical development or commercialization
of any compound that is identified through ATLAS using an assay for the Target.

                  (d)      NO IMPLIED LICENSES. Nothing in this Agreement shall
be deemed to grant either Party any license or other rights to practice any
intellectual property rights of other Party or such other Party's Confidential
Information, other information or other rights except as expressly stated in
this Section 4, including that nothing in this Agreement is intended to, or
shall, give Gilead any license or other right to practice ATLAS.

                  (e)      INDEPENDENT GILEAD ACTIVITIES.

                           (i)      Gilead has been, and before and after the
Initiation Date will be performing, independent screening of Library Compounds
for Target activity using assays owned or licensed to Gilead, and, as a result,
may independently identify certain Library

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       12
<PAGE>

Compounds as having activity against the Target ("INDEPENDENT COMPOUNDS").
Notwithstanding any other provision of this Agreement, no Independent Compound,
or any derivative thereof generated by introduction of one or more structural
changes to an Independent Compound ("INDEPENDENT DERIVATIVE"), shall be deemed
to be included within Hit Compounds, Lead Compounds or Licensed Compounds,
provided that (i) Gilead has established criteria for identification of
Independent Compounds in Gilead assays prior to receiving Research Results about
Hit Compounds from Anadys, and (ii) Gilead does not use any Research Results or
any other information about Hit Compounds provided by Anadys in the
identification of Independent Compounds.

                           (ii)     Anadys may bring before the JRC any
reasonable concerns that Anadys has with respect to designation of a particular
Library Compound or derivative thereof as an Independent Compound or Independent
Derivative, as opposed to Hit Compounds or derivatives thereof. The JRC will
discuss in good faith any such concerns and any records, information, or
documentation that Gilead, acting in good faith, agrees to share with Anadys.
The JRC will make a determination as to whether such Independent Compounds or
Independent Derivatives have been properly designated as such, consistent with
Section 2(b)(iv).

                           (iii)    If, after following the procedure in Section
4(e)(ii), Anadys disputes the conclusions of the JRC, then Anadys will so notify
Gilead in writing with respect to the particular Independent Compound or
Independent Derivative(s) at issue. Gilead will then notify Anadys in writing
within thirty (30) days of making a final determination to initiate clinical
development of a pharmaceutical composition incorporating such Independent
Compound or Independent Derivative. Each Party shall have the right to submit
the matter of the proper classification of such Independent Compound or
Independent Derivative to binding arbitration pursuant to this Section
4(e)(iii), within thirty (30) days of receipt of such notice by Anadys. Such
arbitration will be before an independent Third Party expert, with at least ten
(10) years relevant experience in the biotechnology or pharmaceutical industries
("ARBITRATOR"), selected either by mutual agreement of the Parties or, if such
agreement is not promptly reached, by two (2) independent Third Party experts of
similar qualifications, with one (1) selected by each Party. The binding
arbitration shall be held in California, in accordance with the Streamlined
Arbitration Rules and Procedures of JAMS, with the intent that such arbitration
be completed within 120 days of the initiation thereof. The arbitrator shall not
engage in ex parte communications, and the proceedings and submissions for such
arbitration shall be Confidential Information of both Parties and shall be kept
confidential by the Arbitrator. The determination of the Arbitrator shall be
final and binding upon the Parties. The expenses of the Arbitrator shall be
borne equally by the Parties, provided, however, that if one Party prevails with
respect to the classification of all Independent Compounds or Independent
Derivatives before the Arbitrator, such Party shall bear and be responsible for
all expenses and costs of the Arbitration, including reasonable attorneys' fees.

         5.       COMPENSATION.

                  (a)      RESEARCH FUNDING. Gilead will pay Anadys research
funding during the Research Term based on the number of FTEs at Anadys involved
in performing Anadys's responsibilities under the Work Plan, pursuant to
Sections 2(c)(iii) and 2(e). For each such FTE, Gilead will pay Anadys at an
annualized rate of $[...***...] per FTE per year. Gilead will pay

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       13
<PAGE>

such amounts to Anadys on a calendar quarter basis in advance, provided that the
first payment will not be due until on or before the Initiation Date, during the
Research Term, pursuant to an invoice from Anadys. If Anadys's commitment of
FTEs to performance of the Work Plan increases during a calendar quarter
pursuant to Section 2(e), Gilead will pay Anadys research funding for such
additional FTEs for the remainder of the quarter at the same annualize rate of
$[...***...] per FTE per year pursuant to an invoice from Anadys. If Anadys
completes its responsibilities under the Work Plan prior to the end of the
initial Research Term, but if the JRC cannot reach agreement under Section
2(c)(iii) as to additional responsibilities for Anadys under the Work Plan,
Gilead will not be obligated to fund the Anadys FTEs after completion of their
responsibilities in the Work Plan and Anadys shall promptly refund any amounts
paid by Gilead for such FTEs for periods occurring after completion of Anadys
responsibilities under the Work Plan.

                  (b)      TECHNOLOGY ACCESS FEE. Within ten (10) days of the
Initiation Date, Gilead will pay Anadys a one-time, non-refundable technology
access fee of [...***...] dollars ($[...***...]).

                  (c)      RESEARCH SUCCESS PAYMENTS. Gilead will pay to Anadys
up to two separate research success research payments of [...***...] dollars
($[...***...]) each. Each payment will be made for the generation of Target
Assay results for [...***...] Library Compounds using one of the Target Assays.
Gilead will make such payment to Anadys within thirty (30) days after Anadys
provides the final report pursuant to Section 2(c)(ii) for such Target Assay
containing results for at least [...***...] Library Compounds using such Target
Assay, pursuant to an invoice from Anadys. No research success payment shall be
payable more than once for a particular Target Assay, no matter how many times
achieved. Such milestone payments shall be nonrefundable.

                  (d)      PRODUCT MILESTONE PAYMENTS. Gilead will pay to Anadys
development and commercialization milestone payments as set forth in this
Section 5(d) within thirty (30) days after the first achievement of the
corresponding research milestone for a Licensed Product, pursuant to an invoice
from Anadys. No milestone payment shall be payable more than once, no matter how
many times achieved with respect to a Licensed Compound or a Licensed Product.
Such milestone payments shall be nonrefundable. For clarity, earlier milestones
may be first achieved with one Licensed Product, while subsequent milestones may
be first achieved with a different Licensed Product, in which case, the
milestone payment corresponding to each milestone event shall be payable only
once, when first achieved by any Licensed Product.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       14

<PAGE>

<TABLE>
<CAPTION>
                          MILESTONE EVENT                                 MILESTONE PAYMENT AMOUNT
----------------------------------------------------------------------    ------------------------
<S>                                                                       <C>
1. Start of Phase I Clinical Trials for the Indication with a                   $[...***...]
     Licensed Product

2. Start of Phase II Clinical Trials for the Indication with a                  $[...***...]
     Licensed Product

3. Start of Phase III Clinical Trials for the Indication with a                 $[...***...]
     Licensed Product

4. Issuance of the first Regulatory Approval for the Indication in the          $[...***...]
     US or the European Union for a Licensed Product
----------------------------------------------------------------------    ------------------------

          TOTAL                                                                 $[...***...]
</TABLE>

                  (e)      ROYALTIES. During each applicable Royalty Term (as
that term is defined below in Section 5(e)(ii)), Gilead will pay Anadys a
royalty payment equal to [...***...] percent ([...***...]%) of aggregated Net
Sales of for each Licensed Product sold by Gilead, its Affiliates or
sublicensees (the "ROYALTY"), subject to Section 5(e)(i).

                           (i)      ADJUSTMENT FOR PACKAGED PRODUCTS. In the
event a Licensed Product is sold as a package with other products (a "PACKAGED
PRODUCT"), then the Net Sales applicable to such sale of the Packaged Product
shall be the Net Sales determined on the basis of the pro rata share of the
Licensed Product's contribution to the fair market value of the Packaged
Product.

                           (ii)     ROYALTY TERM. "ROYALTY TERM" shall mean,
with respect to a Licensed Product, the period of time commencing on First
Commercial Sale of such Licensed Product and ending [...***...] ([...***...])
years after the date of the First Commercial Sale of such Licensed Product,
unless earlier terminated in accordance with Section 9(d). Upon expiration or
earlier termination of the Royalty Term for a Licensed Product, Gilead may
thereafter continue to sell such Licensed Product on a royalty-free basis.

                  (f)      PAYMENT; REPORT. All royalty amounts payable to
Anadys under this Agreement shall be paid in U.S. dollars within sixty (60) days
of the end of the calendar quarter in which the Net Sales giving rise to such
royalty were made or as otherwise specifically provided herein. Each payment of
royalty payments shall be accompanied by a statement of the amount of aggregate
worldwide gross sales, and, on a country by country basis, the amount of gross
sales, a calculation of Net Sales showing deductions provided for in Section
1(r) (in each case during such quarter and on a cumulative basis for the current
year) and the amount of royalty payments, including minimum royalty payments, or
other payments due on such sales.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       15
<PAGE>

                  (g)      EXCHANGE RATE; MANNER AND PLACE OF PAYMENT.

                           (i)      All payments due hereunder from time to time
shall be paid in U.S. Dollars. For purposes of computing such payments, the Net
Sales in countries other than the United States shall be converted into U.S.
Dollars as computed using Gilead's internal currency conversion systems using
the average monthly rate of exchange at the time for such currencies as the rate
applicable to the transfer of funds arising from payments as published in the
West Coast edition of the Wall Street Journal. The currency conversion system
used by Gilead shall be subject to audit by Anadys as described in Section 5(h).

                           (ii)     In any country where conversion of the local
currency is blocked and such currency cannot be removed from the country, Gilead
will pay Anadys in local currency by deposit in a local bank account designated
by Anadys.

                           (iii)    Any payments other than those specified in
Section 5(g)(ii) shall be payable to Anadys by wire transfer at such bank in the
United States as Anadys shall specify from time to time.

                  (h)      RECORDS AND AUDIT. Gilead will keep complete and
accurate records pertaining to the sale or other disposition of the Licensed
Product and of the royalty payments and other amounts payable under this
Agreement in sufficient detail to permit Anadys to confirm the accuracy of all
payments due hereunder. Anadys shall have the right to cause an independent,
certified public accountant to audit such records to confirm Gilead's Net Sales,
royalty payments and other payments for the preceding year. Such audit rights
may be exercised no more often than once a year, within [...***...]
([...***...]) years after the calendar quarter to which such records relate,
upon reasonable notice to Gilead and during normal business hours. Anadys will
bear the full cost of such audit unless such audit discloses an underpayment of
more than [...***...] percent ([...***...]%) from the amount of total payments
due. In such case, Gilead will bear the full cost of such audit. The terms of
this Section 5(h) shall survive any termination or expiration or termination of
this Agreement for a period of four (4) years.

                  (i)      LATE PAYMENTS. Any amounts not paid by Gilead when
due under this Agreement shall be subject to interest from and including the
date payment is due through and including the date upon which Anadys has
collected immediately available funds in an account designated by Anadys at a
rate equal to the sum of [...***...] percent ([...***...]%) plus the prime rate
of interest quoted in the Money Rates section of the West Coast edition of the
Wall Street Journal calculated daily on the basis of a 365-day year calculated
daily on the basis of a 365-day year, or similar reputable data source, or, if
lower, the highest rate permitted under applicable law.

                  (j)      TAXES. Any and all amounts owing to Anadys from
Gilead under this Agreement paid or owed from a country in which provision is
made in the law or by regulation for withholding will be deducted from payments
made to Anadys under this Agreement. Gilead will cooperate with Anadys to claim
exemption from such deductions or withholdings under any double taxation or
similar agreement in force from time to time.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       16
<PAGE>

                  (k)      SUBLICENSING; SUBLICENSEE RECORDKEEPING OBLIGATIONS.
If Gilead grants licenses or sublicenses pursuant to 8(b)(i) under the Research
Results or otherwise for development or commercialization of Licensed Products,
Gilead shall have the right to have such licensees or sublicensees pay to Anadys
directly milestone payments payable under Section 5(d) and royalties payable
under Section 5(e). Any such licenses or sublicenses shall include obligations
for the sublicensee to account for and report its Net Sales of Licensed Products
due Anadys, and provide that Anadys shall have audit rights pursuant to Section
5(h) for any payment report received by Gilead from any Gilead sublicensee on
the same basis as if the information contained in such report were Net Sales of
Licensed Products by Gilead, and, subject to the preceding sentence, Gilead will
pay royalty payments to Anadys as if the Net Sales of the sublicensee were Net
Sales of Gilead; provided, however, that no Gilead reseller or distributor shall
be deemed to be Gilead's sublicensee under this Agreement.

         6.       CONFIDENTIAL INFORMATION.

                  (a)      During the term of this Agreement, and for a period
of [...***...] ([...***...]) years thereafter, each Party will maintain all
Confidential Information of the other Party received by it under this Agreement
in trust and confidence and, without the express prior written permission of the
other Party, shall not disclose any such Confidential Information of the other
Party to any Third Party or use any such Confidential Information of the other
Party for any purposes or to an extent other than as necessary or permitted for
performance under this Agreement. Neither Party shall use Confidential
Information of the other Party for any purpose or in any manner that would
constitute a violation of any laws or regulations, including without limitation
the export control laws of the United States. Neither Party shall disclose
Confidential Information of the other Party to any employee, agent, consultant,
Affiliate, or sublicensee who does not have a need for such information. To the
extent that a Party is authorized under this Agreement to disclose Confidential
Information of the other Party, it will disclose only to its employees,
directors, agents, consultants, Affiliates, sublicensees or clinical
investigators to whom disclosure is permitted to be made who are subject to
binding obligations to hold in confidence and not make use of such Confidential
Information of the other Party for any purpose other than those permitted by
this Agreement, that are at least as restrictive as those of this Section 6.
Each Party will use at least the same standard of care as it uses to protect its
own Confidential Information of a similar nature to ensure that such employees,
agents, consultants and clinical investigators do not disclose or make any
unauthorized use of Confidential Information of the other Party, but no less
than reasonable care. Each Party will notify the other Party promptly upon
discovery of any unauthorized use or disclosure of the Confidential Information
of the other Party.

                  (b)      EXCEPTIONS. The restrictions on disclosure and use of
Confidential Information set forth in Section 6(a) shall not apply to
Confidential Information that the receiving Party can demonstrate by competent
written evidence:

                           (i)      is now, or hereafter becomes, through no act
or failure to act on the part of the receiving Party, its employees or
contractors in breach hereof, generally known or available;

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       17
<PAGE>

                           (ii)     is known by the receiving Party at the time
of receiving such information, as evidenced by its contemporaneous written
records;

                           (iii)    is hereafter furnished to the receiving
Party by a Third Party, as a matter of right and without restriction on
disclosure; or

                           (iv)     is independently developed by the receiving
Party without reference to such Confidential Information, as shown by
independent, contemporaneous, written records.

                  (c)      AUTHORIZED DISCLOSURE. Notwithstanding any other
provision of this Agreement, each Party may disclose Confidential Information if
such disclosure:

                           (i)      is in response to a valid order of a court
or other governmental body of the United States or a foreign country, or any
political subdivision thereof; provided, however, that the receiving Party shall
first have given notice to the other Party hereto and shall have made a
reasonable effort to obtain a protective order requiring that the Confidential
Information so disclosed be used only for the purposes for which the order was
issued;

                           (ii)     is otherwise required by governmental law,
rule or regulation, including without limitation rules or regulations of the
U.S. Securities and Exchange Commission, or by rules of the National Association
of Securities Dealers; provided, however, that the receiving Party shall first
have given notice to the other Party hereto in order to allow such Party the
opportunity to seek confidential treatment of the Confidential Information; or

                           (iii)    is otherwise necessary to prosecute or
defend litigation, comply with applicable governmental regulations, make
governmental patent or regulatory filings, or otherwise enforce obligations
under this Agreement, but only to the extent that any such disclosure is
necessary for such enforcement.

                  (d)      RETURN OF CONFIDENTIAL INFORMATION. If this Agreement
terminates or expires, each Party will, at the other Party's election, promptly
return or destroy all Confidential Information received by it from the other
Party and shall certify in writing to such other Party the completion thereof.

                  (e)      PUBLICITY. Neither Party shall make any public
announcement of this Agreement or the relationship between the Parties without
the other Party's prior written consent. The Parties will issue a mutually
agreed upon press release within five (5) business days after the Effective
Date, such press release to be substantially in the form set forth in Exhibit B.

         7.       REPRESENTATIONS AND WARRANTIES.

                  (a)      MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party
hereby represents and warrants to the other Party as follows:

                           (i)      CORPORATE EXISTENCE AND POWER. It is a
corporation duly organized, validly existing and in good standing under the laws
of the state in which it is incorporated, and has full corporate power and
authority and the legal right to own and operate

                                       18
<PAGE>

its property and assets and to carry on its business as it is now being
conducted and as contemplated in this Agreement, including, without limitation,
the right to grant the licenses granted hereunder.

                           (ii)     AUTHORITY AND BINDING AGREEMENT. As of the
Effective Date, (a) it has the corporate power and authority and the legal right
to enter into this Agreement and perform its obligations hereunder; (b) it has
taken all necessary corporate action on its part required to authorize the
execution and delivery of the Agreement and the performance of its obligations
hereunder; and (c) the Agreement has been duly executed and delivered on behalf
of such Party, and constitutes a legal, valid and binding obligation of such
Party and is enforceable against it in accordance with its terms.

                           (iii)    TITLE. As of the Effective Date, it has
sufficient legal and/or beneficial title under its intellectual property rights
necessary to perform activities contemplated under this Agreement and to grant
the licenses contained in this Agreement.

                           (iv)     NO CONFLICT. It has not entered, and will
not enter, into any agreement with any Third Party which is in conflict with the
rights granted to the other Party under this Agreement, and has not taken and
will not take any action that would in any way prevent it from granting the
rights granted to the other Party under this Agreement, or that would otherwise
materially conflict with or adversely affect the rights granted to the other
Party under this Agreement.

                  (b)      ANADYS REPRESENTATIONS AND WARRANTIES. Anadys
represents and warrants to Gilead as follows:

                           (i)      NON-INFRINGEMENT OF THIRD PARTY RIGHTS. As
of the Effective Date, it is unaware of any Patents or trade secret rights owned
or controlled by a Third Party, that would dominate, or be infringed or
misappropriated by the conduct of activities under the Work Plan, and has
received no written claims relating to any claims of such domination,
infringement or misappropriation.

                           (ii)     NON-INFRINGEMENT BY THIRD PARTIES. As of the
Effective Date, it is unaware of any activities by Third Parties that would
constitute domination, infringement or misappropriation of ATLAS as it may be
applied to Target Assays or the Work Plan.

                  (c)      NO OTHER REPRESENTATIONS OR WARRANTIES. THE EXPRESS
REPRESENTATIONS AND WARRANTIES STATED IN THIS SECTION 7 ARE IN PLACE OF ALL
OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, NON-INFRINGEMENT OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS, TITLE, CUSTOM OR TRADE.

         8.       OWNERSHIP OF INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS

                  (a)      INVENTORSHIP AND AUTHORSHIP. Inventorship of
discoveries or inventions, and authorship of works of authorship, included
within Research Results, Assay Technology,

                                       19
<PAGE>

and ATLAS Technology, shall be determined in accordance with the patent and
copyright laws of the United States of America, respectively.

                  (b)      OWNERSHIP. Ownership of Research Results, Assay
Technology, and ATLAS Technology shall be determined in accordance with this
Section 8(b), notwithstanding affiliation with a Party of inventors or authors
or Section 8(a).

                           (i)      Gilead shall retain sole ownership of
Library Compounds (including Hit Compounds), the Target quantities, and its
technology relating to the Target. Gilead shall solely own all right, title and
interest in and to Research Results, including without limitation all Lead
Compounds, Licensed Compounds, and Licensed Products, and all intellectual
property rights appurtenant thereto, subject to Section 4(b). For avoidance of
doubt, Gilead may freely grant licenses or other rights, through multiple tiers
of licensees and sublicensees, under the Research Results, provided, however,
that no grant of such a license or sublicense shall be construed as relieving
Gilead of its obligations under this Agreement or abrogating Anadys's license
pursuant to Section 4(b).

                           (ii)     Anadys shall retain all right, title and
interest in and to the ATLAS Technology. Subject to Section 8(b)(i), Anadys
shall solely own all right, title and interest in and to the Target Assays and
the ATLAS Technology.

                           (iii)    The Parties shall jointly own the Assay
Technology, and each Party may freely practice, use and grant non-exclusive
rights to such Assay Technology without notice to or consent from the other
Party.

                  (c)      ASSIGNMENT AND CONTROL OF INVENTIONS. Each Party
will, and hereby does, assign to the other Party all or part of the right, title
and interest of such Party in and to Research Results, Assay Technology, and
ATLAS Technology (collectively, "INVENTIONS"), solely to the extent necessary to
achieve the allocation of ownership thereof provided in Section 8(b). Each Party
will provide reasonable assistance to the other Party, at the other Party's
expense, in obtaining and from time to time enforcing and defending the other
Party's rights as set forth in Section 8(b) to Inventions, including without
limitation and as applicable, the assignment to the other Party of all or part
of the right, title and interest of its employees or independent contractors in
and to such Inventions to achieve the allocation of ownership provided in
Section 8(b), perfecting the other Party's right, title and interest in and to
the other Party's solely owned Inventions, and reasonably cooperating, at the
other Party's request, in filing, prosecuting, maintaining, defending and
enforcing the other Party's Patents included within Inventions. Each Party will
solely own all Patents included in its solely owned Inventions and shall have
the sole right, but not the obligation, at its expense, to file, prosecute,
maintain, and prosecute, defend and otherwise control other administrative
proceedings for such Patents that it owns pursuant to Section 8(b), and to
initiate, prosecute and control any action with respect to any infringement of
such Patents.

                                       20
<PAGE>

         9.       TERM AND TERMINATION

                  (a)      TERM. This Agreement shall commence on the Effective
Date and, unless terminated earlier pursuant to Sections 9(b) through (c), shall
be in full force and effect until the expiration of the last to expire Royalty
Term.

                  (b)      ELECTIVE TERMINATION.

                           (i)      If, as of the date that is [...***...]
([...***...]) months after the Initiation Date, Gilead, acting iN Good faith,
concludes that significant progress in the development of the Target Assays has
not occurred and is not likely to occur without investment of material
additional resources or materials delays, in each case beyond what is
contemplated in the Work Plan, and the JRC, acting in good faith, does not
object to such a conclusion, Gilead shall have the right to terminate this
Agreement in its entirety, upon [...***...] ([...***...]) days written notiCe to
Anadys, provided, however, that if there are delays in achieving such
collaboration goals that are due to Gilead's failure to fulfill its obligations
under the Work Plan or this Agreement in a timely manner, the three (3) month
period shall be extended by any amount of time equal to the duration of such
delays.

                           (ii)     Subject to Sections 3(e)(ii) and (iii), if
Gilead ceases all activities under this Agreement to identify and designate Lead
Compounds, all research and preclinical development activities with respect to
Licensed Products, and terminates all development and commercialization of
Licensed Products, either Party may terminate this Agreement upon [...***...]
([...***...]) days written notice to the other Party, subject to Section
3(e)(iv).

                  (c)      TERMINATION FOR MATERIAL BREACH. If a Party
materially breaches this Agreement, the other Party may terminate this Agreement
effective [...***...] ([...***...]) days after providing written notice to the
breaching Party, if within that time the breaching Party fails to cure its
material breach and the non-breaching Party does not withdraw its termination
notice. For purposes of this Section 9(c), material breaches of this Agreement
shall not include noncompliance by Gilead with its obligations in Section 3(e).

                  (d)      EFFECTS OF TERMINATION. If a Party terminates this
Agreement under Sections 9(b) or 9(c), all terms and provisions (including but
not limited to all Royalty Terms and Anadys's covenants under Sections 4(c)(ii)
and (iv)) not stated expressly in this Section 9(d) or Section 9(e) to survive,
shall terminate as of the effective date of termination.

                           (i)      If either Party terminates this Agreement
pursuant to Section 9(b): (1) neither Party shall conduct any further work under
the Work Plan, (2) Gilead shall have no further diligence obligations under
Section 3 or funding or payment obligations pursuant to Section 5 other than for
accrued research funding under Section 5(a) not yet paid by Gilead, unless such
obligations and Anadys's negative covenants under Sections 4(c)(ii) and
(iv)survive pursuant to Section 3(e)(iv)(4), (3) Anadys shall promptly refund to
Gilead any amounts of research funding paid under Section 5(a) for periods after
the effective date of such termination, (4) Anadys will have a right of first
negotiation as set forth in Section 3(e)(iv). If such termination is pursuant to
Section 9(b)(ii), then Anadys's sole remedies with respect to such termination
shall be (x) termination of Anadys's negative covenants pursuant to Sections
4(c)(ii)

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                      21

<PAGE>

and (iv), as set forth in Section 3(e)(ii), (y) Anadys's right of first
negotiation pursuant to Section 3(e)(iv), and (z) Anadys's right to make an
election pursuant to Section 3(e)(iv)(4) as to maintenance of its rights to
royalties and milestones and its negative covenants under Sections 4(c)(ii) and
(iv).

                           (ii)     If Anadys terminates this Agreement pursuant
to Section 9(c): (1) neither Party shall conduct any further work under the Work
Plan, (2) Gilead shall have no further diligence obligations under Section 3 or
funding or payment obligations pursuant to Section 5 other than for accrued
research funding under Section 5(a) not yet paid by Gilead, and (3) Anadys shall
promptly refund to Gilead any amounts of research funding paid under Section
5(a) for periods after the effective date of such termination.

                           (iii)    If Gilead terminates this Agreement pursuant
to Section 9(c): (1) the negative covenants of Anadys under Sections 4(c)(ii)
and (iv) shall survive; (2) Gilead shall have no further diligence obligations
under Section 3 or funding obligations or payment obligations pursuant to
Sections 5(a), 5(b) or 5(c), but its remaining obligations under Section 5 shall
survive, provided, however, that if termination is on the basis of a breach of
Anadys's covenants pursuant to 4(c), Gilead shall have no further payment
obligations pursuant to Section 5, and (3) Anadys shall promptly refund to
Gilead any amounts of research funding paid under Section 5(a) for periods after
the effective date of such termination.

                           (iv)     Upon expiration or termination of this
Agreement, each Party will cease to use Confidential Information of the other
Party and will return to the other Party, all documents and materials containing
the Confidential Information of the other Party. Additionally, upon termination
of this Agreement, Anadys will cease to use any Target material provided by
Gilead and any Library Compounds and will, at Gilead's instruction and expense,
either return to Gilead or destroy any such remaining materials and information
relating thereto provided by Gilead.

                  (e)      ACCRUED RIGHTS AND OBLIGATIONS; SURVIVAL. Termination
of this Agreement by a Party pursuant to Section 9(c) shall not be a Party's
sole remedy for a material breach of this Agreement but shall be in addition to
any other rights or remedies of a Party under this Agreement. Termination or
expiration of this Agreement shall not affect any accrued rights or surviving
obligations of the Parties. The provisions of Sections 2(f), 4(b), 4(c)(i),
4(c)(iii), 4(d), 4(e), 5(h), 6, 7(c), 8, 9(d), 9(e), 10 and 11 shall survive the
expiration or termination of this Agreement for any reason whatsoever.

         10.      INDEMNIFICATION, INSURANCE, LIMITATIONS OF LIABILITY.

                  (a)      INDEMNIFICATION BY GILEAD. Gilead will indemnify,
hold harmless and defend Anadys, its Affiliates, and their respective employees
and agents against any and all losses, damages, liabilities, judgments, fines,
amounts paid in settlement, expenses and costs of defense (including without
limitation reasonable attorneys' fees and witness fees) ("LOSSES") resulting
from any claim, demand, suit, action or proceeding brought or initiated by a
Third Party ("THIRD PARTY CLAIM") again them to the extent that such Third Party
Claim arises out of (i) the research, development, manufacture, use, sale or
other commercialization of Licensed Products by Gilead, its Affiliates,
sublicensees or distributors; (ii) the breach or alleged breach of any

                                       22
<PAGE>

representation or warranty by Gilead in Section 7; or (iii) the negligence or
willful misconduct of Gilead, its Affiliates, or their respective employees or
agents in the course of performance under this Agreement; provided that such
indemnity shall not apply to the extent Anadys has an indemnification obligation
pursuant to Section 10(b) for such Loss.

                  (b)      INDEMNIFICATION BY ANADYS. Anadys will indemnify,
hold harmless and defend Gilead, its Affiliates and their respective employees
and agents against any and all Losses resulting from any Third Party Claim
against them to the extent that such Third Party Claim arises out of (i) the
breach or alleged breach of any representation or warranty by Anadys in Section
7, (ii) any infringement of a Third Party Patent or copyright or
misappropriation of a Third Party trade secret that is a direct result of the
practice of ATLAS or a Target Assay, other than any such infringement or
misappropriation that is due to the use of the Target in particular, as opposed
to other targets, or (iii) the negligence or willful misconduct of Anadys, its
Affiliates, or their respective employees or agents; provided that such
indemnity shall not apply to the extent Gilead has an indemnification obligation
pursuant to Section 10(a) for such Loss.

                  (c)      MECHANICS. If a Party, its Affiliate, or any of their
respective employees or agents has a right to be indemnified under this Section
10 (the "INDEMNIFIED PARTY"), such Indemnified Party (i) shall give prompt
notice of such Third Party Claim to the other Party (the "INDEMNIFYING PARTY")
and (ii) subject to Section 8(c) will have the first right to defend any Third
Party Claims for which it is entitled to indemnification from the other Party
under Sections 10(a) and (b), with the cooperation and at the expense of such
other Party, provided that it will not settle any such Third Party Claim without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, conditioned or delayed. If the Indemnified Party does not
wish to defend against a Third Party Claim for which it is entitled to
indemnification under this Section 10, it shall so notify the Indemnifying Party
in writing and the Indemnifying Party shall have the right to defend and settle
such Third Party Claim subject to obtaining the Indemnified Party's consent to
any settlement, such consent not to be unreasonably withheld, conditioned or
delayed. If the Indemnified Party is defending a Third Party Claim, the
Indemnifying Party shall have the right to be present in person or through
counsel at substantive legal proceedings. In the event that the Parties cannot
agree as to the application of Sections 10(a) and (b) to any Loss or Third Party
Claim, the Parties may conduct separate defenses of such Third Party Claim. In
such case, each Party further reserves the right to claim indemnity from the
other in accordance with Sections 10(a) and (b) upon resolution of such
underlying Third Party Claim.

                  (d)      INSURANCE COVERAGE. Each Party represents and
warrants that it is covered and will continue to be covered by a comprehensive
general liability insurance program which covers all of such Party's activities
and obligations hereunder in accordance with reasonable pharmaceutical industry
standards. Each Party will provide the other Party with written notice upon any
cancellation or material change in such insurance program. Gilead will maintain
such insurance program, or other program with comparable coverage, beyond the
expiration or termination of this Agreement during the period in which any
Licensed Product is being commercially distributed or sold, and for a
commercially reasonable period thereafter. Anadys will maintain such insurance
program, or other program with comparable coverage, for a period of [...***...]
([...***...]) years after the end of the ReseaRch Term.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       23
<PAGE>

                  (e)      LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, WHETHER IN CONTRACT, TORT OR
OTHERWISE, ARISING FROM OR RELATING TO ANY BREACH OF OR ACTIVITIES UNDER THIS
AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. Nothing
in this Section 10(e) is intended to limit or restrict the indemnification
rights or obligations of any party under this Agreement.

         11.      GENERAL PROVISIONS.

                  (a)      DISPUTE RESOLUTION. The Parties recognize that
disputes may from time to time arise between the Parties during the term of this
Agreement. It is the objective of the Parties to establish procedures to
facilitate the resolution of disputes arising under this Agreement in an
expedient manner by mutual cooperation and without resort to litigation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in this Section 11(a) to resolve any dispute arising under this Agreement. In
the event of such a dispute between the Parties, either Party, by written notice
to the other Party, have such dispute referred to a senior executive officer of
each Party, for attempted resolution by good faith negotiations within
[...***...] ([...***...]) days after such notice is received. If the designated
executive officers are not able to resolve such dispute, either Party may at any
time after such [...***...] ([...***...]) day period pursue any legal or
equitable remedy available to It.

                  (b)      JURISDICTION AND VENUE. In connection with any
dispute arising hereunder or in connection with the subject matter hereof that
is not settled in accordance with Section 11(a), each of the Parties hereby
consents to the non-exclusive jurisdiction and venue of the U.S. federal courts
located within the state of California and of the California state courts. Each
Party hereby irrevocably waives any right that it may have to assert that any
such court lacks jurisdiction or that such forum is not convenient.

                  (c)      GOVERNING LAW; LANGUAGE. This Agreement shall be
governed and construed in accordance with the laws of the State of California,
except for its choice of law rules. The official text of this Agreement and any
exhibits referenced herein, or any notice given or accounts or statements
required by this Agreement shall be in English. In the event of any dispute
concerning the construction or meaning of this Agreement, reference shall be
made only to this Agreement as written in English and not to any other
translation into any other language.

                  (d)      NOTICE. All notices hereunder shall be in writing and
shall be delivered personally, sent for next day delivery by internationally
recognized courier service or transmitted by facsimile (transmission confirmed),
with confirmation by next day delivery by an internationally recognized courier
service, to the following addresses and facsimiles of the respective Parties or
such other address or facsimile as is notified pursuant to this Section 11(d):

Gilead:             Gilead Sciences, Inc.
                    333 Lakeside Drive
                    Foster City, CA 94404
                    Attention: William A. Lee, Senior Vice President, Research
                    Fax No.:  [...***...]

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       24
<PAGE>

with a copy to:     Gilead Sciences, Inc.
                    333 Lakeside Drive
                    Foster City, CA 94404
                    Attention:  Vice President and General Counsel
                    Fax No.: [...***...]

Anadys:             Anadys Pharmaceuticals, Inc.
                    9050 Camino Santa Fe
                    San Diego, CA 92121
                    Attention: Michael Kamdar, Vice President,
                    Corporate Development & Strategy
                    Fax: [...***...]

with a copy to:     Anadys Pharmaceuticals, Inc.
                    9050 Camino Santa Fe
                    San Diego, CA 92121
                    Attention: Elizabeth Reed, Director, Legal Affairs
                    Fax: [...***...]

                  (e)      USE OF NAMES. Neither Party shall use the name, trade
name, trademark, or other designation of the other Party (including contraction,
abbreviation or simulation of any of the foregoing) in advertising, publicity,
or other promotional activities without the prior written consent of the other
Party. Under no circumstances shall either Party state or imply in any
promotional material, publication or other published announcement that the other
Party has tested or approved any product.

                  (f)      WAIVER. The failure on the part of a Party to
exercise or enforce any rights conferred upon it hereunder shall not be deemed
to be a waiver of any such rights nor operate to bar the exercise or enforcement
thereof at any time or times hereafter.

                  (g)      ASSIGNMENT. Neither Party will assign its rights or
duties under this Agreement to any Third Party without the prior express written
consent of the other Party, which shall not be unreasonably withheld; provided,
however, that either Party may assign this Agreement to a successor by merger or
acquisition or transfer of all or substantially all its business assets in the
field to which this Agreement relates, which successor expressly assumes in
writing the obligation to perform in accordance with the terms and conditions of
this Agreement. Any purported assignment not in compliance with this Section
11(g) will be void.

                  (h)      PERFORMANCE BY AFFILIATES. A Party's obligations
under this Agreement may be performed by its Affiliates. Obligations of the
Party for which one of its Affiliates is performing hereunder shall be deemed to
extend to such performing Affiliate. Each Party guarantees performance of this
Agreement by its Affiliates. Wherever in this Agreement the Parties delegate
responsibility to Affiliates or local operating entities, the Parties agree that
such entities shall not make decisions inconsistent with this Agreement, amend
the terms of this Agreement or act contrary to its terms in any way.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       25

<PAGE>

                  (i)      BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by a bankrupt Party to the other Party are, and shall
be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any
similar law or regulation in any other country, licenses of rights to
"intellectual property" as defined under Section 101(35A) of the Bankruptcy
Code. The Parties agree that all intellectual property rights licensed hereunder
are part of the "intellectual property" as defined under Section 101(35A) of the
Bankruptcy Code subject to the protections afforded the non-terminating Party
under Section 365(n) of the Bankruptcy Code, and any similar law or regulation
in any other country.

                  (j)      SEVERABILITY. The provisions of this Agreement are
severable. If any item or provision of this Agreement shall to any extent be
invalid or unenforceable, the remainder of this Agreement shall not be affected
thereby, and each term and provision of this Agreement shall be valid and shall
be enforced to the fullest extent permitted by law.

                  (k)      FORCE MAJEURE. Neither Party shall be liable for any
delay or failure of performance to the extent such delay or failure is caused by
circumstances beyond its reasonable control and that by exercise of due
diligence it is unable to prevent, provided that the Party claiming excuse uses
and continues to use commercially reasonable efforts to overcome the same.

                  (l)      ENTIRE AGREEMENT; MODIFICATION. This Agreement,
including any exhibits expressly named and referenced herein, constitutes the
entire agreement and understanding of the Parties and supersedes any prior
agreements or understandings relating to the subject matter hereof. Any
modification of this Agreement shall be effective only to the extent it is
reduced to writing and signed by a duly authorized representative of each Party
hereto.

                  (m)      COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be an original and all of which shall
constitute together the same document.

The persons executing this Agreement represent and warrant that they have the
full power and authority to cause their respective entities to enter into this
Agreement.

         IN WITNESS WHEREOF the Parties have executed this Agreement as of the
Effective Date by their duly authorized representatives.

ANADYS PHARMACEUTICALS, INC.              GILEAD SCIENCES, INC.

By:_______________________________        By:___________________________________

Name:  Michael Kamdar                     Name:  John F. Milligan, Ph.D.

Title:  Vice President, Corporate         Title:  Senior Vice President and CFO
        Development and Strategy

                                       26
<PAGE>

                                    EXHIBIT A
                                   JRC MEMBERS

ANADYS MEMBERS:   [...***...]

GILEAD MEMBERS:   [...***...]

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       1

<PAGE>

                                    EXHIBIT B
                                  PRESS RELEASE

ANADYS CONTACT:                                             GILEAD CONTACT:
David M.K. Nelson, Ph.D.                                    Susan Hubbard
Associate Director                                          Investor Relations
Corporate Development & Investor                            (650) 522-5715
Relations
Anadys Pharmaceuticals, Inc.
(858) 530-3600
www.anadyspharma.com

  ANADYS FORMS COLLABORATION WITH GILEAD TO DISCOVER NOVEL ANTIVIRAL COMPOUNDS

 -- Anadys' uHTS-ATLAS(TM) to be used to screen important and challenging viral
                                   target --

SAN DIEGO, CA, JUNE 10, 2002 -- Anadys Pharmaceuticals, Inc. ("Anadys") and
Gilead Sciences, Inc. (Nasdaq: GILD) announced today that they have entered into
a collaboration to discover novel antiviral compounds. As part of the
collaboration agreement, Anadys will design, configure and run uHTS-ATLAS(TM)
screens against a key viral target selected by Gilead. This agreement leverages
Anadys' powerful ability to screen for small molecules that bind to proteins
that are difficult to screen using conventional methods.

Under the terms of the agreement, Anadys will design and run uHTS-ATLAS(TM)
assays against Gilead's compound collection. uHTS-ATLAS(TM) is Anadys'
proprietary, fully-automated, affinity-based screening technology capable of
screening 100,000 compounds in one day. The technology is capable of delivering
this throughput using discrete compounds, mixtures or natural products against
protein targets of either known or unknown function. Gilead will have exclusive
rights to develop and commercialize any products resulting from compounds
discovered in the collaboration.

"We are very pleased to collaborate with Gilead on this important and
challenging viral target," said Dr. Steve Worland, Chief Scientific Officer of
Anadys. "Gilead is viewed as one of the premier organizations involved in
antiviral research, and their decision to employ uHTS-ATLAS(TM) is important
validation for our technology. It also highlights one of the key advantages of
our technology in that we can screen targets that have traditionally been a
challenge."

"Gilead is committed to using state-of-the-art technologies to find novel
medicines to combat viral infections," said Dr. William Lee, Senior Vice
President, Research, Gilead Sciences.

                                       1

<PAGE>

"After reviewing a number of screening technologies, we chose to apply
uHTS-ATLAS(TM) to help us further advance this important program."

"The collaboration with Gilead further illustrates Anadys' overall commitment to
broadening our efforts in the antiviral therapeutic area," said Michael Kamdar,
Vice President of Corporate Development and Strategy for Anadys. "We look
forward to building a long term relationship with Gilead, which has a strong
record of developing and commercializing antiviral therapies."

Specific financial terms were not disclosed but they include an upfront payment,
research success payments, R&D support, and potential for product milestone
payments and royalties.

ABOUT ANADYS PHARMACEUTICALS

Anadys Pharmaceuticals, Inc. ("Anadys" or the "Company") is a new generation
drug discovery company committed to applying an integrated approach that
combines biology and chemistry to develop new small molecule therapeutics. The
Company is committed to developing novel powerful antibiotics and medicines to
treat viral infections. To that end, Anadys has assembled and integrated a
proprietary suite of technologies to identify novel targets (using GATE(TM) and
Riboproteomics(TM)), screen them for small molecule effectors (uHTS-ATLAS(TM)
and SCAN(TM)), and develop clinical candidates using its considerable
capabilities in high-output medicinal chemistry. Anadys has a specific
capability to exploit RNA-related targets and novel chemistries to find new
medicines using its leadership position in Riboproteomics(TM). RNA-related
targets have been validated with the approval of drugs such as neomycin,
Zyvox(R), and Zithromax(R). Anadys intends to harness this integrated suite of
technologies to propel a strong and continual pipeline of drug candidates into
the clinic.

For more information, please visit www.anadyspharma.com.

ABOUT GILEAD SCIENCES, INC.

Gilead Sciences is a biopharmaceutical company that discovers, develops and
commercializes therapeutics to advance the care of patients suffering from
life-threatening diseases worldwide. The company has five marketed products and
focuses its research and clinical programs on anti-infectives, including
antivirals, antifungals and antibacterials. Headquartered in Foster City, CA,
Gilead has operations in the United States, Europe and Australia.

For more information, please visit www.gilead.com.

                                       ###

                                       2
<PAGE>
[GILEAD Logo]

                                                                    CONFIDENTIAL

January 18th, 2003

Anadys Pharmaceuticals, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attention:  Mike Kamdar, Vice President, Corporate Development and Strategy

      RE:     Amendment No. 1 to Research Collaboration Agreement dated as of
              June 7, 2002 ("Agreement") by and between Anadys Pharmaceuticals,
              Inc. ("Anadys") and Gilead Sciences, Inc. ("Gilead")

Dear Mike:

By way of this letter agreement ("Amendment No. 1"), both parties agree to
extend the Research Term under the Agreement until the earlier of (i) the
completion of the current Work Plan, as determined by the JRC, and (ii)
February 24th, 2003.  Gilead will continue to pay Anadys research funding
according to Section 5(a) of the Agreement until the end of the Research Term as
extended by this Amendment No. 1.

Except as so amended, the Agreement will remain in full force and effect in
accordance with its terms.

Please indicate Anadys's acceptance of these terms as a binding agreement
between the parties, effective as of the date first written above, by having
both enclosed originals signed by an authorized officer of Anadys, retaining one
fully signed original for your files, and returning one fully signed original to
me at the address above.

Sincerely,                                          Accepted and agreed to:

Gilead Sciences, Inc.                               Anadys Pharmaceuticals, Inc.

By:  /s/ John F. Milligan                           By:  /s/ Michael J. Kamdar
-------------------------                           --------------------------
John Milligan, Ph.D.                                Name:  Michael Kamdar
Senior Vice President and CFO                       Title:  Vice President
                                                    January  22 , 2003
<PAGE>

                                                                    CONFIDENTIAL

March 12, 2003

Anadys Pharmaceuticals, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attention:  Mike Kamdar, Vice President, Corporate Development and Strategy

      RE:     Amendment No. 2 to Research Collaboration Agreement dated as of
              June 7, 2002, as amended by Amendment No. 1 to Research
              Collaboration Agreement dated as of January 18, 2003 ("Agreement")
              by and between Anadys Pharmaceuticals, Inc. ("Anadys") and Gilead
              Sciences, Inc. ("Gilead")

Dear Mike:

By way of this letter agreement ("Amendment No. 2"), both parties agree to
extend the Research Term under the Agreement until the earlier of (i) the
completion of the current Work Plan, as determined by the JRC, and (ii)
April 1, 2003, with no additional payments by Gilead of research funding
pursuant to Section 5(a) of the Agreement for the additional period added to the
Research Term as extended by this Amendment No. 2.

Except as so amended, the Agreement will remain in full force and effect in
accordance with its terms.

Please indicate Anadys's acceptance of these terms as a binding agreement
between the parties, effective as of the date first written above, by having
both enclosed originals signed by an authorized officer of Anadys, retaining one
fully signed original for your files, and returning one fully signed original to
me at the address above.

Sincerely,                                         Accepted and agreed to:

Gilead Sciences, Inc.                              Anadys Pharmaceuticals, Inc.

By:  /s/ John F. Milligan                          By:  /s/ Michael J. Kamdar
-------------------------                          --------------------------
John Milligan, Ph.D.                               Name:  Michael Kamdar
Senior Vice President and CFO                      Title:  Vice President
                                                   March  21 , 2003<PAGE>

                                                                   EXHIBIT 10.19

                  *** 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.

                         RESEARCH AND LICENSE AGREEMENT

         This Agreement is entered into and effective as of October 10, 2002
(the "Effective Date") by and between the following parties: Sequoia Sciences,
Inc. ("SEQUOIA"), 11199 Sorrento Valley Road, Suite H, San Diego, California
92121, and Anadys Pharmaceuticals, Inc. ("ANADYS"), 9050 Camino Santa Fe, San
Diego, CA 92121.

         WHEREAS, SEQUOIA has proprietary collections of drug-like compounds
isolated from plants for drug discovery research, and

         WHEREAS, ANADYS wishes to screen these drug-like compounds in its
proprietary biological assays with the intent of discovering novel,
biologically-active compounds for development into commercial therapeutic
products.

         NOW, THEREFORE, the parties under the terms and conditions specified
herein agree as follows:

                                 1. DEFINITIONS

         1.1      "Access Election" shall mean a notification from ANADYS to
SEQUOIA that ANADYS desires to obtain exclusive rights to and full ownership of
an Active Compound identified in such notification, as more fully set forth in
Section 2.4.1.

         1.2      "Active Samples" shall mean Samples supplied by SEQUOIA and
identified by ANADYS as having activity in ANADYS assays, at Anadys' sole
discretion.

         1.3      "Active Compound" shall mean an individual compound found
within an Active Sample that is provided by SEQUOIA to ANADYS that has
biological activity in ANADYS assays.

         1.4      "Affiliate" shall mean any person, organization, corporation,
or other business entity controlled by, controlling, or under common control
with a Party. As used in this Section 1.4, "control" means that an entity owns,
directly or indirectly, at least fifty percent (50%) of the voting stock or
other ownership interest of another entity, or has the actual ability to control
and direct the management of another entity, whether by contract or otherwise.

         1.5      "Anadys Corporate Event" shall mean (i) the merger or
consolidation of ANADYS with another corporation through either a merger, stock
purchase or sale or asset purchase or sale, (ii) the acquisition by ANADYS of a
substantial amount of assets or capital stock of another corporation through
either a stock purchase, stock exchange, cash transaction or asset exchange,
(iii) a reorganization of the business of ANADYS in such as way as to
fundamentally alter the business plan of ANADYS as in effect as of the Effective
Date of this Agreement, or (iv) a liquidation, dissolution or winding up of
ANADYS, either voluntary or involuntary; provided that any such event described
in (i), (ii), (iii) or (iv) above is approved by the ANADYS Board of Directors.

                                       1
<PAGE>

         1.6      "Analog" shall mean a compound made under a medicinal
chemistry effort that is focused on structure-function relationships, which
compound (a) shares common structure with an Active Compound for which an Access
Election has been made and (b) has been developed with the goal of demonstrating
activity against the same target(s) as the Active Compound from which it was
derived and actually demonstrates such activity. An Analog shall be determined
to share a common structure with an Active Compound if such Analog and such
Active Compound are both subject to claims within the same ANADYS patent
application which discloses a common structure.

         1.7      "Biological Material" shall mean plants, samples of plants,
plant parts such as roots, leaves, flowers, wood, bark, fruit, seeds, and any
other material of plant origin that are provided to Anadys by Sequoia under the
terms of this Agreement.

         1.8      "Confidential Information" shall mean data, databases,
figures, chemical structures, patent applications, documents, information
disclosed orally and subsequently reduced to writing, and includes
correspondence, memoranda, notes, reports and e-mail, information constituting
intellectual property, and any other information collected, developed or
prepared by the Parties pursuant to this Agreement.

         1.9      "Drug-like Compounds" shall mean compounds from plants with
average molecular weights less than 400 daltons determined by (+) ESI mass
spectrometry and approximate log Ps less than 5 and greater than 0 determined by
the retention times of compounds within the Samples during HPLC/ELSD analysis.

         1.10     "Exclusivity Period" shall mean, with respect to an Active
Sample or an Active Compound, the time period set forth in Section 2.7.1. or
2.7.2, as applicable, plus any extensions thereof, during which SEQUOIA shall
not provide such Active Sample or Active Compound or any rights thereto to any
third party, nor offer or negotiate with any third party to supply or grant
rights to such Active Sample or Active Compound.

         1.11     "FTE" or "Full-time Equivalent" shall mean a full-time
employee of SEQUOIA that possesses qualifications to successfully complete the
research described in Sections 2.2.1, 2.3.1, 2.3.2, and 2.5.

         1.12     "ANADYS Proprietary Rights" shall mean Patents, copyrights,
trademarks, trade secrets and other intellectual property rights, know-how or
processes, whether or not patentable, owned or controlled by ANADYS.

         1.13     "Net Sales" shall mean, in relation to a Product, (i) the
gross amount received by ANADYS, or its Affiliates or its sublicensees for sales
of Product to third parties less taxes (value added or sales taxes, government
mandated exceptional taxes and other taxes linked to the gross sales amount),
discounts, allowances, credits for returns, rejections or 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), import duties and other governmental charges or
tariffs, and insurance minus (ii) [...***...] percent ([...***...]%)

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       2
<PAGE>

of the gross amount received for Product in lieu of the following deductions
that are not usually accounted for or deducted on a product-by-product basis:
cash discounts, discounts granted later than at the time of invoicing, sales
commissions, outward freights, postage charges, packaging materials for dispatch
of goods, bad debt, transportation insurance charges and customs duties and
other governmental charges. Notwithstanding anything else in this Section 1.13,
amounts received by Anadys or its Affiliates or sublicensees for the sale of
Products among Anadys and its Affiliates or sublicensees for resale shall not be
included in the computation of Net Sales hereunder. In the event any Product is
sold in combination with other active functional ingredients (a "Combination
Product"), the Net Sales for Combination Products in a particular country, shall
be determined by multiplying the Net Sales for each such Combination Product by
a fraction, the numerator of which shall be the established market price for the
Product(s) contained in the Combination Product and the denominator of which
shall be the sum of the established market prices for the Product(s) plus the
established market prices for the other pharmaceutically active agents or
ingredients contained in the Combination Product. When such separate market
prices are not established in that country, then the Parties shall negotiate in
good faith to determine a fair and equitable method of calculating Net Sales in
that country for the Combination Product in question with the goal of
determining the appropriate percentage value represented by the Product and the
other pharmaceutically active agents or ingredients.

         1.14     "Novel Discoveries Date" shall mean the date on which the last
to occur of the following criteria are achieved for two (2) distinct compounds
against at least two (2) separate targets: 1.) Anadys identifies novel
biological activity of an individual compound, 2.) Sequoia elucidates the
chemical structure of this active compound which has a molecular weight less
than 500 daltons and a log P less 5, and 3) the results of a CAS search on this
compound does not yield information detailing the biological activity
demonstrated by ANADYS.

         1.15     "Party" (and collectively "Parties") shall mean SEQUOIA or
ANADYS.

         1.16     "Patent" or "Patents" shall mean (a) patent applications
(including provisional applications and applications for certificates of
invention); (b) any patents issuing from such patent applications (including
certificates of invention); (c) all patents and patent applications worldwide
based on, corresponding to, or claiming the priority date(s) of any of the
foregoing; (d) any reissues, substitutions, confirmations, registrations,
validations, re-examinations, additions, continuations, continued prosecution
applications, continuations-in-part, requests for continued examination, or
divisionals of or to any of the foregoing; and (e) term extension or other
governmental action which provide exclusive rights to a Product beyond the
original patent expiration date.

         1.17     "Phase 2" shall mean the period under this Agreement that will
commence either (i) automatically, and without further action by either party,
upon the occurrence of the Novel Discoveries Date (if it occurs) or (ii) upon
the election by ANADYS within three hundred sixty five (365) days of the
Effective Date by giving at least thirty (30) days written notice to SEQUOIA of
its desire to so commence Phase II, and which will end upon the expiration or
termination of this Agreement.

                                       3
<PAGE>

         1.18     "Phase 2 Commencement Date" shall mean the date on which
Phase 2 commences.

         1.19     "Pilot Study" shall mean the period under this Agreement
commencing on the Effective Date and terminating on the first to occur of the
Novel Discoveries Date and the expiration or termination of this Agreement.

         1.20     "Product" shall mean a product containing an Active Compound
or Analog sold and given to a patient for the treatment or prevention of human
or animal disease, diagnosis of a disease, or any research use.

         1.21     "Samples" shall mean samples of approximately one to five
Drug-like Compounds determined by (+) ESI mass spectrometry and evaporative
light scattering detection (ELSD) which have been isolated from a taxonomically
diverse collection of plants by SEQUOIA.

         1.22     "SEQUOIA Proprietary Rights" shall mean Patents, copyrights,
trademarks, trade secrets and other intellectual property rights, know-how or
processes, whether or not patentable, owned or controlled by SEQUOIA.

                        2.       DRUG DISCOVERY RESEARCH

         2.1      Primary Screening.

                  2.1.1    SEQUOIA will deliver Samples suitable for
high-throughput screening to ANADYS pursuant to the terms and conditions set
forth in Section 2.6. The Samples will be delivered in 384 well microtiter
plates. Each well in rows 1 through 12 and 15 through 24 in the microtiter
plates will have approximately [...***...] ([...***...]) micrograms of Sample
determined by evaporative light scattering detection. Rows 13 and 14 of the 384
well microtiter plates will not contain Sample.

                  2.1.2    ANADYS will screen these Samples in two or more of
its assays. ANADYS will have complete discretion at selecting the assays used to
screen the Samples and shall be free to utilize either internal or partnered
resources, included the targets, provided that the Samples are not transferred
to a third party without the prior written permission of SEQUOIA.

                  2.1.3    ANADYS will provide written notification to SEQUOIA
of the Samples that exhibit activity in its assays, identifying such Samples as
Active Samples. During the Pilot Period, ANADYS will provide the first such
written notification within ninety (90) days of receipt of the Samples. At no
time during the term of this Agreement will ANADYS be under any obligation to
disclose to SEQUOIA the identity of the targets against which it screens the
Samples. ANADYS will, however, label such targets with a code name identifier
and will provide written notification to SEQUOIA of each target that identify
each Active Sample via

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       4
<PAGE>

such unique identifier. ANADYS shall be automatically granted an Exclusivity
Period on Active Samples pursuant to the terms of Section 2.7.

         2.2      Isolation and Identification of Active Compounds.

                  2.2.1    SEQUOIA will isolate approximately [...***...]
([...***...]) to [...***...] ([...***...]) micrograms of each compound it
detects and quantifies by evaporative light scattering detection in the Active
Samples. SEQUOIA will deliver these isolated compounds to ANADYS.

                  2.2.2    If Phase 2 is triggered, SEQUOIA will isolate
compounds from at least [...***...] ([...***...]) Active Samples within twelve
(12) months of the Phase 2 Commencement Date, provided that at least [...***...]
([...***...]) Active Samples have been identified in Section 2.1.3.
Notwithstanding the foregoing, if Anadys does not identify at least [...***...]
([...***...]) Active Samples within twelve (12) months from the Phase 2
Commencement Date, the parties shall have an additional six (6) month period
during which (i) Anadys will continue to attempt to identify Active Samples, and
(ii) Sequoia will continue to conduct the work to isolate compounds from at
least [...***...] ([...***...]) Active Samples, provided that at least
[...***...] ([...***...]) Active Samples have been identified in Section 2.1.3
within (18) months from the Phase 2 Commencement Date.

                  2.2.3    ANADYS will screen these compounds isolated by
SEQUOIA in its assays to identify which compound(s) exhibits the biological
activity.

                  2.2.4    ANADYS will provide written notification to SEQUOIA
of the compounds that exhibit biological activity in ANADYS assays, identifying
such compounds as Active Compounds. ANADYS shall be automatically granted an
Exclusivity Period on Active Compounds pursuant to the terms of Section 2.7.

         2.3      Structure Elucidation and Additional Testing of the Active
Compounds.

                  2.3.1    SEQUOIA will elucidate the chemical structures of the
Active Compounds and deliver this information to ANADYS. If Phase 2 is
commenced, Sequoia will elucidate at least [...***...] ([...***...]) chemical
structures of Active Compounds, provided that at least [...***...] ([...***...])
Active Compounds have been identified pursuant to Section 2.2.4, and deliver
this information to ANADYS within twelve (12) months of the Phase 2 Commencement
Date. Notwithstanding the foregoing, if Anadys does not identify at least
[...***...] ([...***...]) Active Compounds within twelve (12) months from the
Phase 2 Commencement Date, the parties shall have an additional six (6) month
period during which (i) Anadys will continue to attempt to identify Active
Compounds, and (ii) Sequoia will continue to conduct the work to elucidate at
least [...***...] ([...***...]) chemical structures of Active Compounds,
provided that at least [...***...] ([...***...]) Active Compounds have been
identified pursuant to Section 2.2.4 within (18) months from the Phase 2
Commencement Date.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       5
<PAGE>

                  2.3.2    SEQUOIA will deliver approximately [...***...]
([...***...]) to [...***...] ([...***...]) micrograms of each Active Compound to
ANADYS for additional biological testing. These Active Compounds will have
purities greater than [...***...]%, as confirmed by HPLC / ELSD.

                  2.3.3    ANADYS will evaluate the dose response of each Active
Compound and the biological activity of each Active Compound in secondary
screens. ANADYS will provide written notification to SEQUOIA describing which
Active Compounds it determines, in its sole discretion, warrant additional
biological evaluation.

         2.4      Access Election of an Active Compound by ANADYS.

                  2.4.1    At any time during the Exclusivity Period of any
particular Active Compound, ANADYS, in its sole discretion, may make an Access
Election for that Active Compound by written notification to SEQUOIA. Upon such
Access Election, all rights, title, and interest in and to the Active Compound,
its isolation, purification, synthesis, its uses, and any inventions, data, or
discoveries shall be automatically assigned from SEQUOIA to ANADYS. ANADYS shall
be entitled to make an Access Election for any Active Compound according to the
payment provisions in Section 5.3, provided that ANADYS is in compliance with
the payment provisions in Section 6.1.

                  2.4.2    SEQUOIA shall cooperate with ANADYS, as requested, to
assist ANADYS in obtaining intellectual property protection relating to all
Active Compounds that are the subject of an Access Election, and shall execute
such documents, make such oaths, and in general provide all other reasonable
assistance to ANADYS to permit ANADYS to perfect its title in all such Active
Compounds and secure intellectual property protection in all such Active
Compounds in all countries. SEQUOIA shall have thirty (30) days to review the
claims and notify ANADYS of any issues relating to claim scope, unless the
Parties agree to a shorter period in light of patentability consideration.

         2.5      Isolation of Additional Quantities of Active Compounds. After
an Access Election has been made for an Active Compound, ANADYS may request in
writing the isolation of additional quantities of Active Compounds by SEQUOIA.
SEQUOIA will isolate additional quantities of these Active Compounds. The
amounts and purities of the Active Compounds requested by ANADYS and the timing
of their delivery will be mutually determined by ANADYS and SEQUOIA at the FTE
rate set forth in Section 5.2.

         2.6      Delivery of Samples, Active Samples, and Active Compounds to
ANADYS.

                  2.6.1    Delivery of Samples to ANADYS During Pilot Study. By
October 28, 2002 and pursuant to the provisions of Sections 2.1.1 and 6.1,
SEQUOIA will deliver approximately [...***...] to ANADYS.

                  2.6.2    Delivery of Samples to ANADYS During Phase 2. In the
event that the Phase 2 Commencement Date occurs, then within sixty (60) days of
the Phase 2 Commencement

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       6
<PAGE>

Date and pursuant to the provisions of Sections 2.1.1 and 6.1, SEQUOIA will
deliver an additional [...***...] Samples to ANADYS.

                  2.6.3    Deliveries to ANADYS. All Samples, Active Samples,
Active Compounds, or Biological Material under this Agreement will be delivered
to Anadys Pharmaceuticals, 9050 Camino Santa Fe, San Diego, CA 92121. Any
changes in the shipping address will be provided in writing from ANADYS to
SEQUOIA.

         2.7      Exclusivity Periods.

                  2.7.1    Exclusivity Periods for Active Samples. The
Exclusivity Period for each Active Sample identified by ANADYS in Section 2.1.3
shall occur automatically for a period of one year from the date of notification
or until the Exclusivity Period expires for an Active Compound identified from
such Active Sample in Section 2.2.4, whichever is shorter; provided, however,
that ANADYS may remove an Active Sample from exclusivity at any time by
providing written notification to SEQUOIA of its election to so remove the
specified Active Sample from exclusivity. An Exclusivity Period on an Active
Sample may be extended upon request by ANADYS to SEQUOIA, which shall not be
unreasonably withheld, to identify the Active Compound within each such Active
Sample considering commercially reasonable timelines. During the term of this
Agreement, the provisions of this Section 2.7.1 will apply to a maximum of
[...***...] ([...***...]) Active Samples at any given time, with any Active
Samples that have been removed from exclusivity pursuant to this Section 2.7.1
not counting towards such [...***...] ([...***...]) Active Sample maximum.

                  2.7.2    Exclusivity Periods for Active Compounds. The
Exclusivity Period for each Active Compound identified by ANADYS in Section
2.2.4 shall begin automatically upon notification by ANADYS and end one hundred
twenty (120) days after the later to occur of (a) receipt by ANADYS of the
Active Compound pursuant to the quantity requirements in Section 2.3.2 and (b)
receipt by ANADYS of the structure elucidation information with respect to such
Active Compound pursuant to Section 2.3.1. The Exclusivity Period of an Active
Sample from which the Active Compound originated is extended under the
Exclusivity Period of the Active Compound in this Section 2.7.2.

                  2.7.3    Prior Third Party Requests for Exclusivity. ANADYS
acknowledges that third parties have access to the same Samples provided to
ANADYS for initial screening pursuant to Section 2.1. During the term of this
Agreement, if any third parties make requests for information and material from
SEQUOIA in writing and pursuant to a written agreement that is in effect as of
the Effective Date of this Agreement, to obtain exclusivity to Samples or
compounds therein, prior to any request by ANADYS, SEQUOIA may be unable to
provide information, material and exclusivity to ANADYS. ANADYS will, however,
have unconditional priority for exclusivity with respect to any Samples or
compounds therein over any third parties that enter into agreements with SEQUOIA
subsequent to the Effective Date of this Agreement. If ANADYS requests
information, material or exclusivity with respect to a Sample and SEQUOIA is
unable to provide information, material or exclusivity due to a preexisting
obligation to a third party, SEQUOIA will so advise ANADYS at the time such
request is made.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       7
<PAGE>

                  2.7.4    Third Party Intellectual Property Rights. The Parties
expressly understand and agree that SEQUOIA can transfer and convey, and agrees
to transfer and convey to ANADYS, only the Patent, know-how and trade secret
ownership rights, if any, SEQUOIA may have in any Samples or compounds therein.
SEQUOIA cannot and does not represent and/or warrant that a third party does not
already have, or that it may not obtain at some future date, patent ownership
rights to compounds within the Samples as of the Effective Date or at any time
in the future. SEQUOIA is not currently aware of the existence of any such third
party rights, but hereby agrees that to the extent SEQUOIA becomes aware of any
such third party rights, either through SEQUOIA'S efforts or through the efforts
of one of its contracting partners, it shall disclose on a confidential basis
the same to ANADYS. Nothing in this Section 2.7, however, shall be deemed to
require SEQUOIA to undertake an investigation of the existence of any such third
party rights now or at any time in the future with respect to Samples or Active
Compounds that are not the subject of an Access Election.

         2.8      Recollection of Biological Material.

                  2.8.1    Sourcing Through Sequoia's Collaborator for
Recollection. Upon request by ANADYS for additional samples of Biological
Materials for the uses described in this Agreement, SEQUOIA shall have the right
to first arrange through its collaborators to recollect the Biological Material
from which the Active Compound was obtained. Any agreement between the Parties
with respect to such recollection, including provisions relating to cost,
timing, quantities and the like, will be upon mutually agreeable terms which are
approved by Anadys and will further specify that ANADYS will bear all
agreed-upon costs associated with recollection of Biological Material and with
the preparation of the Active Compound by SEQUOIA. The Parties further agree
that SEQUOIA may isolate the desired Active Compounds for ANADYS or send the
bulk Biological Material to ANADYS for processing, at ANADYS's option.

                  2.8.2    Terms for Obtaining Biological Materials. ANADYS
shall not import, recollect or obtain in any way Biological Material, through
SEQUOIA'S collaborators, for research, development, manufacturing, or sale,
without the approval of SEQUOIA, which approval shall not be unreasonably
withheld. The fees charged to ANADYS by SEQUOIA (or its collaborators, as
appropriate) shall be commercially reasonable relative to the cost of obtaining
the Biological Materials, in appropriate quantities, from other sources. Should
such terms and costs offered by SEQUOIA not be better than those from another
source, then ANADYS will be free to obtain Biological Material from sources
other than SEQUOIA or its collaborator. Nothing herein shall prevent ANADYS from
developing or manufacturing Active Compounds, Analogs, or Products from sources
other than Biological Materials.

         2.9      Compliance with International Biodiversity Regulations

                  2.9.1    Adherence to Regional and National Laws. SEQUOIA
shall adhere to the 1993 Convention on Biological Diversity (CBD), the 1973
Convention on International Trade in Endangered Species of Wild Fauna and Flora
(CITES), and other regional and national laws and

                                       8
<PAGE>

policies concerning biodiversity, and will endeavor to minimize environmental
impacts of collecting Biological Materials. Relevant provisions of the CBD
include: the sovereign rights of states over their biological resources; the
concern that biological diversity is being significantly reduced by certain
human activities; the need to provide additional scientific information about
biological diversity that may contribute to its conservation and sustainable use
of biological diversity; the need to promote fair and equitable sharing of the
benefits arising out of the utilization of genetic resources, including benefits
that arise from traditional knowledge; and the need to respect and maintain the
knowledge and practices of indigenous communities that are relevant for the
conservation and sustainable use of biological diversity.

                  2.9.2    Responsibilities of SEQUOIA. In connection with
collecting Biological Materials, SEQUOIA (either directly or through its
collaborators) shall be responsible for obtaining all necessary agreements,
permits, approvals, and consents from foreign and domestic organizations,
governmental agencies, and other people or entities with legal authority to
control access to an area in which collecting activities are to be conducted,
and representatives or governing bodies of indigenous peoples who traditionally
reside in or use such areas. Upon request from ANADYS, SEQUOIA shall provide
documentation regarding such agreements, permits, and approvals for Biological
Materials provided under this Agreement.

                  2.9.3    Compliance With Other Regulations. In performing
their obligations under this Agreement, the Parties will comply with all
applicable present and future orders, regulations, requirements and laws of any
and all federal, state and local authorities and agencies, including without
limitation laws and regulations applicable to the transportation, storage, use,
handling and disposal of hazardous materials.

                                3. LICENSE GRANT

         3.1      License Grant. SEQUOIA hereby grants to ANADYS during the term
of this Agreement, a non-transferable, non-sublicensable, nonexclusive,
royalty-free license under SEQUOIA Proprietary Rights to screen the Samples.
Nothing contained within this Section 3.1 shall be deemed to grant any rights or
other interests in favor of ANADYS with respect to any Patents, trade secrets,
know-how or any other proprietary rights of SEQUOIA discovered, developed or
acquired other than as expressly set forth in this Agreement.

         3.2      Rights to Use and Test Samples. As part of the foregoing
license, ANADYS has the right to use the Samples in any lawful manner in assays,
testing, research, and development. ANADYS shall have complete discretion in all
technical matters. If requested, SEQUOIA shall assist ANADYS in such efforts.

         3.3      Limited Use and Confirmation by a Third Party. ANADYS agrees
and acknowledges that the Samples are provided to ANADYS for purposes consistent
with this Agreement and that any other use of the Samples will be a material
breach of this Agreement Notwithstanding the foregoing, ANADYS shall have the
right to use the data derived from screening the Samples freely, without
limitation or restrictions, for any purpose; provided that ANADYS shall not
publicly disclose chemical structural information of Active Compounds in

                                       9
<PAGE>

such a way that would undermine SEQUOIA'S rights under Section 7.4 of this
Agreement. Consistent with SEQUOIA's obligations to its collaborators, ANADYS
agrees not to transfer Biological Material or Samples provided to ANADYS by
SEQUOIA to a third party without the prior written consent of SEQUOIA. ANADYS
may, however, send Active Samples or Active Compounds to a third party for
screening a particular assay to confirm prior results obtained by ANADYS or to
confirm the chemical structure determined by SEQUOIA. ANADYS shall ensure that
it retains all rights associated with the Active Compounds or Analogs, with
respect to the third party and will report the identity of the third party to
SEQUOIA within ten (10) business days of the transfer of the material to the
third party, unless the Active Compound is subject to an Access Election by
ANADYS, in which case no such notice to SEQUOIA shall be required. Once ANADYS
has made an Access Election with respect to an Active Compound, ANADYS is under
no obligation to report the occurrence of such transfer or the identity of any
third party transferee to SEQUOIA. This Section 3.3 is not intended to limit in
any way activities which ANADYS deems necessary for the development or
commercialization of any Active Compound or Analog, as is contemplated under
this Agreement.

                4. DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS

         4.1      Development of Active Compounds or Analogs. ANADYS shall be
solely responsible and shall have sole discretion for evaluating the potential
for development and commercialization of all Active Compounds or Analogs. In
addition, ANADYS has the right to sublicense Active Compounds. ANADYS, its
Affiliates or sublicensee, or its subcontractor shall be responsible for
conducting all development and evaluations of any Active Compound or Analog and
for filing and obtaining government approval of any such Product(s).

                               5. RESEARCH FUNDING

         5.1      Pilot Study Within [...***...] ([...***...]) business days
following the Effective Date, ANADYS will pay SEQUOIA [...***...] Dollars
($[...***...]) to fund the Pilot Study.

         5.2      Phase 2. In the event that Phase 2 is triggered, ANADYS will
provide research support for [...***...] ([...***...]) FTEs at SEQUOIA for
twelve (12) months. The FTEs will work on research described in Sections 2.2.1,
2.2.2, 2.3.1, 2.3.2, 2.5 and 2.6.2. The funding rate will be $[...***...] per
FTE per year. Any additional research requested by ANADYS during or after the
first twelve months will also be funded at the rate of $[...***...] per FTE per
year; provided, however, that if the twelve (12) month work period is extended
to eighteen (18) months pursuant to either Section 2.2.2 or Section 2.3.1, such
extension alone shall not be deemed a request for additional research and no
additional research funding payments will be required by virtue of such
extension.

         5.3      Access Election Fees. Pursuant to Section 2.4.1, ANADYS will
pay SEQUOIA $[...***...] for each Access Election for each of the first ten (10)
Active Compounds elected pursuant to Section 2.4 and $[...***...] for each
Active Compound so elected thereafter. For all Access Elections that occur
during 2002 or 2003, these payments will accumulate until January 1, 2004 and be
due on February 1, 2004. For Access Elections that occur after January 1, 2004,

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       10
<PAGE>

these payments will be made by ANADYS to SEQUOIA within thirty (30) days from
the date of the Access Election as described in Section 2.4.1.

         5.4      Payments for Milestones Achieved by ANADYS. ANADYS shall pay
SEQUOIA non-refundable, non-creditable, one-time-only milestone payments in the
amounts indicated in Table 1 upon the occurrence of the Milestones set forth in
Table 1 with respect to any Active Compound or Analog that is developed by
ANADYS, its Affiliates or sublicensees. Each milestone payment shall be payable
only upon the first occurrence of each Milestone with respect to any Active
Compound or Analog thereof.

Table 1. Milestones and Milestone Payments

<TABLE>
<CAPTION>
           Milestone                           Payment to Sequoia
-------------------------------                ------------------
<S>                                            <C>
In vivo efficacy demonstration                    $[...***...]
IND Filing                                        $[...***...]
Initiation of Phase III studies                   $[...***...]
First Marketing Approval                          $[...***...]
</TABLE>

         5.5      Royalties. ANADYS shall pay to SEQUOIA a [...***...] percent
([...***...]%) royalty on Net Sales of Product(s). ANADYS's obligation to pay
royalties shall begin on the date of the first commercial sale of Product in any
country, and shall end upon (a) the date valid, unexpired claims covering such
Product in that country have expired, or (b) [...***...] ([...***...]) years
from the date of the first arms-length commercial sale of product in that
country, whichever is earlier.

                          6. TERMS OF RESEARCH FUNDING

         6.1      Research Fees. Within ten (10) business days of the Effective
Date, ANADYS will pay SEQUOIA the research fee described in Section 5.1. If
Phase 2 is commenced, ANADYS will pay SEQUOIA a total of $[...***...] payable as
follows: The first $[...***...] will be due within ten (10) days after the Phase
2 Commencement Date, but not prior to January 1, 2003 and the second
$[...***...] will be due ninety (90) days after the first $[...***...] payment.
The first Phase 2 payment of $[...***...] will be received by SEQUOIA prior to
shipment of the [...***...] additional Samples to ANADYS. Payments by ANADYS
will be due thirty (30) days from the date of invoice. Invoices will be sent to
Chief Financial Officer, Anadys Pharmaceuticals, 9050 Camino Santa Fe, San
Diego, CA 92121. All payments shall be in US dollars.

         6.2      Milestone Payments. Upon the occurrence of any of the
milestones listed in Section 5.4, Table 1, ANADYS will notify SEQUOIA in writing
within thirty (30) days of completion of each milestone. ANADYS will pay to
SEQUOIA the milestone payments as set forth in Section 5.4, Table 1, within
sixty (60) days of such notice. All payments shall be in US dollars.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       11
<PAGE>

         6.3      Royalty Payments by ANADYS. Royalties shall be calculated semi
annually as of June 30 and December 31 (each being the last day of an
"Accounting Period') and shall be payable on a semi-annual basis within ninety
(90) days after the end of each Accounting Period in which such Net Sales occur.
"Accounting Period" means a calendar half commencing respectively on January 1
and July 1, each being the first day of an Accounting Period, and finishing
respectively on June 30 and December 31, each being the last day of an
Accounting Period. All payments shall be in US dollars.

         6.4      Royalty Reports. ANADYS shall furnish to SEQUOIA at the time
each royalty payment is made, a written report of the Net Sales of the
Product(s) and the royalty due and payable, on a country-by-country basis, for
the Accounting Period upon which the royalty payment is based. Royalty reports
shall contain the following information: gross sales of Product(s) in each
country of sale, with adjustments and calculation of Net Sales in the currency
of sale, and conversion into U.S. dollars, together with the exchange rates used
for conversion. SEQUOIA shall maintain all such reports in confidence. The
buying rates involved for the currency of the United States into which the
currencies involved are being exchanged shall be the one quoted by The Wall
Street Journal at the close of business on the last business day of the relevant
Accounting Period. Such amounts shall be paid without deduction, except as
required by law, of any withholding taxes, value-added taxes, or other charges
applicable to such payments

         6.5      Inspection of Books and Records. ANADYS shall maintain
accurate books and records that enable the calculation of milestone payments and
royalties payable hereunder to be verified. ANADYS shall retain the books and
records for each Accounting Period for two (2) years after the submission of the
corresponding reports or notifications under Section 6.4. Upon the written
request of SEQUOIA, at least thirty (30) days in advance, and not more than once
in each calendar year, ANADYS will permit SEQUOIA's independent certified public
accountant to have access during normal business hours to such of the records of
ANADYS as may be reasonably necessary to verify the accuracy of the reports
submitted to SEQUOIA hereunder for the 12 months preceding the date of such
request. SEQUOIA shall not be entitled to inspect or audit the same records more
than once. The accounting firm shall report to SEQUOIA only whether there has
been an underpayment and, if so, the amount thereof. No other information will
be provided to SEQUOIA. The foregoing access shall be permitted during the term
of this Agreement and after the expiration or termination of this Agreement,
provided milestone or royalty obligations hereunder are still in effect. Any
such inspection or audit shall be at SEQUOIA's expense. SEQUOIA will treat all
financial information subject to review under this Section 6.5 in accordance
with the confidentiality provisions of Section 8 and will cause its accounting
firm to enter into an acceptable confidentiality agreement with ANADYS
obligating such firm to retain all such financial information in confidence
pursuant to such confidentiality agreement.

         6.6      Benefit Sharing. SEQUOIA has entered into contracts requiring
SEQUOIA to pay portions of the payments that it may receive pursuant to Sections
5.1, 5.2, 5.3 5.4 and 5.5 to certain of its collaborators as access fees and to
promote conservation of biological diversity. Such payments shall be the sole
responsibility of SEQUOIA.

                                       12
<PAGE>

                7. OWNERSHIP OF MATERIALS, INTELLECTUAL PROPERTY

         7.1      Sole and Joint Inventions. All inventions made solely by
employees or agents of a single Party in the course of performing work under
this Agreement ("Sole Inventions") shall be owned solely by that Party. All
Inventions jointly made by employees or agents of both Parties in the course of
performing work under this Agreement ("Joint Inventions") shall be owned solely
by ANADYS and shall be assigned to ANADYS, consistent with the terms of Sections
2.4, 2.7, and 5.3 and of this Agreement. In addition, all intellectual property
generated by employees or agents of SEQUOIA that is based on or derived from
ANADYS Proprietary Rights shall be assigned to ANADYS.

         7.2      Patent Costs and Filing Fees. Any Party who is the owner of a
Sole Invention shall have the right to prepare, file, prosecute, and maintain
patent applications and patents throughout the world in countries of its choice
regarding the invention, at its own expense. With respect to Joint Inventions,
ANADYS shall diligently prepare, file, prosecute, and maintain the patents in
its sole discretion and at its sole expense. In the event that SEQUOIA does not
file, prosecute or maintain patent applications for its Sole Inventions, or
decides to abandon prosecution of a filed application for any of its Sole
Inventions, then ANADYS shall have the right, but not the obligation, to file,
prosecute and/or maintain such patent(s) in its own name and at its own expense,
and SEQUOIA shall assign to ANADYS the rights to such Sole Invention.

         7.3      Cooperation in Filing. The Parties agree to cooperate with
each other in preserving and perfecting each other's intellectual property
rights that arise in the course of work under this Agreement or arising out of
this Agreement, and in particular agree that their personnel shall sign
documents as and when provided to comply with patent laws and regulations,
including inventor declarations and assignments of ownership worldwide.

         7.4      ANADYS Elects Not to File Patent. In the event ANADYS, its
Affiliates or its sublicensees elecs not to file or continue to prosecute an
application for a patent on a Joint Invention, or to abandon an issued patent on
a Joint Invention in any country, ANADYS shall notify SEQUOIA, and thereafter
SEQUOIA, at its expense and in its sole discretion, shall have the right to file
a patent on such Joint Invention or to pursue prosecution of such patent
application or maintenance of such issued patent. ANADYS shall assist SEQUOIA at
SEQUOIA's expense in filing, obtaining and maintaining such patents (including
assigning or licensing such inventions or Patents to SEQUOIA). All such Patents
that are obtained by SEQUOIA at its expense under this Section 7.4 shall be
assigned to SEQUOIA. Such assignment shall take place in a timely manner to meet
any external requirement concerning prosecution matters and paying prosecution
and maintenance costs.

         7.5      Data and Information. Each Party shall own all data and
information created by the Party. Notwithstanding the foregoing, should SEQUOIA
assign an invention to ANADYS pursuant to Section 7.1, ownership of all data and
information associated with the invention shall also be assigned over to ANADYS.

                                       13
<PAGE>

                               8. CONFIDENTIALITY

         8.1      Confidential Information. The Parties agree to treat as
confidential any and all Confidential Information obtained from each other. The
material terms of this Agreement shall also be considered confidential.
Notwithstanding the foregoing, Confidential Information may be disclosed to the
extent required by any law or regulation of any governmental authority having
jurisdiction over any of the Parties, with appropriate efforts made to maintain
confidentiality.

         8.2      Maintaining Confidential Information. Both Parties shall
maintain Confidential Information in confidence as set forth herein, for a
period of [...***...] ([...***...]) years beyond termination or expiration of
this Agreement. Upon request from either Party, the confidentiality of specific
Confidential Information may be maintained for a longer time, as the Parties may
subsequently agree in writing. The foregoing obligations will not apply to
information that the receiving Party can establish by written records: (a) was
known by the receiving Party prior to the receipt of the Confidential
Information; (b) was disclosed to the receiving Party by a third party having
the right to do so; (c) was, or subsequently became, in the public domain
through no fault of the receiving Party, its officers, directors, employees or
agents; (d) was independently developed by the receiving Party without use of
the Confidential Information; (e) was disclosed with the written consent of the
Party from whom the information was obtained; or (f) was disclosed by the
receiving Party pursuant to any judicial, governmental or stock exchange
request, requirement or order, so long as the receiving Party provides the
disclosing Party with sufficient prior notice to contest such request,
requirement or order.

         8.3      Scientific Publications. Subject to the confidentiality
provisions set forth herein, the Parties agree to cooperate in making the
results of research conducted under this Agreement available for publication.
Prior to submission for publication of any manuscript relating to the research
described herein, SEQUOIA and ANADYS shall provide each other with a copy at
least thirty (30) days prior to any scheduled publication or presentation date.
Upon request, publication will be delayed for up to sixty (60) days from the
date of notification by the other Party to allow a patent application to be
filed. In lieu of a delay, the information identified as Confidential
Information belonging to a Party shall be deleted. It is contemplated that
SEQUOIA and its collaborators will be recognized as co-authors on any scientific
publications that are produced or otherwise as appropriate, consistent with
professional and legal standards, and in any event to be acknowledged as the
source of the Biological Material and any associated information.

         8.4      Public Release of Information. Except as set forth in this
section, neither Party may use or permit others to use the name, trademarks or
Confidential Information of the other Party, without the advance written consent
of that Party. Foreign government agencies that have executed plant collection
agreements with SEQUOIA have requested and SEQUOIA has agreed that they will be
notified of the identity of transferees of Samples hereunder, of agreements such
as this Agreement, and of progress of milestones reached and general fields of
commercial interest for the Samples or compounds therein. ANADYS acknowledges
that nothing herein prohibits SEQUOIA from advising such agencies that ANADYS is
a transferee of Samples hereunder. The Parties shall consult with each other
regarding the form and content of any

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       14
<PAGE>

public announcements or disclosures and will not make any public announcement or
disclosure without notifying the other Party in advance and receiving their
prior written approval.

                        9. REPRESENTATION AND WARRANTIES

         9.1      Representations and Warranties. Each Party represents and
warrants that (i) it has all necessary right and authority to enter into and
perform this Agreement; (ii) it has obtained or will obtain all consents,
licenses or other permits needed by it to perform this Agreement and it will
comply with all applicable laws; (iii) it has sufficient legal and/or beneficial
title under its intellectual property rights necessary to perform activities
contemplated by this Agreement and to grant the licenses and assignments
contained in this Agreement; and (iv) it is not under any duty to, and has not
entered into an agreement with, any third party that is in conflict with this
Agreement. SEQUOIA further covenants to ANADYS that any payments or obligations
that it has owing at any time to any third party shall be made or fulfilled in a
manner so as not to adversely affect, directly or indirectly, any of ANADYS'
rights under this Agreement.

         9.2      Limitations. Biological Material, Samples and other material
delivered pursuant to this Agreement are understood to be experimental in nature
and may have hazardous properties requiring the receiving Party to take
appropriate precautions to minimize any health risk. NEITHER PARTY MAKES ANY
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR
IMPLIED, EXCEPT AS SET FORTH ABOVE. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE
MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER
PROPRIETARY RIGHTS.

         9.3      Employee Proprietary Information and Inventions Agreement.
Each Party represents and warrants that each employee of that Party, as a
condition of employment, is required to execute and deliver an employee
proprietary information and inventions agreement, which assigns all inventions
conceived by such officer or employee to that Party.

                               10. INDEMNIFICATION

         10.1     ANADYS Indemnity. ANADYS shall indemnify and hold SEQUOIA, its
officers, directors, shareholders, owners, employees, and agents ("SEQUOIA
Indemnitees") harmless from all suits, claims, demands, judgments, liabilities,
costs, charges, or expenses (including reasonable attorney's fees) (collectively
"Losses") to which the SEQUOIA Indemnitee may become subject as a result of any
claim, demand, action or other proceeding by any third party to the extent that
such Losses result from ANADYS's development, manufacture, use, or sale of any
Biological Material, Samples, Active Samples, Active Compounds, Analogs, or
Products, except those resulting from any production, manufacture, or use of the
Biological Material, Samples, Active Samples, Active Compounds, Analogs and/or
Products by SEQUOIA pursuant to this Agreement or the gross negligence or
willful misconduct (whether by act or omission) on the part of SEQUOIA or its
collaborators.

                                       15
<PAGE>

         10.2     SEQUOIA Indemnity. SEQUOIA shall indemnify and hold ANADYS,
its officers, directors, shareholders, owners, employees, and agents ("ANADYS
Indemnitees") harmless from all Losses to which the Anadys Indemnitee may become
subject which result from (i) any production, manufacture, or use of the
Biological Material, Samples, Active Samples, Analogs, Active Compounds and/or
Products by SEQUOIA pursuant to this Agreement; (ii) the gross negligence or
willful misconduct (whether by act or omission) on the part of SEQUOIA or
collaborators; and (iii) the breach by SEQUOIA of any of its representations,
warranties or covenants set forth in Section 9 of this Agreement.

                            11. TERM AND TERMINATION

         11.1     Term. This Agreement has an initial term of two (2) years from
the Effective Date.

         11.2     Survival. The obligations and rights contained in Sections
2.2.4, 2.4.1, 2.4.2, 2.5, 2.7, 4, 5, 6, 7, 8, 9, 10, 11.2, 11.3, 11.5, 12 and 13
shall survive the expiration or other termination of this Agreement.

         11.3     Return of Materials. Upon termination or expiration of this
Agreement, each Party shall promptly return to the other Party all Confidential
Information received from the other Party (except one copy of which may be
retained for archival purposes).

         11.4     Permissive Termination. In the event that either Party shall
be in default of any obligation hereunder, either Party shall have the right to
terminate this Agreement by giving thirty (30) days written notice to the
defaulting Party, specifying the basis for termination. If, within such thirty
(30) day period, the Party who received notice takes steps necessary to remedy
the default, such notice shall cease to be operative, and this Agreement shall
continue in full force. The waiver of a breach hereunder may be effected only by
a writing signed by the waiving Party and shall not constitute a waiver of any
other breach. Notwithstanding the foregoing, if ANADYS has not made an Access
Election on an Active Compound pursuant to the provisions of Section 2.4.1 prior
to termination as per this Section 11.4, SEQUOIA, in its sole discretion, may
elect to file a patent on any such Active Compound pursuant to the provisions of
Section 7.4. In the event of any liquidation, dissolution or winding up of
SEQUOIA, either voluntary or involuntary, ANADYS shall have the right to
terminate this Agreement immediately. In the event of an Anadys Corporate Event,
ANADYS shall have the right to terminate this Agreement upon ten (10) days
written notice to SEQUOIA, which notice may be provided prior to, but contingent
on, the consummation of such ANADYS Corporate Event.

         11.5     Bankruptcy Rights. In the event that this Agreement is
terminated or rejected by a Party or its receiver or trustee under applicable
bankruptcy laws due to such Party's bankruptcy, and if this Agreement is not
earlier terminated pursuant to Section 11.4 above, then all rights and licenses
granted under or pursuant to this Agreement by such Party to the other Party
are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the
Bankruptcy Code and any similar law or regulation in any other country, licenses
of rights to "INTELLECTUAL PROPERTY" as defined under Section 101(52) of the
Bankruptcy Code. The Parties agree that all intellectual

                                       16
<PAGE>

property rights licensed hereunder, including without limitation any patents or
patent applications in any country of a Party covered by the license grants
under this Agreement, are part of the "INTELLECTUAL PROPERTY" as defined under
Section 101(52) of the Bankruptcy Code subject to the protections afforded the
non-terminating Party under Section 365(n) of the Bankruptcy Code, and any
similar law or regulation in any other country.

                             12. DISPUTE RESOLUTION

         12.1     Resolution. If ANADYS and SEQUOIA, are unable to resolve any
dispute between them, either ANADYS or SEQUOIA may, by written notice to the
other, have such dispute referred to the CSO of ANADYS and SEQUOIA (or their
designees or equivalents), for attempted resolution by good faith negotiations
within twenty-one (21) days after such notice is received. If the Parties are
unable to resolve such dispute within such twenty-one (21) day period, either
Party shall have the right to pursue any and all other remedies available to
such Party.

                          13. MISCELLANEOUS PROVISIONS

         13.1     Governing Law. This Agreement shall be governed by the laws of
the state of California, without reference to any rules of conflict of laws.

         13.2     Independent Contractors. The relationship of the Parties
established by this Agreement is that of independent contractors. Nothing in
this Agreement shall be construed to create any other relationship between the
Parties. Neither Party shall have any right, power or authority to assume,
create or incur any expense, liability or obligation, express or implied, on
behalf of the other.

         13.3     Severability. If any term or provision of this Agreement is or
becomes invalid or held illegal or unenforceable by a court of competent
jurisdiction, then (i) it is the intention of the Parties that the remaining
terms or provisions of this Agreement shall not be affected thereby and shall be
enforced to the fullest extent permitted by law, and (ii) the Parties shall
renegotiate in good faith such invalid, illegal or unenforceable term or
provision in order to provide a reasonably acceptable alternative whose effect
on economic and business objectives shall be as similar as possible to the
effect intended by the Parties under the original invalid, illegal or
unenforceable term or provision, it being the intent of the Parties that the
basic purposes of this Agreement are to be effectuated.

         13.4     Notices. All written communications and notices between the
Parties under this Agreement shall be deemed given when delivered in person, or
when received by mail, postage prepaid, registered or certified mail, express
courier, or facsimile, to the addresses below, and with proof of delivery
received by the sender.

                  ANADYS:  VP, Corporate Development
                           9050 Camino Santa Fe
                           San Diego, CA 92121
                           USA

                                       17
<PAGE>

                  SEQUOIA: President & CEO
                           11199 Sorrento Valley Road, Suite H
                           San Diego, CA 92121
                           USA

or any other addresses of which either Party shall notify the other Party in
writing.

         13.5     Force Majeure. Neither Party will be liable for its failure to
perform any of its obligations hereunder during any period in which such
performance is delayed by acts of God, fire, ware, embargo, riots, strikes or
other similar cause outside the control of such Party; provided, however, that
in the event that such event of Force Majeure delays the performance of either
Party for a period in excess of ninety (90) days, the other Party shall have the
right to terminate this Agreement upon written notice.

         13.6     Assignment. Neither Party may assign or otherwise transfer
this Agreement or any of its rights or obligations hereunder without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld.

         13.7     Waiver. A failure of either Party to exercise any right or
remedy hereunder, in whole or in part, or on one or more occasions, will not be
deemed either a waiver of such right or remedy to the extent not exercised, or
of any other right or remedy, on such occasion or a waiver of any right or
remedy on any succeeding occasion. No waiver of any default, condition,
provisions or breach of this Agreement will be deemed to constitute a waiver of
any other default, condition, provision or breach of this Agreement. A waiver of
any default, condition, provision or breach of this Agreement will be in writing
duly signed by an authorized representative of the Party waiving such default,
condition provision or breach.

         13.8     Amendment. No amendment, modification or supplement to this
Agreement or any exhibit hereto or any of their provisions will be binding upon
either Party unless made in writing and duly signed by an authorized
representative of both SEQUOIA and ANADYS. In no event may the terms of this
Agreement be changed, deleted, supplemented or waived by any notice, purchase
order, receipt, acceptance, bill of lading or other similar form of document.

         13.9     Entire Agreement. This Agreement sets forth the entire
understanding and agreement of the Parties as to the subject matter hereof, and
supersedes and terminates all prior agreements and understandings between
Parties with respect to the subject matter hereof. There are no other
understandings, representations or promises, written or verbal, not set forth
herein or on which either Party has relied.

         13.10    Limitation of Liability. NEITHER PARTY WILL BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE
DAMAGES ARISING OUT OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF
LIABILITY.

                                       18
<PAGE>

         13.11    Headings. headings included herein are for convenience only,
do not form a part of this agreement and shall not be used in any way to
construe or interpret this Agreement.

         13.12    Construction. This Agreement will be construed without regard
to the drafting or non-drafting Party hereto.

         13.13    Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Counterparts may be signed
and delivered by facsimile, each of which will be binding when sent, and in each
case an original will be sent via overnight courier.

         IN WITNESS WHEREOF, the ANADYS and SEQUOIA have caused this Agreement
to be executed by their duly authorized representatives effective on the later
date stated below:

SEQUOIA SCIENCES, INC.                          ANADYS PHARMACEUTICALS, INC.

By:    ___________________________              By:    _________________________
       Gary Eldridge                                   Michael J. Kamdar
Title: President and CEO                        Title: Vice President, Corporate
                                                       Development and Strategy

Date:  ___________________________              Date:  _________________________

                                       19

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