Document:

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    "*** Text Omitted and Filed Separately Confidential Treatment Requested
              Under 17 C.F.R. Sections 200.80(b)(4) and 240.24b-2"

                                                                   EXHIBIT 10.38

================================================================================

                      LICENSE AND CO-DEVELOPMENT AGREEMENT

                                 BY AND BETWEEN

                   NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.

                                       AND

                          ANADYS PHARMACEUTICALS, INC.

================================================================================

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<TABLE>
<S>      <C>                                                                                    <C>
1.       DEFINITIONS AND INTERPRETATION.......................................................   1

2.       LICENSE..............................................................................  12

3.       OPTION RIGHTS........................................................................  13

4.       GOVERNANCE...........................................................................  18

5.       DISCLOSURE OF ANADYS KNOW-HOW & TECHNOLOGY TRANSFER..................................  20

6.       DEVELOPMENT..........................................................................  21

7.       COMMERCIALIZATION....................................................................  25

8.       CO-PROMOTION OPTION..................................................................  26

9.       FINANCIAL PROVISIONS.................................................................  28

10.      REPORTS AND PAYMENT TERMS............................................................  32

11.      INTELLECTUAL PROPERTY RIGHTS.........................................................  34

12.      EXCLUSIVITY..........................................................................  39

13.      CONFIDENTIALITY......................................................................  40

14.      TERM AND TERMINATION.................................................................  41

15.      EFFECT OF TERMINATION................................................................  43

16.      REPRESENTATIONS AND WARRANTIES.......................................................  44

17.      INDEMNIFICATION AND LIABILITY........................................................  46

18.      PUBLICATIONS AND PUBLICITY...........................................................  48

19.      GENERAL PROVISIONS...................................................................  49

EXHIBIT A - ANADYS COMPOUNDS

EXHIBIT B - ANADYS PATENTS

EXHIBIT C - FULLY BURDENED MANUFACTURING COSTS

EXHIBIT D - THIRD PARTY MANUFACTURING CONTRACTS

EXHIBIT E - SAMPLE INVOICE
</TABLE>

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                      LICENSE AND CO-DEVELOPMENT AGREEMENT

            This AGREEMENT is made as of this 1st day of June, 2005 (the
"EXECUTION DATE"), by and between Novartis International Pharmaceutical Ltd., a
limited company organized and existing under the laws of Bermuda ("NOVARTIS")
and Anadys Pharmaceuticals, Inc., a corporation organized and existing under the
laws of the State of Delaware ("ANADYS"). Novartis and Anadys are each referred
to individually as a "PARTY" and together as the "PARTIES."

                                    RECITALS

            WHEREAS, Anadys owns or controls the Anadys Patents and Anadys
Know-How (each as defined below) relating to the Anadys Compounds (as defined
below);

            WHEREAS, Novartis wishes to obtain, and Anadys wishes to grant,
rights to the Anadys Compounds in the Primary Fields and ID Field (each as
defined below);

            WHEREAS, the Parties wish to jointly develop the Lead Compound and
related Product (each as defined below) in the Primary Fields on a worldwide
basis;

            WHEREAS, Novartis will have the right to commercialize the Products
on a worldwide basis in the Primary Fields and the option to obtain rights to
commercialize Products on a worldwide basis in the ID Field, subject to Anadys'
option to co-promote the Product in the Primary Fields in the United States; and

            WHEREAS, the Parties acknowledge that the primary objective of the
collaboration will be to develop the Lead Compound as [...***...] with
[...***...] for the treatment of hepatitis C infected patients with such Product
meeting the specifications of the Target Product Profile (as defined below).

            NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Parties agree as follows.

1.    DEFINITIONS AND INTERPRETATION

      1.1   DEFINITIONS. Unless the context otherwise requires, the terms in
            this Agreement with initial letters capitalized, shall have the
            meanings set forth below, or the meaning as designated in the
            indicated places throughout this Agreement.

      "ACCOUNTING STANDARDS" means, with respect to Anadys, US GAAP (United
      States Generally Accepted Accounting Principles) and, with respect to
      Novartis, IFRS (International Financial Reporting Standards), in each
      case, as generally and consistently applied throughout such Party's
      organization.

      "AFFILIATE" means, in relation to a Party, any entity or person that
      controls, is controlled by, or is under common control with that Party;
      provided, however, [...***...]. For the purpose of this definition,
      "control" shall mean direct or indirect ownership of more than fifty
      percent (50%) of the shares of stock entitled to vote for the election of
      directors, in the

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      case of a corporation, or more than fifty percent (50%) of the equity
      interest in the case of any other type of legal entity, or any other
      arrangement whereby the entity or person has the power to elect a majority
      of the board of directors or equivalent governing body of a corporation or
      other entity, or the ability to cause the direction of the management or
      policies of a corporation or other entity.

      "ALLIANCE MANAGER" shall have the meaning set out in Clause 4.1.

      "ANADYS COMPOUNDS" means (a) ANA975 Compound [...***...], (b) the
      compounds identified in Exhibit A ([...***...]); and (c) any other
      compounds that [...***...] and owned or controlled by Anadys or its
      Affiliates as of the Effective Date or thereafter during the term of this
      Agreement ([...***...] of [...***...]). [...***...].

      "ANADYS KNOW-HOW" means any Know-How owned or controlled (including
      through a license with the right to sublicense to Novartis hereunder) by
      Anadys or its Affiliates as of the Effective Date or thereafter during the
      term of this Agreement relating to the Anadys Compounds and/or Products,
      their use, formulation, preparation or manufacture or which is necessary
      or useful for the development, manufacture, import, use or sale of the
      Anadys Compounds and/or Products.

      "ANADYS PATENTS" or "ANADYS PATENT RIGHTS" means the Patent Rights
      identified in Exhibits B-1 and B-2 and any other Patent Rights owned or
      controlled (including through a license with the right to sublicense to
      Novartis hereunder) by Anadys or its Affiliates as of the Effective Date
      or thereafter during the term of this Agreement having claims covering the
      Anadys Compounds and/ or Products, their use, formulation, preparation or
      manufacture or having claims which are necessary or useful for the
      development, manufacture, import, use or sale of the Anadys Compounds
      and/or Products.

      "ANADYS TECHNOLOGY" means the Anadys Know-How and Anadys Patent Rights.

      "ANADYS TLR7 COMPOUND" means a TLR7 Compound that is owned or controlled
      (including through a license with the right to sublicense to Novartis
      hereunder) by Anadys.

      "ANA380 COMPOUND" means the compound identified by the IUPAC name:
      [...***...], which is licensed from LG Life Sciences, Ltd. ("LG LIFE
      SCIENCES") to Anadys under the license agreement between LG Life Sciences
      and Anadys dated April 18, 2004 and the related Patent Rights and
      Know-How.

      "ANA975 COMPOUND" means the compound identified by the IUPAC name:
      [...***...].

      "CALENDAR QUARTER" shall mean the respective periods of three consecutive
      calendar months ending on March 31, June 30, September 30 and December 31.

      "CHANGE OF CONTROL" means any of the following events: (a) any Third Party
      (or group of Third Parties acting in concert) becomes the beneficial
      owner, directly or indirectly, of more than fifty percent (50%) of the
      total voting power of the stock then outstanding of Anadys normally
      entitled to vote in elections of directors (other than as a result of a
      bona fide equity financing transaction with arm's length financial
      investors); (b) Anadys consolidates with or merges into another
      corporation or entity, or any corporation or entity consolidates with or
      merges into Anadys, in either event pursuant to a transaction in which

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      more than fifty percent (50%) of the total voting power of the stock
      outstanding of the surviving entity normally entitled to vote in elections
      of directors is not held by the parties holding at least fifty percent
      (50%) of the outstanding shares of Anadys preceding such consolidation or
      merger; or (c) Anadys conveys, transfers or leases all or substantially
      all of its assets to a Third Party.

      "CLAIMS" means all Third Party demands, claims, actions, proceedings and
      liability (whether criminal or civil, in contract, tort or otherwise) for
      losses, damages, legal costs and other expenses of any nature whatsoever
      and all costs and expenses incurred in connection therewith.

      "COLLABORATION TLR7 COMPOUND" means an Anadys TLR7 Compound or a Novartis
      TLR7 Compound that has been designated as an "Collaboration TLR7 Compound"
      in accordance with Clause 3.5.

      "COMMERCIALIZATION BUDGET" means the estimated Commercialization Costs for
      a particular year, as set forth in a Rolling Forecast.

      "COMMERCIALIZATION COSTS" means, with respect to the Lead Compound and
      corresponding Product, expenses and other costs incurred by or on behalf
      of a Party that are directly related to the sale, promotion, pre-marketing
      and marketing of such Lead Compound and Product in the US. Without
      limitation of the generality of the foregoing, Commercialization Costs
      shall include (a) all reasonable costs and expenses paid to Third Parties
      by the Parties or their Affiliates in respect of Product marketing efforts
      in the US, (b) the direct costs of internal sales and marketing personnel
      and field sales force (for the avoidance of doubt, excluding the costs of
      managerial, financial, legal and business development personnel) engaged
      in the sale, promotion, pre-marketing and marketing of such Product in the
      US, which will be accounted for based on a commercially reasonable
      methodology and rate to be agreed upon by the US JMC, with the same
      methodology and rate applying to both Parties, (c) the direct cost of each
      Party's managed care organization engaged in activities with respect to
      the Product in the US, (d) the cost of Commercialization Studies of such
      Product for the US market, and (e) the costs of samples of the Product and
      promotional materials supplied. For purposes of calculating
      Commercialization Costs, the costs of detailing sales calls will be
      allocated as a set amount based on the position of the Product in a sales
      call as established by the US JMC (e.g., first, second and third position
      details would represent [...***...]%,[...***...]% and [...***...]%,
      respectively, of the cost of the call), with the same cost per call
      applying to both Parties. No cost or expense item included in
      Commercialization Costs shall include any [...***...] (it being understood
      that any personnel costs that are based on a set rate will not be
      considered to include any [...***...]). In addition, to the extent the
      activities giving rise to any item of Commercialization Costs relate to,
      or are conducted for the benefit of, multiple products and one or more of
      such products are not Product or multiple territories and one of which is
      the US, then such item of expense shall be allocated on a pro rata basis
      among such Product and other product(s) or among the US and other
      territories based upon a methodology to be established by the US JMC and
      applied equally to both Parties.

      "COMMERCIALIZATION STUDY" means [...***...].

      "COMPETITIVE PRODUCT" means, in a country where a particular Product is
      being commercialized by or on behalf of Novartis (or its Affiliate or
      sublicensee), a product

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      being commercialized in such country by a Third Party (other than a
      sublicensee of Novartis and other than a Third Party commercializing or
      distributing Product on behalf Novartis, its Affiliates or sublicensees),
      which product is a preparation in final form containing [...***...], any
      compound that is [...***...] or any compound that is [...***...] of the
      foregoing, and which is [...***...] as the Product being commercialized by
      or on behalf of Novartis (or its Affiliate or sublicensee) in such
      country.

      "CONFIDENTIAL INFORMATION" means all Know-How and other proprietary
      information and data of a financial, commercial or technical nature which
      the disclosing Party or any of its Affiliates has supplied or otherwise
      made available to the other Party, whether made available orally, in
      writing or in electronic form, including information comprising or
      relating to concepts, discoveries, inventions, data, designs or formulae
      in relation to this Agreement.

      "CO-PROMOTION OPTION" means the option described in Clause 8.

      "CO-PROMOTION OPTION PERIOD" means the period from the completion of the
      final study report from the first Phase 3 Clinical Trial for the Product
      until [...***...] ([...***...])[...***...] after the [...***...] for the
      Product in the US; provided, however, that if the JDC determines that the
      Product is likely to receive priority review by the FDA (which
      determination of likelihood shall be made by the JDC [...***...]
      ([...***...])[...***...] prior to [...***...]), the Co-Promotion Option
      Period shall end [...***...] ([...***...])[...***...] prior to the
      [...***...].

      "CO-PROMOTION PERIOD" means the period, if any, commencing on the exercise
      of the Co-Promotion Option by Anadys and continuing for so long as the
      Parties co-promote the Product in the US for the Primary Fields in
      accordance with this Agreement.

      "DEVELOPMENT BUDGET" means the budget for the development activities to be
      undertaken by the Parties under the Development Plan.

      "DEVELOPMENT BUDGET CAP" means the agreed upon maximum Development Budget
      to be shared by the Parties for the initial[...***...] ([...***...]) year
      period following the Execution Date, subject to Clause 6.5.

      "DEVELOPMENT COSTS" means expenses and other costs incurred by or on
      behalf of a Party that are directly related to the development of the Lead
      Compound and corresponding Product in accordance with the Development
      Plan, including the costs of pre-clinical activities, DMPK, supply of
      clinical material, manufacturing scale-up, CMC and toxicology activities,
      clinical trials (including Development Studies), the preparation,
      collation and/or validation of data from clinical trials and the
      preparation of medical writing and publishing; provided that Development
      Costs shall exclude the cost of Commercialization Studies. Without
      limitation of the generality of the foregoing, Development Costs include:

      (a) direct project related expenses paid by a Party or its Affiliates to
      Third Parties and specifically identifiable and incurred to develop such
      Product, such expenses to have been recorded as income statement items in
      accordance with the Party's Accounting Standards and not including
      [...***...] amounts, [...***...] or [...***...];

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      (b) the direct and indirect costs of internal scientific, medical or
      technical personnel of a Party or its Affiliates (including [...***...]
      and other [...***...] (which are included in the [...***...]), but for the
      avoidance of doubt, not including the costs of
      [...***...],[...***...],[...***...],[...***...], or [...***...] and
      [...***...]) engaged in development of Product, which costs shall be
      determined based on the [...***...];

      (c) the cost of [...***...] and [...***...] of such Product, including
      costs for the [...***...] and/or [...***...] and [...***...] (any
      [...***...] by Anadys prior to the Effective Date will be [....***...]
      when [...***...] or [...***...], which costs shall not exceed
      $[...***...]);

      (d) the costs of filings to obtain Regulatory Approvals for such Product;

      (e) the costs of [...***...],[...***...],[...***...] and/or [...***...] of
      such Product at [...***...] and [...***...];

      (f) the costs of [...***...], [...***...], [...***...]and/or [...***...]
      of [...***...], Anadys Compounds to the extent required by Regulatory
      Authorities in connection with Regulatory Approval of Product; and

      (g) the costs for prosecuting, obtaining and maintaining the [...***...]
      pursuant Clause [...***...] and [...***...] and [...***...] of the costs
      for [...***...],[...***...] and [...***...] the [...***...] and
      [...***...] pursuant Clause [...***...].

      For purposes of clarification, effective as of the Effective Date, any and
      all of the foregoing costs and expenses incurred by or on behalf of either
      Party during the period from the Execution Date to the Effective Date
      shall be included as Development Costs for purposes of this Agreement
      (including, without limitation, Section 6.5) provided that such costs and
      expenses are incurred in accordance with the Development Plan mutually
      agreed upon by the Parties as of the Execution Date (including the
      Development Budget included therein).

      No cost or expense item included in Development Costs shall include any
      [...***...] or [...***...] (it being understood that [...***...]
      determined based on the [...***...] will not be considered to include any
      [...***...] or [...***...]). Without limiting the generality of the
      foregoing, in order to ensure that subcontracting to Affiliates does not
      result in unnecessary increases in Development Costs, the Parties agree
      that Development Costs for any activity subcontracted by either Party to
      its Affiliate shall be calculated in the same manner as if such activity
      were performed by the Party itself.

      "DEVELOPMENT PLAN" means the development plan setting out: (a) the
      activities to be undertaken by the Parties in connection with the
      development of the [...***...] Compound and corresponding Product
      (including [...***...],[...***...],[...***...] and [...***...],[...***...]
      and [...***...] to be used in any clinical trials to be undertaken by the
      Parties), which activities are relevant to obtaining Regulatory Approval
      in the [...***...], and the allocation of the activities between the
      Parties; and (b) the activities to be undertaken by Novartis in connection
      with the development of the [...***...] Compound and corresponding Product
      (including [...***...], [...***...], [...***...] and [...***...],
      [...***...] and [...***...] to be used in any clinical trials to be
      undertaken by the Parties), which activities are not relevant to obtaining
      Regulatory Approval in the [...***...] ([...***...]); and including, in
      each case, the Development Budget

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      with the estimated Development Costs for such activities. The portion of
      the Development Plan for all activities to be conducted up to initiation
      of the [...***...] (including the budget for such activities) has been
      agreed upon by the Parties as of the Execution Date, subject to Clause
      4.2. A draft of the portion of the Development Plan for activities to be
      conducted from and after initiation of the [...***...] (including the
      budget for such activities) has been agreed upon by the Parties as of the
      Execution Date, and such draft will be finalized by the JDC, and approved
      in writing by the JSC, within [...***...] ([...***...]) days of the
      Effective Date.

      "DEVELOPMENT STUDY" means a clinical study for a Product in a country
      commenced prior to or after receipt of Regulatory Approval of the
      corresponding NDA or MAA for such Product in such country that the JDC
      determines is intended to support or maintain a filing with a Regulatory
      Authority for such Product (e.g., to support expanded labeling for such
      Product, or to satisfy requirements imposed by Regulatory Authorities in
      connection with the Regulatory Approval).

      "EFFECTIVE DATE" means the date this Agreement enters into effect as
      determined in accordance with Clause 19.16.

      "ENCUMBRANCE" means any claim, charge, equitable interest, hypothecation,
      lien, mortgage, pledge, option, license, assignment, power of sale,
      retention of title, right of pre-emption, right of first refusal or
      security interest of any kind.

      "FIRST COMMERCIAL SALE" means, with respect to a Product, the first arm's
      length sale to a Third Party for use or consumption of any such Product in
      a country after receipt of Regulatory Approval in such country or, if no
      such Regulatory Approval is required, the date upon which such Product is
      first commercially launched in such country.

      "FTE RATE" means [...***...] (consisting of a total of [...***...]), to be
      pro-rated on a daily basis if necessary ([...***...] to be [...***...] by
      [...***...] to produce the [...***...] consisting of [...***...]); such
      rate to exclude [...***...] activities and be restricted to [...***...].
      For the avoidance of doubt, such rate shall include all [...***...].

      "FULLY BURDENED MANUFACTURING COSTS" shall have the meaning set forth in
      Exhibit C.

      "HBV FIELD" means the treatment, diagnosis or prevention of hepatitis B
      virus ("HBV").

      "HCV FIELD" means the treatment, diagnosis or prevention of hepatitis C
      virus ("HCV").

      "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
      as amended, and the rules promulgated thereunder.

      "HSR FILING DATE" shall have the meaning set forth in Clause 19.16.

      "ID FIELD" means the treatment, diagnosis or prevention of infectious
      diseases outside of the Primary Fields.

      "IND" means an Investigational New Drug application in the US filed with
      the Food and Drug Administration (or any successor entity) ("FDA") or the
      corresponding application for the investigation of Products in any other
      country or group of countries, as defined in

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      the applicable laws and regulations and filed with the Regulatory
      Authority of a given country or group of countries.

      "JOINT DEVELOPMENT COMMITTEE" or "JDC" means the committee established as
      set out in Clause 4.4.

      "JOINT STEERING COMMITTEE" or "JSC" means the committee established as set
      out in Clause 4.2.

      "KNOW-HOW" means all technical information, know-how and data, including
      inventions, discoveries, trade secrets, specifications, instructions,
      processes, formulae, materials, expertise and other technology applicable
      to formulations, compositions, products or their manufacture, development,
      registration, use or marketing or methods of assaying or testing them or
      processes for their manufacture, formulations containing them,
      compositions incorporating or comprising them and including all
      biological, chemical, pharmacological, biochemical, toxicological,
      pharmaceutical, physical and analytical, safety, quality control,
      manufacturing, preclinical and clinical data, instructions, processes,
      formulae, expertise and information, relevant to the development,
      manufacture, use or sale of and/or which may be useful in studying,
      testing, development, production or formulation of products, or
      intermediates for the synthesis thereof.

      "LEAD COMPOUND" means the Anadys Compound selected by the JSC for lead
      development in the Primary Fields in accordance with the Development Plan,
      which, as of the Effective Date, is the ANA975 Compound.

      "MAA" means an application for the authorization for marketing of a
      Product in any country or group of countries outside the United States, as
      defined in the applicable laws and regulations and filed with the
      Regulatory Authority of a given country or group of countries.

      "MILESTONES" means the milestones relating to the Product as set out in
      Clause 9.2.

      "MILESTONE PAYMENTS" means the payments due by Novartis to Anadys upon the
      achievement of the corresponding Milestones as set out in Clause 9.2.

      "NDA" means a New Drug Application in the United States for authorization
      for marketing of a Product, as defined in the applicable laws and
      regulations and filed with the FDA.

      "NET SALES" means the gross amounts invoiced by or on behalf of Novartis,
      its Affiliates and their respective sublicensees for sales of Products to
      Third Parties that are not affiliates or sublicensees of the selling party
      (unless such affiliate or sublicensee is the end user of such Product, in
      which case the amount billed therefor shall be deemed to be the amount
      that would be billed to a Third Party end user in an arm's-length
      transaction), less the following deductions, determined in accordance with
      [...***...], to the extent included in the [...***...] of any Product or
      otherwise directly paid or incurred by [...***...] with respect to the
      sale of such Product:

      (a) normal and customary trade and quantity discounts actually allowed and
      properly taken directly with respect to sales of the Product; (b) amounts
      repaid or credited by reasons of

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      defects, rejection, recalls, returns, rebates and allowances of goods or
      because of retroactive price reductions specifically identifiable to the
      Product; (c) chargebacks and other amounts paid on sale or dispensing of
      such Product; (d) amounts payable resulting from governmental, regulatory
      or agency mandated rebate programs; (e) tariffs, duties, excise, sales,
      value-added and other taxes (other than taxes based on income); (f)
      retroactive price reductions that are actually allowed or granted; (g)
      cash discounts actually granted for timely payment; (h) delayed ship order
      credits actually granted; (i) discounts actually granted pursuant to
      indigent patient programs and patient discount programs, including,
      without limitation, "Together Rx" and coupon discounts; (j) all freight,
      postage and insurance included in the invoice price; (k) amounts repaid or
      credited for uncollectible amounts on previously sold products; and (l)
      [...***...] in gross amounts invoiced for Products, [...***...] for
      [...***...] to [...***...] and [...***...] in [...***...] to [...***...]
      in [...***...] net sales of [...***...].

      All the foregoing as determined in accordance with [...***...], which are
      in accordance [...***...]. In no event shall any item of Commercialization
      Costs or Fully Burdened Manufacturing Costs be deducted in determining Net
      Sales under this Agreement.

      In the event the Product is sold in a finished dosage form containing an
      Anadys Compound in combination with one or more other active ingredients
      (a "COMBINATION PRODUCT"), the Net Sales of the Product, for the purposes
      of this Agreement, shall be determined by multiplying the Net Sales (as
      defined above) of the Combination Product by the fraction, A/(A+B) where A
      is the weighted (by sales volume) average sale price in a particular
      country of the Product when sold separately in finished form and B is the
      weighted average sale price in that country of the other product(s) sold
      separately in finished form. In the event that such average sale price
      cannot be determined for both the Product and the other product(s) in
      combination, Net Sales for purposes of determining royalty payments shall
      be agreed by the Parties based on the relative value contributed by each
      component, such agreement shall not be unreasonably withheld.

      "NOVARTIS TLR7 COMPOUND" means a TLR7 Compound that is owned or controlled
      (including through a license) by Novartis.

      "PATENT RIGHTS" means all patents and patent applications, including all
      divisionals, continuations, substitutions, continuations-in-part,
      re-examinations, reissues, additions, renewals, extensions, registrations,
      and supplemental protection certificates and the like of any of the
      foregoing.

      "PHASE 2b CLINICAL TRIAL" means a controlled clinical study of the Product
      in human patients to evaluate its safety and efficacy in the proposed
      therapeutic indication at multiple doses and/or regimens, as more fully
      defined under the rules and regulations of the FDA (including in 21 C.F.R.
      Part 312.21(b), as amended and updated).

      "PHASE 2b HBV EFFICACY" means the occurrence of either of the following:
      (a) receipt of results of a Phase 2b Clinical Trial for the HBV indication
      of the Lead Compound using a [...***...] of the Lead Compound (or such
      other [...***...] as is selected by the JSC) demonstrating [...***...] and
      [...***...] into a [...***...] as determined by the JSC; or (b) a decision
      by the JSC to initiate a Phase 3 Clinical Trial of the Lead Compound in
      HBV patients based on the Target Product Profile.

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      "PHASE 2b HCV CLINICAL TRIAL" means a Phase 2b Clinical Trial in
      [...***...] with [...***...] for [...***...] (or other duration that the
      JSC agrees supports progression into a Phase 3 Clinical Trial), the trial
      protocol for which will be established by the JDC (or an appropriate
      committee established by the JDC) and approved by the JSC. For the
      avoidance of doubt, [...***...].

      "PHASE 2b HCV EFFICACY" means the occurrence of either of the following:
      (a) receipt of results of a Phase 2b HCV Clinical Trial using a
      [...***...] of the Lead Compound (or such other [...***...] as is selected
      by the JSC) demonstrating [...***...] and [...***...] into a [...***...]
      as determined by the JSC; or (b) a decision by the JSC to initiate a Phase
      3 Clinical Trial of the Lead Compound in HCV patients based on the Target
      Product Profile.

      "PHASE 3 CLINICAL TRIAL" means a pivotal clinical study of a Product in
      patients which protocol is designed to establish efficacy and safety of
      such Product for the purpose of preparing and submitting a NDA to the FDA
      or a MAA to another Regulatory Authority.

      "PHASE 3 CONFIRMATION OF EFFICACY" means the occurrence of either of the
      following: (a) receipt of results of a Phase 3 Clinical Trial for the HCV
      indication of the Lead Compound using a [...***...] of the Lead Compound
      (or such other [...***...] as is selected by the JSC) demonstrating
      [...***...] and [...***...] sufficient as defined by the Development Plan
      to [...***...] and filing of an NDA or a MAA filing with the EMEA for the
      Lead Compound as determined by the JSC based on the Target Product
      Profile; or (b) a decision by the JSC to file an NDA or a MAA with the
      EMEA for the Lead Compound based on the Target Product Profile.

      "PRIMARY FIELDS" means the HCV Field and HBV Field. "PRIMARY FIELD" shall
      mean either the HCV Field or the HBV Field, as applicable.

      "PRODUCT" means a product incorporating or comprising the Lead Compound or
      any other Anadys Compound in finished dosage pharmaceutical form,
      including, in each case, all formulations and modes of administration
      thereof, the development, manufacture, sale or use of such Lead Compound
      or other Anadys Compound (a) would, but for the license granted hereunder,
      infringe the Anadys Patent Rights or (b) incorporates or embodies Anadys
      Know-How.

      "PRODUCT PROFIT" means Net Sales of Products by Novartis, its Affiliates
      and sublicensees in the US, less the following amounts: (a) the Fully
      Burdened Manufacturing Costs of Products sold in the US; (b) an amount
      equal to [...***...] percent ([...***...]%) of the [...***...] amount for
      [...***...]; and (c) the direct cost of each Party's Scientific Operations
      organization engaged in activities with respect to the Product in the US
      and each Party's medical education activities relating to the Product in
      the US. No cost item subject to inclusion in the calculation of Product
      Profits will be included more than once in calculating Product Profits.

      "PROOF OF CONCEPT - [...***...]" means the occurrence of either of the
      following: (a) receipt of results from the [...***...] of[...***...] -
      [...***...] for the [...***...] of the Lead Compound demonstrating a
      [...***...] in at least [...***...] of [...***...] or greater at
      [...***...] ([...***...])[...***...] (or such other [...***...]that is
      accepted by the JSC) and an acceptable [...***...] and [...***...]
      ([...***...])[...***...] as [...***...]; or (b) a

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      decision by the JSC to initiate the Phase 2b HCV Clinical Trial of the
      Lead Compound based on the Target Product Profile.

      "PROOF OF CONCEPT - [...***...]" means the occurrence of either of the
      following: (a) [...***...] of [...***...] from the [...***...] of
      [...***...] - [...***...] for the [...***...] of the Lead Compound
      demonstrating a [...***...] in at least [...***...] of [...***...] or
      greater at [...***...] ([...***...])[...***...] (or such other [...***...]
      that is accepted by the JSC) and a [...***...] that is [...***...] to the
      [...***...] and an acceptable clinical safety profile that [...***...]
      ([...***...])[...***...] as [...***...]; or (b) a decision by the JSC to
      initiate the Phase 2b HCV Clinical Trial of the Lead Compound based on the
      Target Product Profile.

      "PROOF OF CONCEPT TRIAL - [...***...]" means the proof of concept trial
      (designated as the [...***...] by [...***...] as of the Effective Date)
      that (a) consists of at least [...***...],[...***...], and (b) uses an
      [...***...] (or other [...***...] approved by the JDC) of the Lead
      Compound.

      "PROOF OF CONCEPT TRIAL - [...***...]" means a clinical trial undertaken
      pursuant to the Development Plan approved by the JDC that (a) consists of
      at least [...***...],[...***...], (b) [...***...] ([...***...]) for the
      [...***...] of [...***...] the [...***...] and [...***...], (c) includes a
      [...***...], and (d) [...***...] a [...***...] of the Lead Compound.

      "REGULATORY APPROVAL" means, with respect to a Product, any approval
      (including pricing approval), registration, license or authorization from
      a Regulatory Authority with respect to the manufacture, development,
      commercialization, sale, storage or transport of such Product in a country
      or other jurisdiction that is necessary to market and sell such Product in
      such country or jurisdiction.

      "REGULATORY AUTHORITY" means any governmental agency or authority
      responsible for granting Regulatory Approvals for Products, including the
      FDA, the European Medicines Agency (or any successor entity) ("EMEA") and
      any national regulatory authorities.

      "ROYALTY PAYMENTS" means the royalty due by Novartis to Anadys on Net
      Sales as set out in Clause 9.3.

      "SALES REPORT" means a written report or reports showing each of: (a) the
      [...***...] of each Product in each country in the world during the
      reporting period by Novartis and each Affiliate and sublicensee; (b) the
      number of Products sold in each country in the world during the reporting
      period by Novartis and each Affiliate and sublicensee, and if applicable,
      the average sale price during the reporting period for each Product in any
      Combination Product; (c) the royalties, payable in United States Dollars,
      which shall have accrued under Clause 9.3 in respect of such sales and the
      basis of calculating those royalties; (d) withholding taxes, if any,
      required by law to be deducted in respect of any such sales; and (e) the
      US Dollar and local currency Net Sales by country.

      "TARGET PRODUCT PROFILE" means the target product profile setting out the
      specifications for the Product to be developed under this Agreement as
      agreed to by the Parties as of the Effective Date. The JSC shall
      periodically (but at least annually) review and, as appropriate, update
      the Target Product Profile.

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      "TECHNOLOGY TRANSFER PERIOD" shall mean the period beginning on the
      Effective Date and ending [...***...] ([...***...])[...***...] thereafter
      (subject to extension as reasonably necessary and mutually agreed by the
      Parties).

      "THIRD PARTY" means any entity or person other than a Party or an
      Affiliate of a Party.

      "TLR7 COMPOUND" means a [...***...] whose [...***...] is as an [...***...]
      or [...***...] of the Toll-Like Receptor 7, but excluding the Anadys
      Compounds.

      "TLR7 DRUG CANDIDATE" has the meaning provided in Clause 3.5(a).

      "TLR7 OPTION PERIOD" means the period commencing on the Effective Date and
      continuing until the [...***...] of the Effective Date.

      "TLR7 PRODUCT" means a product incorporating or comprising a Collaboration
      TLR7 Compound in finished dosage pharmaceutical form, including, in each
      case, all formulations and modes of administration thereof.

      "US JMC" means the committee established as set out in Clause 4.5.

      "USD" or "US$" means the lawful currency of the United States.

      "VALID CLAIM" means a claim of an issued patent that has not expired or
      been revoked, held invalid or unenforceable by a patent office, court or
      other governmental agency of competent jurisdiction in a final and
      non-appealable judgment (or judgment from which no appeal was taken within
      the allowable time period) or a claim within a patent application that has
      not been revoked, cancelled, withdrawn, held invalid or abandoned and
      which has not been pending for more than [...***...] from the date of its
      first filing.

      1.2 INTERPRETATION. In this agreement unless otherwise specified:

      (a)   "includes" and "including" shall mean includes and including without
            limitation;

      (b)   a Party includes its permitted assignees and/or the respective
            successors in title to substantially the whole of its undertaking;

      (c)   a statute or statutory instrument or any of their provisions is to
            be construed as a reference to that statute or statutory instrument
            or such provision as the same may have been or may from time to time
            hereafter be amended or re-enacted;

      (d)   words denoting the singular shall include the plural and vice versa
            and words denoting any gender shall include all genders;

      (e)   the Exhibits and other attachments form part of the operative
            provision of this Agreement and references to this Agreement shall,
            unless the context otherwise requires, include references to the
            recitals and the Exhibits and attachments;

      (f)   the headings in this Agreement are for information only and shall
            not be considered in the interpretation of this Agreement; and

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      (g)   general words shall not be given a restrictive interpretation by
            reason of their being preceded or followed by words indicating a
            particular class of acts, matters or things.

2.    LICENSE

      2.1   ANADYS TECHNOLOGY LICENSE. Subject to the terms and conditions of
            this Agreement, Anadys hereby grants to Novartis an exclusive (even
            as to Anadys), worldwide, sub-licensable (subject to Clause 2.2),
            royalty-bearing license, under the Anadys Technology, (a) to
            develop, make, have made, use, sell, have sold, offer for sale and
            import the Anadys Compounds and Products in the Primary Fields and
            (b) to develop, make and have made the Anadys Compounds and Products
            in the ID Field (but without any right to sell or commercialize in
            the ID Field, subject to Clause 3.1). The exclusivity of the
            foregoing license to commercialize Products in the Primary Fields in
            the US is subject to the Co-Promotion Option of Anadys as set out in
            Clause 8. Anadys will not have any right to develop, make, have
            made, use, sell, have sold, offer for sale or import the Anadys
            Compounds or Products in any field, except under this Agreement, and
            will not license, directly or indirectly, any Third Party the right
            to perform any of the foregoing activities with respect to Anadys
            Compounds or Products in any field.

      2.2   SUBLICENSE RIGHTS. Novartis may sublicense the rights granted to it
            by Anadys under this Agreement at any time. However, in respect of
            the license to the Lead Compound in the Primary Fields, Novartis may
            only sublicense its rights (a) [...***...], (b) [...***...] (i) at
            Novartis' option after the [...***...] and the [...***...] (if any),
            (ii) during the [...***...] and [...***...] (if any) upon the prior
            written approval of Anadys (not to be unreasonably withheld or
            delayed) and subject to Clause 6.10 and 7.3, or (iii) at any time to
            Affiliates of Novartis. Novartis shall provide Anadys with written
            notice of the grant of any such sublicense within [...***...]
            ([...***...])[...***...] thereafter. Notwithstanding the foregoing,
            Novartis may sublicense the right to commercialize and distribute
            the Product based on the Lead Compound to [...***...] provided,
            however, that Novartis shall not (and shall not permit its
            Affiliates to) [...***...] with respect to [...***...] such Product
            or any Anadys Compound, nor include any [...***...] of [...***...]
            of the [...***...] without the prior written consent of Anadys.
            During the Co-Promotion Period, in the event Novartis plans to
            sublicense its right to commercialize and/or distribute the Product
            based on the Lead Compound to any other Third Party, Novartis shall
            provide written notice of such determination to Anadys and shall
            offer to Anadys substantially the same terms and conditions it plans
            to offer any such third party. Upon Anadys' written request made
            within [...***...] ([...***...])[...***...] after receipt of such
            notice, Novartis will grant Anadys a [...***...]
            ([...***...])[...***...] exclusive negotiation period during which
            the Parties will negotiate in a good faith attempt to agree to the
            sublicensing terms for the commercialization and/or distribution of
            the Product [...***...].

      2.3   DEVELOPMENT LICENSES. Each Party hereby grants to the other Party a
            non-exclusive, non-sublicensable (except to Affiliates) license to
            its Patent Rights and Know-How solely to the extent necessary to
            permit such other Party to

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            perform its responsibilities relating to the Anadys Compound or
            Product under the Development Plan during the term of this
            Agreement.

      2.4   RETAINED RIGHTS. Subject to the licenses granted to each Party and
            the other terms of the Agreement, Anadys will retain all other
            rights under the Anadys Technology that are not expressly granted to
            Novartis and Novartis will retain all rights to its Know-How and
            Patent Rights.

      2.5   DILIGENCE. Novartis shall use commercially reasonable efforts,
            [...***...] the usual practice [...***...] in pursuing the
            development, commercialization and marketing of [...***...] similar
            pharmaceutical products with similar market potential and at a
            similar stage in development, to develop, commercialize and market
            at least one Product in the HCV Field
            [...***...],[...***...],[...***...],[...***...],[...***...],
            [...***...] and [...***...]. Subject to compliance with the
            foregoing, the commercialization and marketing of Products shall be
            [...***...]. For the avoidance of doubt, [...***...] has [...***...]
            this [...***...] to [...***...], [...***...] or [...***...] of
            Products [...***...] the [...***...],[...***...] to [...***...] the
            [...***...].

3.    OPTION RIGHTS

      3.1   ID FIELD LICENSE OPTION. During the term of this Agreement, Novartis
            will have the exclusive option ("ID FIELD LICENSE OPTION") to obtain
            an exclusive (even as to Anadys), worldwide, royalty-bearing
            license, with the right to sublicense, under the Anadys Technology,
            to research, develop, make, have made, use, sell, have sold, offer
            for sale and import one or more Anadys Compounds and Products in the
            ID Field or, solely if Novartis selects a different Anadys Compound
            than the Lead Compound, in the HBV Field. Novartis may exercise the
            ID Field License Option with respect to one or more Anadys
            Compounds, at any time and from time to time during the term of this
            Agreement, by providing written notice of such exercise to Anadys.
            Upon exercise of the ID Field License Option, the Parties will
            negotiate in a good faith attempt to agree the terms and conditions
            for the license to the applicable Anadys Compound and corresponding
            Product. The Parties agree that the Co-Promotion Option shall not
            apply to such a license.

      3.2   DEFAULT FOR SUBSEQUENT INDICATIONS. If the proposed license under
            Section 3.1 is for the Lead Compound in an indication outside of the
            Primary Fields or for an Anadys Compound that has previously been
            optioned under the ID Field License Option in a subsequent
            indication and the Parties cannot agree on the terms and conditions
            of the applicable license within [...***...]
            ([...***...])[...***...] of Novartis' exercise of the ID Field
            License Option, Novartis will have the right to obtain (and Anadys
            will grant) the license to the applicable Anadys Compound and
            corresponding Product in the indication under the terms and
            conditions of this Agreement as are applicable to the Lead Compound
            and its corresponding Product; provided, however, that (a) Anadys
            will not obtain a Co-Promotion Option for the Product, (b) Novartis
            will conduct all development at its own expense, (c) Novartis will
            pay a royalty [...***...], and (d) no [...***...] on the [...***...]
            or [...***...] of the applicable Anadys Compound or Product. For the
            avoidance of doubt, the foregoing default position will not apply to
            an [...***...]

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            (other than the [...***...]) for [...***...] or for [...***...]
            being optioned for [...***...].

      3.3   ANA380 OPTION RIGHT.

      (a)   [...***...], Anadys hereby grants to Novartis an exclusive option
            ("ANA380 OPTION") during the [...***...] ([...***...]) [...***...]
            period following the Effective Date ("ANA380 OPTION PERIOD") to
            [...***...] an [...***...] (or the [...***...] to [...***...] has
            [...***...],[...***...] license to [...***...] and [...***...] based
            on the [...***...] under the [...***...] and [...***...] of
            [...***...] including the [...***...]. Novartis may exercise the
            ANA380 Option [...***...].

      (b)   It is understood by Novartis that as of the Effective Date, Anadys
            has the rights to the ANA380 Compound in all countries in the world,
            except the following: South Korea, North Korea, China, Taiwan, Hong
            Kong, Macao, Bangladesh, Bhutan, Nepal, India, Sri Lanka, Pakistan,
            Thailand, Laos, Myanmar, the Philippines, Vietnam, Indonesia,
            Singapore, Malaysia, Brunei and Cambodia. During the ANA380 Option
            Period, Anadys will [...***...] (excluding [...***...] and
            [...***...]) to the ANA380 Compound [...***...] in order to
            [...***...] Novartis, upon agreement between Novartis and Anadys,
            with [...***...]. In the event Anadys [...***...] (which [...***...]
            (but excluding [...***...] and [...***...]) without [...***...] or
            [...***...] with [...***...] and [...***...] that is acceptable to
            Novartis) to the ANA380 Compound from [...***...] within [...***...]
            of the Effective Date and Novartis decides to exercise its ANA380
            Option, Novartis will [...***...] of [...***...] within [...***...]
            ([...***...]) [...***...] Anadys. In the event that Anadys
            [...***...] to the ANA380 Compound [...***...] within the
            [...***...] ([...***...])[...***...] period after the Effective Date
            and Novartis [...***...] the ANA380 Option with respect to
            [...***...], [...***...] to Novartis [...***...] of the [...***...]
            of [...***...] within [...***...] ([...***...])[...***...] of such
            [...***...], Novartis will have no [...***...] to [...***...] noted
            above, and the [...***...] Option (unless exercised as noted above)
            shall terminate as of such [...***...].

      (c)   Upon Novartis' exercise of the ANA380 Option, the Parties will
            negotiate in a good faith attempt to agree commercially reasonable
            terms and conditions for the license described in sub-Clause (a).
            The Parties agree that [...***...] ($[...***...]) (or [...***...]
            ($[...***...]) where Novartis is exercising the ANA380 Option to
            [...***...] has [...***...] as of the Effective Date) [...***...]
            the [...***...] by Novartis for the ANA380 Option under this Clause
            will be [...***...] any [...***...] to be agreed by the Parties
            under the terms and conditions of such license (it being understood
            that if the [...***...] to [...***...] for such license is less than
            $[...***...], Anadys shall not be obligated to [...***...] of the
            [...***...] Novartis). In the event the Parties cannot agree on the
            terms and conditions within [...***...] of Novartis' exercise of the
            option, Anadys will have the right to discuss with Third Parties the
            licensing of the ANA380 Compound. However, for a period of
            [...***...] ([...***...])[...***...] after the end of such
            [...***...] period, Anadys shall not [...***...] with respect to the
            ANA380 Compound that provides such [...***...], than those
            [...***...]. If Anadys proposes [...***...] during such [...***...]
            ([...***...])[...***...]

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            period, Anadys will [...***...] and [...***...] with [...***...]
            ([...***...])[...***...] to review and [...***...] for the ANA380
            Compound. In connection therewith, Anadys shall [...***...] and
            [...***...] to the [...***...] to the [...***...] (it being
            understood that all of such [...***...] shall be [...***...] of
            Anadys for purposes of this Agreement). In the event that
            [...***...] to [...***...] to the ANA380 Compound [...***...],
            Anadys [...***...] with [...***...] on [...***...].

      3.4   OTHER FIELDS. In the event that Novartis wishes to develop and
            commercialize a particular Anadys Compound or Product for one or
            more disease indications outside of the Primary Fields and ID Field,
            Novartis may provide Anadys with written notice thereof, and the
            Parties will negotiate in good faith for up to [...***...]
            ([...***...]) [...***...]regarding the economic and other terms
            under which Anadys would grant such a license; [...***...].

      3.5   TLR7 OPTION.

      (a)   During the [...***...] in respect of [...***...] and during the
            [...***...] (subject to sub-clause (f) after the [...***...]) in
            respect of [...***...], either Party (the "NOMINATING PARTY") may at
            any time propose an Anadys TLR7 Compound or Novartis TLR7 Compound,
            as applicable, to the other Party as a candidate for development in
            the Primary Fields under this Agreement (a "TLR7 DRUG CANDIDATE").
            As promptly as practicable following such notice, the Nominating
            Party shall provide to the other Party such available preclinical
            data in such Party's possession regarding such TLR7 Drug Candidate
            as is reasonably necessary to enable the other Party to evaluate
            such TLR7 Drug Candidate. For the avoidance of doubt, neither Party
            is obligated to nominate any TLR7 Compound for development under
            this Agreement and, after the [...***...], Novartis may [...***...]
            of any Novartis TLR7 Compound not included in this Agreement in the
            Primary Fields by itself or with any Third Party(ies).

      (b)   In the event Novartis proposes a TLR7 Drug Candidate as the
            Nominating Party during the TLR7 Option Period, Novartis may, at any
            time upon written notice to Anadys, designate such TLR7 Drug
            Candidate as a Collaboration TLR7 Compound.

      (c)   In the event Anadys proposes a TLR7 Drug Candidate as the Nominating
            Party under Clause 3.5(a), Novartis shall have [...***...]
            ([...***...]) [...***...] after the date upon which Anadys provides
            to Novartis the data relating to such TLR7 Drug Candidate under
            Clause 3.5(a) to notify Anadys in writing whether it wishes to
            designate such TLR7 Drug Candidate as a Collaboration TLR7 Compound
            for purposes of this Agreement. If Novartis does not designate a
            TLR7 Drug Candidate proposed by Anadys as the Nominating Party as a
            Collaboration TLR7 Compound, then after the expiration of the TLR7
            Option Period, the provisions of sub-clause (f) shall apply with
            respect to such TLR7 Drug Candidate.

      (d)   Promptly following the designation of an Anadys TLR7 Compound as a
            Collaboration TLR7 Compound, the Parties will negotiate in a good
            faith attempt to agree the terms and conditions for the license to
            such Collaboration TLR7 Compound and corresponding TLR7 Product
            (which may include co-promotion

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            rights for the US). If the Parties cannot agree on the terms and
            conditions of the applicable license, Novartis will have the right
            to obtain (and Anadys will grant) the license to such Collaboration
            TLR7 Compound and corresponding TLR7 Product in the Primary Fields
            on the same terms as this Agreement and the following economic
            terms:

            (i)   [...***...];

            (ii)  Anadys will share the development and commercialization costs
                  for such TLR7 Product in accordance with the provisions of
                  this Agreement relevant to the Lead Compound and corresponding
                  Product;

            (iii) Milestone Payment obligations as set forth in Clause 9.2,
                  subject to the provisions of Clauses 9 and 10; [...***...];
                  and

            (iv)  [...***...].

            For purposes of this Clause 3.5(d), all defined terms and all
            Clauses referenced above shall be construed as though references to
            "Products" in the applicable definition (or in the definition of
            defined terms used therein) or Clause were references to "TLR7
            Products."

            In the event the Parties cannot agree on the terms and conditions of
            the applicable license and Novartis does not elect to obtain the
            license on the foregoing terms, then after [...***...], the
            provisions of sub-clause (f) shall apply with respect to such TLR7
            Drug Candidate.

      (e)   Promptly following the designation of a Novartis TLR7 Compound as a
            Collaboration TLR7 Compound, Novartis will have the right to develop
            and commercialize such Collaboration TLR7 Compound and corresponding
            TLR7 Product in the Primary Fields, and Anadys may select either of
            the following options, in its discretion:

            (i)   Anadys will bear a share of Development Costs with respect to
                  such Collaboration TLR7 Compound in accordance with Clause
                  6.5, in which case Novartis shall pay royalties to Anadys on
                  Net Sales of the corresponding TLR7 Product in the Primary
                  Fields at the following rates:

                  (1)   [...***...]% of aggregate annual Net Sales in the US;
                        and

                  (2)   [...***...]% of aggregate annual Net Sales outside of
                        the US.

            Any such royalty payable by Novartis to Anadys under this Clause
            3.5(e)(i) will be subject to the provisions of Clauses 9 and 10,
            except that it will continue in effect until the earlier of (x)
            [...***...], and (y) the [...***...] pursuant to Clause [...***...]
            or [...***...]; or

            (ii)  Anadys will [...***...] with respect to such Collaboration
                  TLR7 Compound, in which case Novartis shall pay royalties to
                  Anadys on Net

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                  Sales of the corresponding TLR7 Product in the Primary Fields
                  at the following rates:

                        (1)   [...***...]% of aggregate annual Net Sales in the
                              US; and

                        (2)   [...***...]% of aggregate annual Net Sales outside
                              of the US; and

            Any such royalty payable by Novartis to Anadys under this Clause
            3.5(e)(ii) will be subject to the provisions of Clauses 9 and 10,
            except that it will continue in effect until the earlier of (x)
            [...***...], and (y) the [...***...] by [...***...] pursuant to
            [...***...] or [...***...]; provided, however, that [...***...] will
            [...***...] this [...***...] there [...***...] been a [...***...] of
            a [...***...] on an [...***...] this [...***...].

            For the avoidance of doubt, no Milestone Payments shall be payable,
            and there will be no co-promotion rights, with respect to TLR7
            Products incorporating or comprising a Novartis TLR7 Compound. For
            purposes of this Clause 3.5(e), all defined terms and all Clauses
            referenced above shall be construed as though references to
            "Products" in the applicable definition (or in the definition of
            defined terms used therein) or Clause were references to "TLR7
            Products."

      (f)   In the event that Anadys wishes to pursue development in the Primary
            Field(s) of a TLR7 Drug Candidate that is not designated a
            Collaboration TLR7 Compound under sub-clause (c) or a Collaboration
            TLR7 Compound that the Parties do not jointly develop as described
            in Clause (d), Anadys may pursue the development of such Anadys TLR7
            Compound in the Primary Field(s) itself or in connection with Third
            Parties [...***...] of the [...***...]. However, in the event that
            Anadys decides to develop or enter into a license or other
            arrangement in respect of development and/or commercialization of
            such Anadys TLR7 Compound in the Primary Field(s) with a Third
            Party, [...***...] will [...***...] and, upon [...***...] to
            [...***...] delivered within [...***...] ([...***...])[...***...] of
            such [...***...]by [...***...], the [...***...] will enter into
            [...***...] in a good faith attempt to [...***...] and [...***...]
            for a [...***...] to such [...***...] TLR7 Compound in the
            [...***...] Fields (unless the [...***...] have already [...***...]
            to [...***...] to the [...***...] and [...***...] in [...***...]
            with [...***...] ([...***...])). In the [...***...] the [...***...]
            on the terms and conditions [...***...] of [...***...] notice (or
            where the [...***...] to [...***...] to the terms and conditions in
            [...***...] with [...***...] ([...***...])),[...***...] will have
            the [...***...] to [...***...] with [...***...] the [...***...]or
            [...***...] of such [...***...] TLR7 Compound in the [...***...]
            Fields. However, [...***...] the [...***...] of [...***...] into
            [...***...] with [...***...] with [...***...] to [...***...] of
            [...***...] in the [...***...] that [...***...] with [...***...] and
            [...***...] as [...***...] than [...***...]. If [...***...] into
            [...***...] on [...***...] will [...***...]such [...***...] and
            [...***...] to [...***...] and [...***...] with [...***...]
            ([...***...])[...***...] and [...***...] and [...***...]for
            [...***...]. In connection therewith, [...***...] shall [...***...]
            with [...***...] and information relating to such [...***...] TLR7
            Compound to the [...***...] to [...***...] (it being understood that
            all of such data and information shall be deemed Confidential
            Information of Anadys for purposes of

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            this Agreement). In the event that [...***...] to [...***...] a
            [...***...] to such TLR7 Compound [...***...] and [...***...],
            Anadys [...***...] the [...***...] to [...***...] the [...***...]
            with [...***...] on [...***...].

      3.6   [...***...]. During the [...***...],[...***...] will [...***...] its
            [...***...] for any TLR7 Compounds that it develops in the ID Field.
            During the [...***...], Anadys will provide to Novartis a
            description of each such TLR7 Compound that Anadys nominates for
            pre-clinical development, along with available supporting
            information in sufficient detail to allow Novartis to analyze the
            compound and evaluate its potential (it being understood that all of
            such information shall be deemed Confidential Information of Anadys
            for purposes of this Agreement). Upon Novartis' written request made
            within [...***...] ([...***...])[...***...] after receipt of such
            description and supporting information, [...***...] will [...***...]
            a [...***...] ([...***...]) [...***...] the [...***...] in
            [...***...] to [...***...] to an [...***...] for [...***...].

4.    GOVERNANCE

      4.1   ALLIANCE MANAGERS. Within fifteen (15) days of the Effective Date,
            each Party will appoint a senior representative having a general
            understanding of pharmaceutical development and commercialization
            issues to act as its alliance manager under this Agreement
            ("ALLIANCE MANAGER"). The Alliance Managers will be primarily
            responsible for facilitating the flow of information and otherwise
            promoting communication, coordination and collaboration within and
            among the Joint Steering Committee and the sub-committees (JDC and
            US JMC) and between the Parties; providing single point
            communication for seeking consensus both internally within the
            respective Party's organization and together regarding key global
            strategy and planning issues, as appropriate, including facilitating
            review of external corporate communications; and raising cross-Party
            and/or cross-functional disputes to the JSC in a timely manner. Each
            Party may replace its Alliance Manager on written notice to the
            other Party.

      4.2   JOINT STEERING COMMITTEE.

      (a)   The Parties will establish a Joint Steering Committee, composed of
            two senior executives of Anadys and two senior executives of
            Novartis (each of which senior executives shall have a general
            understanding of pharmaceutical development and commercialization
            issues) and each Party's Alliance Manager.

      (b)   Within [...***...] ([...***...]) days of the Effective Date, each
            Party will designate its initial members to serve on the JSC and
            notify the other Party of the dates of availability for the first
            meeting of the JSC. Each Party may replace its representatives on
            the JSC on written notice to the other Party.

      (c)   The JSC will: (i) oversee the collaborative activities of the
            Parties under this Agreement; (ii) review the efforts of the Parties
            in performing their respective development activities hereunder;
            (iii) review and approve recommendations made by the JDC regarding
            proposed amendments to the Development Plan, except as otherwise
            provided in this Agreement; (iv) as necessary or appropriate,
            establish additional joint subcommittees and delegate
            responsibilities to such joint

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            subcommittees; and (v) consider and act upon such other matters as
            specified in this Agreement. Each Party may from time to time invite
            a reasonable number of participants, in addition to its
            representatives, to attend JSC meetings in a non-voting capacity.
            Novartis shall appoint one of its representatives on the JSC to act
            as chairperson of the JSC. The chairperson shall set agendas for JSC
            meetings, provided that the agendas will include any matter
            requested by either Party. The chairperson shall be responsible for
            recording, preparing and, within a reasonable time, issuing draft
            minutes of each JSC meeting, which draft minutes shall be subject to
            review and approval by all JSC members.

      (d)   The JSC will also be responsible for resolving disputes that may
            arise between the Parties or among the Parties' respective
            representatives on the JDC. Decisions of the JSC shall be made by
            unanimous vote, with each Party's representatives to the JSC
            collectively having one vote. In the event of a disagreement among
            the JSC, the matter shall be referred to the [...***...] (or a
            designee with similar authority to resolve such dispute) and the
            Chief Executive Officer of Anadys, who shall attempt in good faith
            to resolve such disagreement. If they [...***...] such [...***...]
            within [...***...] ([...***...]) [...***...] of the matter being
            referred to them, then the [...***...] and/or [...***...] of
            [...***...] shall be [...***...] in [...***...] will [...***...]
            with [...***...] to [...***...] and [...***...] to [...***...] in
            [...***...] its [...***...]. [...***...]in [...***...] in
            [...***...] its [...***...] the [...***...]:

            (i)   to modify or amend the terms and conditions of this Agreement;

            (ii)  to modify or amend the Development Plan in any manner that
                  would [...***...] to [...***...] of [...***...] percent
                  ([...***...]%)[...***...] in [...***...];

            (iii) to delay materially (whether by material modification of the
                  Development Plan or otherwise) the conduct of the activities
                  to be conducted up to initiation of the Phase 2B HCV Clinical
                  Trial as set forth in the initial Development Plan as of the
                  Effective Date, unless the delay is as a result of [...***...]
                  the Lead Compound [...***...] a [...***...] with respect to
                  the Lead Compound that [...***...] and [...***...] under the
                  Development Plan or other [...***...] that [...***...] and
                  [...***...] under the Development Plan;

            (iv)  to [...***...] the standards set out in the [...***...]; or

            (v)   to determine any such issue in a manner that would conflict
                  with the express terms and conditions of this Agreement.

      4.3   MEETINGS OF THE JOINT STEERING COMMITTEE. The JSC shall meet
            quarterly and at such other times as the Parties may agree. The
            first meeting of the JSC shall be held as soon as reasonably
            practicable, but in no event later than [...***...] ([...***...])
            days after the Effective Date. Meetings shall be held at such place
            or places as are mutually agreed or by teleconference or
            videoconference; provided, however, that there shall be at least one
            face-to-face meeting per calendar year.

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      4.4   JOINT DEVELOPMENT COMMITTEE. The Parties will establish a Joint
            Development Committee, with equal representation from both Parties,
            which shall oversee all development activities (including clinical
            development) with respect to the Lead Compound and corresponding
            Product in the Primary Fields during the term of this Agreement.
            Decisions of the JDC shall be made by unanimous vote, with each
            Party's representatives to the JDC collectively having one vote.
            Details regarding the composition of the JDC, meeting logistics and
            specific responsibilities of the JDC will be established by the JSC.
            Disputes within or issues that cannot be resolve by the JDC will be
            raised to the JSC for resolution. The JDC may appoint a joint
            project team, having an equal number of representatives of each
            Party, which will meet telephonically or in person at least once
            each month to review and direct day-to-day activities under the
            Development Plan. Notwithstanding the foregoing, each Party shall
            have the right to have its own internal project team, which will not
            include any representation by the other Party.

      4.5   US JOINT MARKETING COMMITTEE. In the event that Anadys exercises the
            Co-Promotion Option, the Parties will establish a Joint Marketing
            Committee for the US ("US JMC") during the Co-Promotion Period. The
            US JMC shall be the primary forum for Anadys to provide its input
            regarding commercial strategy with respect to the Product in the US
            for the Primary Fields; provided, however, that all marketing
            activities for the Products on a worldwide basis (including the US
            and including decisions by the US JMC) will be determined and
            controlled by Novartis, including the establishment of the pricing
            for the Product. Details regarding the composition of the US JMC and
            meeting logistics of the US JMC will be established by the JSC
            following successful exercise of the Co-Promotion Option.

      4.6   COSTS OF COMMITTEE PARTICIPATION. The Parties agree that the costs
            incurred by each Party in connection with its participation in JSC,
            JDC and US JMC meetings shall be borne solely by such Party and
            shall not be included in Development Costs, Commercialization Costs
            or Product Profit.

5.    DISCLOSURE OF ANADYS KNOW-HOW & TECHNOLOGY TRANSFER

      5.1   DISCLOSURE OF ANADYS KNOW-HOW. Within [...***...]
            ([...***...])[...***...] after the Effective Date, Anadys will
            disclose to Novartis or its designated Affiliate all Anadys Know-How
            (and any other information and documents known to Anadys relating to
            the Anadys Compounds or Products), which may be necessary or useful
            to Novartis to develop, manufacture, register, use or market the
            Anadys Compounds and Products and practice the licenses granted
            hereunder efficiently. As part of such disclosure, as soon as
            reasonably practicable, Anadys will disclose to Novartis all Anadys
            Know-How pertaining to the manufacture and development of the Anadys
            Compounds and Products, including manufacturing batch records,
            development reports, analytical results, raw material and excipient
            sourcing information, quality audit findings and any other relevant
            technical information. Anadys shall also cooperate and assist
            Novartis in [...***...] of the [...***...] agreements listed on
            Exhibit D hereto which Novartis, [...***...], deems useful and
            necessary to further its obligations under this Agreement. In the
            event of any such assignment, Novartis shall assume all

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            obligations and liabilities accruing under such assigned contract(s)
            from and after such assignment.

      5.2   TECHNOLOGY TRANSFER. During the Technology Transfer Period, Anadys
            shall provide to Novartis quantities of Anadys Compounds and/or
            Products that it has in its possession that the JDC determines to be
            necessary for Novartis to further its obligations under this
            Agreement, and the costs thereof shall be included in Development
            Costs. In connection with the Development Plan and during the
            Technology Transfer Period, Anadys will provide reasonable
            assistance to Novartis in connection with understanding and using
            the Anadys Know-How for purposes consistent with the Development
            Plan and the license granted to Novartis hereunder, including by
            [...***...] to [...***...] in [...***...] of the [...***...] the
            [...***...] and [...***...]. The costs of Anadys personnel providing
            such assistance shall be included as Development Costs, based on
            [...***...].

6.    DEVELOPMENT

      6.1   DEVELOPMENT PLAN. Each Party will use commercially reasonable
            efforts to perform its obligations under the Development Plan within
            the timeframes included in the Development Plan and within the
            Development Budget. The Development Plan (including the Development
            Budget) will be subject to amendment from time to time during the
            term of the Agreement as determined by the JDC and approved by the
            JSC ([...***...] for [...***...] which [...***...] within the
            [...***...] of [...***...]), subject to Section 4.2(d)(ii). The JDC
            will review the Development Plan (including the Development Budget)
            at least every Calendar Quarter. The JDC will also monitor the
            Parties' actual Development Costs versus the Development Budget and
            determine the necessary payments due to each Party to allocate
            Development Costs properly in accordance with Clause 6.5.

      6.2   PRE-PROOF OF CONCEPT. Prior to completion of the [...***...] of
            [...***...] - [...***...] of a Product incorporating the [...***...]
            Compound, Anadys and Novartis will be jointly responsible for
            implementing clinical development of such Product in the HCV Field
            in accordance with the Development Plan. During such period, Anadys
            will be the sponsor of any clinical trials commenced prior to the
            Effective Date and will retain liability for such trials and the
            activities related thereto. Notwithstanding the provisions of Clause
            7.3, [...***...] bear the [...***...] for [...***...] and
            [...***...] or [...***...] prior to the [...***...] of the
            [...***...] of [...***...] for [...***...] in [...***...] or
            [...***...] for which [...***...] is listed as [...***...].
            [...***...] at [...***...] for [...***...] ([...***...])[...***...]
            to [...***...]. Anadys' obligations under this Clause shall not in
            any way relieve it from its obligations under Clause 5.

      6.3   POST-PROOF OF CONCEPT. After completion of the [...***...] of
            [...***...] - [...***...] of a Product incorporating the [...***...]
            Compound, Anadys and Novartis shall be jointly responsible for
            implementing clinical development of Products in the Primary Fields.
            Novartis will lead development, including clinical development, of
            the Lead Compound (in consultation with Anadys) and each Party will
            be responsible for the activities allocated to it under the
            Development

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            Plan. Novartis will be solely responsible for development activities
            relating to the commercialization of the Product [...***...],
            provided, however, that the costs associated with such development
            will be included in the Development Costs, subject to Section 6.5.

      6.4   REMAINING PRE-CLINICAL ACTIVITIES. Pre-clinical studies started
            prior to the Effective Date will be continued until completion by
            Anadys or the applicable Third Party, unless the JSC decides that
            Novartis should assume the completion of such studies. In accordance
            with the Development Plan, any pre-clinical studies managed by
            Anadys (other than the studies identified in Section 2 of the
            Development Plan) shall require the approval of the Novartis JDC
            members on the protocol and vendor selection. Novartis will lead the
            completion of any other pre-clinical activities remaining as of the
            Effective Date, unless otherwise stipulated in the Development Plan.

      6.5   DEVELOPMENT COSTS. The Development Costs for activities incurred
            from the Execution Date until expiration or termination of this
            Agreement pursuant to and in accordance with the Development Plan
            will be shared on an eighty and a half percent (80.5%) to Novartis
            and nineteen and a half percent (19.5%) to Anadys basis. During the
            [...***...] ([...***...])[...***...] period following the Effective
            Date, Anadys shall not be obligated to bear its portion of the
            Development Costs in excess of [...***...]% of the Development
            Budget Cap, unless the JDC determines in good faith that such
            additional costs are required to obtain Regulatory Approval of the
            Product in the US (including, without limitation, as a result of the
            failure of one or more of the development activities provided for in
            the Development Plan and the Development Budget Cap). Each Party
            will keep accurate records of its Development Costs and provide a
            report detailing its Development Costs to the other Party within
            [...***...] ([...***...])[...***...] of the end of each Calendar
            Quarter. Promptly following exchange of such reports, the JDC will
            reconcile the reports and determine the amount, if any, due from one
            Party to the other to result in the appropriate allocation of the
            Development Costs. The Party that is owed money as necessary to
            result in the sharing of the Development Costs as above will invoice
            the other Party, and such other Party will pay the invoiced amount
            within [...***...] ([...***...])[...***...] of its receipt of the
            invoice.

      6.6   LEAD COMPOUND REPLACEMENT.

      (a)   During the term of this Agreement, the JSC may, at any time and from
            time to time, designate another Anadys Compound as the Lead Compound
            for the Primary Fields. In such event, the JDC will revise the
            Development Plan in good faith to include any required changes.
            Other than changes to the Development Plan, the provisions of this
            Agreement in respect of the Lead Compound shall continue to apply to
            the Parties. For the avoidance of doubt, no additional Milestone
            Payments shall be due for Milestones completed by previous Anadys
            Compounds for the same Primary Field and for which Novartis has
            previously paid the corresponding Milestone Payment.

      (b)   In the event the JSC determines that the Lead Compound will not meet
            the Target Product Profile and does not designate a replacement as
            above, at Novartis'

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            request, the JDC will revise the Development Plan to provide for the
            activities necessary to advance the development of the Anadys
            Compound(s) that the JSC determines may meet the Target Product
            Profile in the Primary Fields. After the completion of such
            development activities, the JSC may select one of such Anadys
            Compounds as the Lead Compound if it deems appropriate.

      6.7   REGULATORY.

      (a)   The JSC will approve the regulatory plans and strategies and the
            schedule for regulatory submissions set by the JDC. Anadys will
            provide Novartis with copies of any correspondence and documentation
            it has submitted to, or received from, any Regulatory Authority
            relating to the Anadys Compounds.

      (b)   Promptly following the Execution Date, Anadys shall provide to
            Novartis an initial draft of the first IND for submission to the FDA
            for the Lead Compound ("FIRST IND"), and Novartis shall provide any
            initial comments to Anadys as promptly as practicable. Anadys shall
            provide its proposed final draft of the First IND for review and
            final comment by Novartis for at least [...***...]
            ([...***...])[...***...]. Anadys will consider in good faith
            Novartis' comments provided to Anadys pursuant to this Clause
            6.7(b). Anadys will then file the First IND and provide a copy to
            Novartis, provided that Anadys shall not make such filing in the
            event that, prior to the date that is [...***...]
            ([...***...])[...***...]days after Anadys provides to Novartis its
            proposed final draft of the First IND, the JSC (or, if the Effective
            Date has not yet occurred, Novartis) determines in good faith that
            there is a significant deficiency in the First IND that is likely to
            have a material adverse effect on the timelines for first dosing in
            humans under the IND. For purposes of clarification, Novartis' right
            to review and comment on the First IND pursuant to this Clause
            6.7(b) shall not be construed to grant to Novartis any right or
            license to the Anadys Technology, the Anadys Compounds or the
            Products, and any such right or license shall become effective only
            upon the occurrence of the Effective Date (if any).

      (c)   Within [...***...] ([...***...])[...***...] after achievement of
            [...***...], Anadys will transfer the First IND to Novartis or its
            designated Affiliate. Other than the First IND, all regulatory
            filings submitted in connection with obtaining Regulatory Approvals
            to test or market an Anadys Compound or Product, including all IND,
            MAA and NDA submissions and other regulatory filings relating to the
            Anadys Compounds and Products, shall be owned by, and submitted by
            and in the name of, Novartis, its Affiliates or its designees.
            Novartis shall be solely responsible for obtaining the Regulatory
            Approvals for Products throughout the world, the costs for which
            will be considered Development Costs, subject to Clause 6.5.
            Notwithstanding any other provision of this Agreement to the
            contrary, in no event shall [...***...] any regulatory filing or
            correspondence submitted (or proposed to be submitted) to, or
            received from, any Regulatory Authority with respect to any Anadys
            Compound or Product, nor shall Novartis permit any of its Affiliates
            or sublicensees to do any of the foregoing, [...***...].

      (d)   At Anadys' request from time to time, Novartis will provide Anadys
            personnel with access to all regulatory files relating to Products
            and will provide Anadys with copies of INDs, NDAs and MAAs for
            Products.

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      (e)   Anadys shall fully cooperate with and provide reasonable assistance
            to Novartis in connection with filings to any Regulatory Authority
            relating to the Anadys Compounds or Products, including by executing
            any required documents, providing access to personnel and providing
            Novartis with copies of all reasonably required documentation.

      (f)   To the extent required, Anadys shall grant or cause to be granted to
            Novartis and its Affiliates or sublicensees cross-reference rights
            to any relevant drug master files and other filings submitted by
            Anadys or its Affiliates with any Regulatory Authority with respect
            to any Anadys Compound or Product. Notwithstanding any other
            provision of this Agreement to the contrary, in no event shall
            [...***...] to be [...***...] to [...***...] any [...***...] to
            [...***...] or [...***...] by Anadys, Novartis, or any Affiliate or
            sublicensee of Novartis with respect to any Anadys Compound or
            Product, nor shall Novartis permit any of its Affiliates or
            sublicensees to do any of the foregoing, [...***...].

      (g)   Novartis shall have the right to disclose the existence of, and the
            results from, any clinical trials conducted under this Agreement in
            accordance with its standard policies. Anadys shall have the right
            to disclose the existence of, and the results from, any clinical
            trials conducted under this Agreement upon prior review and approval
            by the JSC or as otherwise permitted by Clause 13.

      6.8   COMPLIANCE. Each Party agrees that in performing its obligations
            under the Development Plan (a) it shall comply with all applicable
            current international regulatory standards, including cGMP, cGLP,
            cGCP and other rules, regulations and requirements and (b) it will
            not employ or use any person that has been debarred under Section
            306(a) or 306(b) of the U.S. Federal Food, Drug and Cosmetic Act.

      6.9   ASSISTANCE. Anadys shall disclose to Novartis such Anadys Know-How
            as is developed, obtained or possessed by Anadys or its Affiliates
            during the term of this Agreement and which may be necessary or
            useful to Novartis to develop, manufacture, register, use or market
            the Anadys Compounds and Products and practice the licenses granted
            hereunder. Novartis, its Affiliates and sublicensees shall use the
            Anadys Know-How disclosed by Anadys hereunder solely for the purpose
            of developing, manufacturing and commercializing Anadys Compound or
            Product in accordance with the terms of this Agreement, and Anadys
            shall at all times retain the right to practice or license such
            Anadys Know-How for any purpose other than as set forth in Clause
            12.2 and subject to the licenses granted to Novartis hereunder and
            the other terms and conditions of this Agreement.

      6.10  SUBCONTRACTING. Novartis may subcontract the performance of
            development activities with respect to the Product that are
            allocated as its obligation under the Development Plan (or are
            otherwise under Novartis' control) to Affiliates or Third Parties
            ([...***...]) at its discretion, upon the approval of the JDC.
            Anadys may subcontract the performance of development activities
            with respect to the Product that are allocated as its obligation
            under the Development Plan (or are otherwise under Anadys' control)
            to Affiliates or Third Parties only upon Novartis' prior written
            consent; provided, however, that such consent shall be deemed to
            have been granted with respect to subcontracting activities referred
            to

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            in Section 3 of the initial Development Plan; and provided, further,
            that if Novartis notifies Anadys through the JDC that it [...***...]
            the [...***...], Anadys may, in [...***...] as a [...***...] in
            [...***...] to a [...***...] (reasonably acceptable to Novartis) the
            [...***...] of the [...***...] in accordance with the specifications
            established by the JDC ([...***...] that [...***...] by [...***...]
            in [...***...] be [...***...] by [...***...] to [...***...] as
            [...***...] of the [...***...]).

7.    COMMERCIALIZATION

      7.1   COMMERCIALIZATION. Except for the opportunity for Anadys to provide
            input into the marketing activities during any Co-Promotion Period
            through the US JMC, Novartis will be solely responsible for all
            aspects of worldwide commercialization of the Products, including
            planning and implementation. Novartis will undertake such activities
            at its sole expense, except in the event Anadys co-promotes the
            Product in the US pursuant to the Co-Promotion Option.

      7.2   US JMC. During the Co-Promotion Option Period, Novartis shall
            consult with Anadys through the JSC and/or JDC regarding Novartis'
            commercialization planning and strategy in the US for the Product in
            the Primary Fields. In the event that Anadys exercises the
            Co-Promotion Option, during the Co-Promotion Period, Novartis will
            consult with Anadys through the US JMC regarding the
            commercialization planning and strategy in the US for the Product in
            the Primary Fields. Novartis will provide Anadys with an opportunity
            to comment on and discuss such matters and will give good faith
            consideration to Anadys' position in making decisions regarding
            commercialization planning and strategy; provided, however, that all
            such decisions will be at the sole discretion of Novartis.

      7.3   MANUFACTURING. Unless otherwise noted in this Agreement, Novartis
            will have the exclusive right to, and have the responsibility to,
            manufacture and supply (or to have manufactured and supplied) the
            Anadys Compounds and Products being developed or commercialized
            under this Agreement. Novartis may subcontract or sublicense the
            manufacture or supply of the Anadys Compounds or Products to
            Affiliates or Third Parties ([...***...]) at its discretion, without
            the consent of Anadys.

      7.4   MANUFACTURING ASSISTANCE. Anadys shall fully cooperate with and
            provide assistance to Novartis or its designee, through
            documentation, consultation, training and face-to-face meetings, to
            enable Novartis or its designee to proceed with manufacturing of the
            Anadys Compounds and the Products and to obtain all appropriate
            Regulatory Approvals for manufacturing (including qualification by
            the applicable Regulatory Authority of manufacturing sites).
            Novartis, its Affiliates and sublicensees shall use manufacturing
            technology and improvements disclosed by Anadys hereunder solely for
            the purpose of manufacturing Anadys Compound and Product in
            accordance with the terms of this Agreement, and Anadys shall at all
            times retain the right to practice or license such manufacturing
            technology or improvements for any purpose other than as set forth
            in Clause 12.2 and subject to the licenses granted to Novartis
            hereunder and the other terms and conditions of this Agreement. The
            costs of Anadys personnel providing

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            cooperation and assistance pursuant to this Clause 7.4 shall be
            included as Development Costs, based on the FTE Rate.

      7.5   PHARMACOVIGILANCE Prior to the First Commercial Sale of the Product
            under this Agreement, the Parties shall agree and implement a
            procedure for the mutual exchange of adverse event reports and
            safety information associated with the Product. Details of the
            operating procedure respecting such adverse event reports and safety
            information exchange shall be the subject of a mutually-agreed
            pharmacovigilance agreement between the Parties. Such
            pharmacovigilance agreement shall be implemented at a time
            sufficient to permit compliance with applicable Regulatory Authority
            guidelines and regulations.

8.    CO-PROMOTION OPTION

      8.1   CO-PROMOTION OPTION. During the Co-Promotion Option Period, Anadys
            will have the option ("CO-PROMOTION OPTION") to obtain the right to
            co-promote the Product solely in the US in the Primary Fields in
            accordance with this Clause and the terms and conditions of this
            Agreement. Anadys may exercise the Co-Promotion Option during the
            Co-Promotion Option Period by providing written notice of such
            exercise to Novartis and paying to Novartis thirty-five percent
            (35%) of any Commercialization Costs incurred by Novartis prior to
            the date Anadys exercises the Co-Promotion Option, whether incurred
            during, or prior to, the Initial Period (as defined below in Clause
            8.4). Upon the request of Anadys during the Co-Promotion Option
            Period, Novartis will inform Anadys of the total Commercialization
            Costs incurred by Novartis up to such point in order to allow Anadys
            to exercise the Co-Promotion Option, and Anadys shall have the right
            to audit such Commercialization Costs in accordance with Clause 10.5
            prior to the expiration of the Co-Promotion Option Period.

      8.2   PRE-LAUNCH. Upon exercise of the Co-Promotion Option, Anadys will
            establish, or will have established prior to such point, a
            commercial organization of appropriate size [...***...] sufficient
            to perform the required co-promotion activities, including, field
            based sales representatives that have experience levels and
            background equivalent to the Novartis sales organization and which
            meet any other reasonable requirements established by Novartis in
            consultation with the US JMC ("ANADYS SALES FORCE"), provided that
            in no event shall Anadys be obligated to have an Anadys Sales Force
            of more than [...***...] sales representatives at launch of the
            Product or within the [...***...] following launch without Anadys'
            prior written consent. Promptly following exercise of the
            Co-Promotion Option, the US JMC shall establish commercially
            reasonable parameters regarding the composition, qualifications and
            training of the Anadys Sales Force, which shall be the same
            standards required to be met by Novartis' sales force for the
            Product. Novartis shall provide to the Anadys Sales Force, at the
            facilities of Novartis or its designee, substantially the same
            Product specific training as Novartis provides to its own US sales
            force, subject to the last sentence of Clause 8.3. The Anadys Sales
            Force will be hired, trained and in territory at least [...***...]
            ([...***...])[...***...] prior to the planned launch date of the
            Product in the US. Anadys will have no right to sublicense the
            co-promotion right nor to use any contract service organization to
            conduct co-promotion activities, except that if Novartis or its
            Affiliate uses any contract sales force in

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<PAGE>

            the US to promote the Product, then Anadys may negotiate and agree
            to subcontract to the same contract sales force for purposes of its
            Product promotion activities as well.

      8.3   COMMERCIALIZATION COSTS. Subject to Clause 8.4, during the
            Co-Promotion Period, the Parties will share the Commercialization
            Costs for the Product in the US in the Primary Fields, with Anadys
            funding thirty-five percent (35%) of the Commercialization Costs and
            Novartis funding sixty-five percent (65%) of the Commercialization
            Costs. Each Party will keep accurate records of its
            Commercialization Costs and provide a report detailing its
            Commercialization Costs to the other Party within [...***...]
            ([...***...])[...***...]of the end of each [...***...] during the
            [...***...]. Promptly following exchange of such reports, the US JMC
            will reconcile the reports and determine the amount, if any, due
            from one Party to the other to result in the appropriate allocation
            of the Commercialization Costs. The Party that is owed money as
            necessary to result in the sharing of the Commercialization Costs as
            above will invoice the other Party, and such other Party will pay
            the invoiced amount within [...***...] ([...***...])[...***...] of
            its receipt of the invoice. For the avoidance of doubt, with respect
            to field sales force training, only Novartis' direct costs of
            providing Product-specific training to each Party's field sales
            force shall be included as Commercialization Costs.

      8.4   ESTIMATED COMMERCIALIZATION COSTS. Prior to the [...***...]
            preceding the planned launch of the Product [...***...], Novartis
            will provide to Anadys a good faith estimate (the "INITIAL
            FORECAST") of the planned Commercialization Costs for the period
            beginning [...***...] prior to such planned Product launch in the US
            and ending [...***...] after such planned launch (the "INITIAL
            PERIOD"). Annually thereafter, Novartis will provide a rolling
            [...***...] update (the "ROLLING FORECAST") of estimated
            Commercialization Costs on a year-by-year basis. The estimated
            Commercialization Costs for the Rolling Forecast will be set by
            Novartis and except for the Initial Period will not subject to a
            maximum cap amount; provided, however, that all estimates provided
            under this Clause 8.4 shall be prepared in good faith and consistent
            with Novartis' internal budget for such costs. In the event that
            aggregate Commercialization Costs incurred prior to the end of the
            Initial Period exceed [...***...] ($[...***...]), Anadys shall not
            be obligated to bear its portion of the Commercialization Costs in
            excess of [...***...] ($[...***...]). For each year of the
            Co-Promotion Period after the Initial Period, Anadys shall not be
            obligated to bear any portion of such Commercialization Costs in
            excess of [...***...] percent ([...***...]%) of the
            Commercialization Budget for such year as set forth in the most
            recent Rolling Forecast provided under this Clause 8.4. The Parties
            acknowledge and agree that, after delivery of the Initial Forecast,
            the Parties may need to adjust the annual delivery date for Rolling
            Forecasts hereunder in order to be consistent with Novartis'
            internal fiscal planning processes and timelines. Accordingly, as
            promptly as practicable following delivery of the Initial Forecast,
            the Parties shall mutually agree in good faith on the annual due
            date for Rolling Forecasts pursuant to this Clause 8.4.

      8.5   DETAILS. During the Co-Promotion Period, Novartis will establish the
            number of details to target Product prescribers to be performed by
            each Party's field sales

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<PAGE>

            force in consultation with the US JMC. The costs associated with
            such details will be included in the Party's Commercialization
            Costs.

      8.6   PROMOTIONAL ACTIVITIES. Novartis, in consultation with the US JMC,
            shall establish the field force deployment, strategy, performance
            standards and training procedure and a written plan for Product
            commercialization activities in the US. Following establishment of
            such written plan, the Parties shall use commercially reasonable
            efforts to perform their respective activities in accordance with
            such plan, and each Party's Commercialization Costs shall be
            consistent with such plan. In addition, Novartis, in consultation
            with the US JMC, shall establish commercially reasonable standards
            required to be met by each Party's field sales force in connection
            with the promotion and sale of the Product. During the Co-Promotion
            Period, the Anadys Sales Force shall be required to meet the same
            performance standards as the Novartis field sales force. Each Party
            will cause its sales force and its other employees and agents to
            comply with all applicable laws, regulations and industry guidelines
            in connection with the promotion and sale of the Product. Neither
            Party shall make any false or misleading representations to
            customers or others regarding the other Party or its Affiliates or
            the Product and will not make any representations, warranties or
            guarantees with respect to the specifications, features or
            capabilities of the Product that are not consistent with the
            applicable current package insert or other documentation
            accompanying or describing the Product, including the standard
            limited warranty and disclaimers of Novartis or any of its
            Affiliates, and that has been provided to Anadys. Neither Party
            shall make any negative statements about any other products of the
            other Party or any of its Affiliates in an effort to promote the
            Product.

      8.7   OUTSIDE CO-PROMOTION PERIOD. Outside of the Co-Promotion Period, (a)
            Novartis will conduct the commercialization in the US in the Primary
            Fields at its own expense; (b) Anadys will receive no Product
            Profits; and (c) Anadys will receive the royalty set out in this
            Agreement for sales of the Product [...***...].

      8.8   [...***...]. In the event that (a) [...***...] fails to establish an
            [...***...] that meets the parameters regarding its
            [...***...],[...***...] and [...***...] established pursuant to
            Clause [...***...], or (b) the [...***...] fails to meet the
            performance standards established pursuant to Clause [...***...] for
            [...***...] consecutive [...***...] (after receiving notice of its
            failure to meet such standard for the first of such
            [...***...]),[...***...] may [...***...] the [...***...] activities
            of [...***...] and the [...***...] shall [...***...].

9.    FINANCIAL PROVISIONS

      9.1   UPFRONT PAYMENT. Novartis shall pay to Anadys a one-time,
            non-refundable, non-creditable upfront payment of twenty million USD
            (US$20,000,000) within thirty (30) days following receipt by
            Novartis of an invoice in the form of Exhibit E from Anadys after
            the Effective Date.

      9.2   MILESTONE PAYMENTS. In consideration of the granting of the licenses
            and rights to Novartis hereunder, after the achievement of each of
            the following Milestones, Novartis shall make the corresponding
            one-time, non-refundable, non-creditable Milestone Payment with
            respect to the Lead Compound in the Primary Fields.

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      (a)   HCV Field Milestone Payments.

<TABLE>
<CAPTION>
MILESTONE EVENT                                               PAYMENT DUE (USD)
<S>                                                           <C>
                               CLINICAL MILESTONES
[...***...] of the IND in the                                    $10 MIllion
[...***...] that the [...***...]
[...***...]                                                      $[...***...]
[...***...]                                                      $[...***...]
[...***...]                                                      $[...***...]
[...***...]                                                      $[...***...]
                                FILING MILESTONES
[...***...]                                                      $[...***...]
                         REGULATORY APPROVAL MILESTONES
[...***...]                                                      $[...***...]
[...***...]                                                      $[...***...]
[...***...]                                                      $[...***...]
                          COMMERCIALIZATION MILESTONES
Upon the first occurrence of [...***...]                         $[...***...]
Upon the first occurrence of [...***...]                         $[...***...]
Upon the first occurrence of [...***...]                         $[...***...]
Upon the first occurrence of [...***...]                         $[...***...]
Upon the first occurrence of [...***...]                         $[...***...]
Upon the first occurrence of [...***...]                         $[...***...]
</TABLE>

      * Subject to the provisions of Clause 6.7(b), the Parties acknowledge and
      agree that this Milestone may be triggered by an IND filing that occurs
      prior to the Effective Date; provided, however, that, for the avoidance of
      doubt, Novartis shall be under no obligation to pay any Milestone unless
      and until this Agreement becomes effective.

      (b)   HBV Field Milestone Payments.

<TABLE>
<CAPTION>
MILESTONE EVENT                                               PAYMENT DUE (USD)
<S>                                                              <C>
                               CLINICAL MILESTONE
[...***...]                                                      $[...***...]
                          REGULATORY APPROVAL MILESTONE
[...***...]                                                      $[...***...]
</TABLE>

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<PAGE>

      (c)   For the avoidance of doubt: (i) each Milestone Payment shall be
            payable only on the first occurrence of the Milestone; (ii) none of
            the Milestone Payments shall be payable more than once; (iii) should
            the Lead Compound be replaced, no additional Milestone Payments
            shall be due for Milestones completed by the previous Lead Compounds
            for the same Primary Field; and (iv) if a Product achieves a
            particular clinical, filing or regulatory approval Milestone in a
            Primary Field but the Milestone Payment(s) for one or more preceding
            Milestone(s) in the same Primary Field have not previously become
            due or been paid, then upon achievement of such Milestone, the
            previously-unpaid Milestone Payment(s) in such Primary Field shall
            be due and payable concurrently with the Milestone Payment for the
            achieved Milestone; provided, however, that in no event shall
            achievement of [...***...] trigger a Milestone Payment obligation
            for [...***...], but achievement of [...***...] shall trigger a
            Milestone Payment obligation for [...***...] (to the extent not
            previously triggered).

      9.3   ROYALTY PAYMENTS. In consideration of the granting of the licenses
            and rights to Novartis hereunder, Novartis will make royalty
            payments to Anadys on Net Sales of Products (subject to Clause 3.1
            for the ID Field) by Novartis, its Affiliates and their respective
            sublicensees at the applicable rates set forth below. For the
            avoidance of doubt, royalties shall be payable only once with
            respect to the same unit of Product.

      (a)   In the US (provided that Novartis will have no obligation to pay
            royalties on Net Sales of the Products in the Primary Fields in the
            US during the Co-Promotion Period):

<TABLE>
<CAPTION>
  AGGREGATE ANNUAL NET SALES OF
        PRODUCTS IN THE US                             ROYALTY RATE
<S>                                                    <C>
Less than or equal to $[...***...]                     [...***...]%
Over $[...***...]                                      [...***...]%
</TABLE>

      (b)   Outside of the US:

<TABLE>
<CAPTION>
    AGGREGATE ANNUAL NET SALES
  OF PRODUCTS OUTSIDE OF THE US                        ROYALTY RATE
<S>                                                    <C>
Less than or equal to $[...***...]                     [...***...]%
Over $[...***...]                                      [...***...]%
</TABLE>

      (c)   For example, if Net Sales in a calendar year are $[...***...] in the
            US and $[...***...] outside of the US, the royalty on such Net Sales
            shall be equal to [...***...]% of $[...***...] and [...***...]% of
            $[...***...] for [...***...] and [...***...]% of $[...***...] and
            [...***...]% of $[...***...] for the sales outside of the US.

      (d)   In any country in which the sale of a Product will not infringe a
            Valid Claim of the Anadys Patent Rights or the Joint Patent Rights,
            Novartis shall pay a royalty

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<PAGE>

            in respect of Anadys Know-How equal to [...***...] percent
            ([...***...]%) of the royalties set forth above of the Net Sales of
            such Product in such country for the Royalty Term as set out in
            Clause 10.2.

      9.4   THIRD PARTY OBLIGATIONS.

      (a)   In the event that Novartis is required to obtain a license from a
            Third Party to Patent Rights that, in the absence of such license,
            would be infringed by the manufacture, use, import or sale of the
            Anadys Compound contained in a particular Product in a particular
            country, Novartis may deduct [...***...] percent ([...***...]%) of
            the royalties [...***...] actually [...***...] to such Third
            Party(ies) for such [...***...] in such [...***...] against the
            [...***...] due to [...***...] by [...***...] with respect to the
            [...***...] of such [...***...] in such [...***...]; provided,
            however, that in [...***...] shall the [...***...] due to
            [...***...] from [...***...] with respect to [...***...] of such
            [...***...] in such [...***...] be reduced by more than [...***...]
            percent ([...***...]%) in any [...***...]. Any amount that
            [...***...] is [...***...] to [...***...] that is reduced by the
            [...***...] on the [...***...] shall be carried [...***...] and
            [...***...] may deduct such [...***...] from [...***...] due to
            [...***...] for [...***...] in such [...***...] until the full
            amount that [...***...] was [...***...] to [...***...] is
            [...***...] .

      (b)   Anadys shall remain responsible for the payment of royalty
            obligations, if any, due to Third Parties under any Anadys
            Technology which has been licensed to Anadys and is sublicensed to
            Novartis hereunder. All such payments shall be made promptly by
            Anadys. For the avoidance of doubt, any such payments made by Anadys
            will not be considered Commercialization Costs under this Agreement.

      (c)   To the extent required under any license agreement pursuant to which
            a Third Party licenses intellectual property to a Party in respect
            of the Products, either Party may disclose to the Third Party
            information regarding the development status and Net Sales of the
            Products which are the subject of such license agreement; provided,
            however, that such disclosure is limited to the amount required
            under the license agreement and is subject to confidentiality
            undertakings with respect to the information at least as restrictive
            as the terms of this Agreement.

      9.5   COMPETITIVE PRODUCTS. In the event that the Net Sales of the Product
            in a country in any calendar year are reduced below a level of
            [...***...] percent ([...***...]%) as compared with the Net Sales of
            such Product in the preceding calendar year in such country and such
            reduction is due to the marketing or sale of a Competitive Product
            by a Third Party in such country, then the royalty rates applicable
            to Net Sales of such Product in such country thereafter for the
            remainder of the Royalty Term for such Product in such country shall
            be reduced by [...***...] percent ([...***...]%); provided, however,
            that if sales of such Competitive Product in such country
            subsequently cease, then there shall be no reduction in royalties
            for sales of such Product in such country occurring after cessation
            of sale of such Competitive Product. However, in no event will the
            royalties due to Anadys from Novartis with respect to the Net Sales
            of such Product in such country be reduced by more than [...***...]
            percent

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<PAGE>

            ([...***...]%) by operation of the reductions to which Novartis is
            entitled pursuant to this Clause and Clause 9.4 in the aggregate in
            any Calendar Quarter. In addition, in no event shall Novartis be
            entitled to any royalty reduction under this Clause 9.5 in any
            country where Novartis has taken a royalty reduction pursuant to
            Clause 9.3(d), and in no event shall Novartis be entitled to any
            royalty reduction under Clause 9.3(d) in any country where Novartis
            has taken a royalty reduction pursuant to this Clause 9.5. Any
            amount that Novartis is entitled to deduct that is reduced by the
            limitation on the deduction shall be carried forward and Novartis
            may deduct such amount from subsequent royalties due to Anadys for
            Net Sales in such country until the full amount that Novartis was
            entitled to deduct is deducted.

      9.6   CO-PROMOTION PRODUCT PROFITS. During the Co-Promotion Period, the
            Parties will share the Product Profits in the US in the Primary
            Fields, with Anadys receiving thirty-five percent (35%) of the
            Product Profit and Novartis receiving sixty-five percent (65%) of
            the Product Profit. Notwithstanding any co-promotion activities,
            Novartis shall book all sales of the Products. For the avoidance of
            doubt, during the Co-Promotion Period, Novartis will have no
            obligation to pay royalties on Net Sales of the Products in the US
            and the Commercialization Costs will be shared by the Parties as
            described in Clause 8; provided, however, that any commercialization
            and sales of the Product outside of the Primary Fields will be made
            solely by Novartis; for which a royalty will be paid to Anadys as
            determined pursuant to Clause 3.1 or 3.2.

10.   REPORTS AND PAYMENT TERMS

      10.1  PAYMENT TERMS.

      (a)   Novartis shall provide Anadys with written notice of the achievement
            of each Milestone within [...***...] ([...***...])[...***...]after
            such achievement, other than Milestones that are based on a written
            determination by the JSC, which may be invoiced following such
            written determination. After receipt of such notice (if applicable),
            Anadys shall submit an invoice to Novartis substantially in the form
            of Exhibit E with respect to the corresponding Milestone Payment,
            provided that no such invoice shall be submitted prior to the
            Effective Date and Novartis shall not be obligated to pay any
            Milestone unless and until the Agreement becomes effective. Novartis
            shall make the Milestone Payment within [...***...]
            ([...***...])[...***...] after receipt of the invoice.

      (b)   Within [...***...] ([...***...])[...***...] after each Calendar
            Quarter during the term of this Agreement following the First
            Commercial Sale of a Product, Novartis will provide to Anadys the
            Sales Report. If Anadys has no comments on such report, Anadys shall
            submit an invoice to Novartis substantially in the form of Exhibit E
            with respect to such royalty amount. Novartis shall pay such royalty
            amount within [...***...] ([...***...])[...***...] after receipt of
            the invoice.

      (c)   During the Co-Promotion Period, within [...***...]
            ([...***...])[...***...] after each Calendar Quarter, Novartis will
            provide to Anadys a written report showing the Product Profits for
            the Calendar Quarter, including the Net Sales and Product Profits,
            and the share of the Product Profits payable to Anadys. If Anadys
            has no

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<PAGE>

            comments on such report, Anadys shall submit an invoice to Novartis
            substantially in the form of Exhibit E with respect to the share of
            the Product Profits payable to Anadys. Novartis will pay such the
            amount of such share of the Product Profits within [...***...]
            ([...***...])[...***...] after receipt of the invoice.

      10.2  ROYALTY TERM. Royalties will be payable on a Product-by-Product and
            country-by-country basis until the later of (a) the expiration of
            the last to expire Valid Claim of the Anadys Patent Rights claiming
            the sale of such Product or the use for which the Product is being
            sold in such country and (b) [...***...] ([...***...]) from the
            First Commercial Sale of any such Product in such country ("ROYALTY
            TERM"). Following the Royalty Term on a Product-by-Product and
            country-by-country basis, Novartis' licenses with respect to such
            Product shall continue in effect, but become fully paid-up,
            royalty-free, non-exclusive, transferable, perpetual and
            irrevocable.

      10.3  CURRENCY. All payments under this Agreement shall be payable in US
            dollars. When conversion of payments from any foreign currency is
            required to be undertaken by Novartis, such conversion shall be made
            using Novartis' then-current standard exchange rate methodology as
            applied in its external reporting and consistent with Novartis'
            Accounting Standards.

      10.4  TAXES. Anadys will pay any and all taxes levied on account of any
            payments made to it under this Agreement. If any taxes are required
            to be withheld by Novartis, Novartis will (a) deduct such taxes from
            the payment made to Anadys, (b) timely pay the taxes to the proper
            taxing authority, and (c) send proof of payment to Anadys and
            certify its receipt by the taxing authority promptly following such
            payment.

      10.5  RECORDS AND AUDIT RIGHTS.

      (a)   Each Party shall keep complete, true and accurate books and records
            in accordance with its Accounting Standards in sufficient detail for
            the other Party to determine the payments due and costs incurred
            under this Agreement, including the royalties, Development Costs
            and, during the Co-Promotion Period, Commercialization Costs. Each
            Party will keep such books and records for at least [...***...]
            ([...***...])[...***...] following the end of the fiscal year to
            which they pertain.

      (b)   During the term of this Agreement and for three years thereafter,
            each Party ("AUDITING PARTY") shall have the right to appoint an
            independent, internationally recognized accounting firm ("AUDITOR")
            to audit the relevant records of the other Party and its Affiliates
            (and, in the case of Novartis, its sublicensees) which are
            authorized to sell Products or required to perform obligations of
            the Party pursuant to this Agreement ("AUDITED PARTY") to confirm
            Net Sales, royalties, Development Costs, Commercialization Costs,
            Product Profits and other payments for a period covering not more
            than the preceding three fiscal years; provided, however, that the
            Auditor is reasonably acceptable to the Audited Party and before
            beginning its audit, executes an undertaking reasonably acceptable
            to the Audited Party by which the Auditor shall keep confidential
            all information

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<PAGE>

            reviewed during such audit. The Auditor shall have the right to
            disclose to the Auditing Party its conclusions regarding the audit,
            which will remain Confidential Information of the Audited Party,
            subject to Clause 13.

      (c)   The Audited Party shall make its records (and those of its
            Affiliates and sublicensees, as applicable) available for inspection
            by the Auditor during regular business hours at the facility(ies) of
            the Audited Party where such records are customarily kept, upon
            reasonable notice from the Auditing Party solely to verify the
            accuracy of the reports given, payments due and costs shared under
            this Agreement. Such audit right may only be exercised once per
            calendar year by the Auditing Party and only once with respect to
            records covering any specific fiscal year.

      (d)   The Auditing Party shall bear the full cost of such audit, unless it
            discloses an underpayment of royalties or Product Profits or
            overbooking of costs by the Audited Party of more than [...***...]
            percent ([...***...]%) of the amount of royalties or costs due or
            incurred over the audited period, in which case, the Audited Party
            shall bear the full cost of such audit and shall promptly remit to
            the Auditing Party the amount of any underpayment of royalties or
            the amount due because of any overbooking of costs.

      10.6  INVOICING AND PAYMENT.

      (a)   Each Party shall provide to the other Party an invoice for all
            amounts due to it under this Agreement substantially in the form set
            out in Exhibit E. Unless otherwise noted, payments on such invoices
            shall be made within [...***...] ([...***...])[...***...] of the
            Party's receipt of the applicable invoice.

      (b)   Payments to each Party shall be made by electronic wire transfer of
            immediately available funds to the account of the Party, as
            designated in writing to the other Party.

      (c)   For the avoidance of doubt, no payments shall become due and payable
            and neither Party will be obligated to reimburse the other Party for
            any costs incurred by the other Party under or in connection with
            this Agreement unless and until this Agreement becomes effective in
            accordance with Clause 19.16.

11.   INTELLECTUAL PROPERTY RIGHTS

      11.1  OWNERSHIP OF INVENTIONS.

      (a)   All inventions arising from the Parties' activities under this
            Agreement, including patent applications and patents covering such
            inventions (collectively, "INVENTIONS"), made solely by employees or
            consultants of a Party shall be owned by such Party.

      (b)   All Inventions made jointly by employees or consultants of both
            Parties shall be owned jointly by the Parties in equal shares.

      (c)   Determination of inventorship shall be made in accordance with US
            patent laws.

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<PAGE>

      (d)   Anadys' rights in any Inventions made under this Agreement and its
            interest in any Inventions owned jointly by the Parties shall be
            included in the Anadys Technology for purposes of this Agreement.

      (e)   In the event of any disagreement between the Parties regarding the
            inventorship or ownership of any Invention, the parties shall refer
            such dispute to a neutral Third Party patent attorney or other
            appropriately qualified person who is neither a current or former
            employee or director of, nor a current or former consultant or
            outside counsel to, either Party and who is mutually agreed upon by
            the Parties.

      11.2  PATENT PROSECUTION.

      (a)   The Anadys Patent Rights in existence as of the Effective Date are
            listed in Exhibits B-1 and B-2 hereto. The Parties shall update such
            Exhibits as appropriate (and at least once per Calendar Quarter) to
            add to Exhibit B-1 each Anadys Patent filed after the Effective Date
            that claims only Anadys Compound(s) or Product(s) and/or methods of
            manufacturing or using Anadys Compound(s) or Product(s) and to add
            to Exhibit B-2 each Anadys Patent filed after the Effective Date
            that, in addition to claiming Anadys Compound(s) or Product(s)
            and/or methods of manufacturing or using Anadys Compound(s) or
            Product(s), claims compound(s) or product(s) other than Anadys
            Compound(s) and Product(s) and/or methods of manufacturing or using
            such compound(s) or product(s). Upon either Party's request, the
            Parties shall discuss and consider in good faith filing separate
            Patent Rights for, on the one hand, claims that solely cover Anadys
            Compound(s) or Product(s) and/or methods of manufacturing or using
            Anadys Compound(s) or Product(s), and, on the other hand, claims
            that cover compound(s) or product(s) other than Anadys Compound(s)
            and Product(s) and/or methods of manufacturing or using such
            compound(s) or product(s).

      (b)   For purposes of this Clause, "JOINT PRODUCT PATENTS" means the
            Patent Rights owned jointly by Anadys and Novartis that claim any
            Anadys Compound or Product or the manufacture or use of any Anadys
            Compound or Product under development or commercialization under
            this Agreement. "JOINT NON-PRODUCT PATENTS" means all Patent Rights
            owned jointly by Anadys and Novartis that are not Joint Product
            Patents.

      (c)   Anadys will be solely responsible for filing, prosecuting and
            maintaining the Anadys Patent Rights listed in Exhibit B-2, with
            Novartis having the right to review and comment on drafts of
            substantive patent submissions with respect thereto. Anadys will
            keep Novartis regularly and fully informed of the status of such
            Anadys Patent Rights and provide copies of all substantive
            documentation submitted to, or received from, the patent offices in
            connection therewith.

      (d)   Novartis will be solely responsible for filing, prosecuting and
            maintaining any Patent Rights owned solely by Novartis at its own
            expense.

      (e)   Novartis will be responsible for filing, prosecuting and maintaining
            the Anadys Patent Rights listed in Exhibit B-1 and the Joint Product
            Patents, with Anadys having the right to review and comment on
            drafts of substantive patent submissions with respect thereto.
            Novartis will keep Anadys regularly and fully

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<PAGE>

            informed of the status of such Anadys Patent Rights and Joint
            Product Patents and provide copies of all substantive documentation
            submitted to, or received from, the patent offices in connection
            therewith. Anadys will assist Novartis in connection with the
            prosecution and maintenance of such Anadys Patent Rights and Joint
            Product Patents, including by providing access to relevant persons
            and executing all required documentation. If a Patent Right that was
            initially a Joint Non-Product Patent subsequently becomes a Joint
            Product Patent, Novartis will take over responsibility for the
            filing, prosecution and maintenance of such Patent Right.

      (f)   The JSC shall decide on a case-by-case basis which Party will be
            primarily responsible (the "RESPONSIBLE PARTY") for filing,
            prosecuting and maintaining Joint Non-Product Patents, and the other
            Party shall have the right to review and comment on drafts of
            substantive patent submissions with respect thereto. The Responsible
            Party will keep the other Party regularly and fully informed of the
            status of such Joint Non-Product Patents and provide copies of all
            substantive documentation submitted to, or received from, the patent
            offices in connection therewith. At the Responsible Party's
            reasonable request, the other Party will assist the Responsible
            Party in connection with the prosecution and maintenance of such
            Joint Non-Product Patents, including by providing access to relevant
            persons and executing all required documentation. The Parties will
            share equally the costs of filing, prosecuting and maintaining the
            Joint Non-Product Patents. If a Patent Right that was initially a
            Joint Product Patent subsequently becomes a Joint Non-Product
            Patent, the JSC shall decide which Party will be primarily
            responsible for filing, prosecuting and maintaining such Patent
            Right. In the event that the Responsible Party wishes to cease
            prosecution and/or maintenance of any Joint Non-Product Patent, or
            either Party does not wish to bear its share of costs with respect
            to a Joint Non-Product Patent, such Party shall provide the other
            Party with prompt written notice thereof, and the other Party shall
            have the right, in its discretion, to assume responsibility for such
            Joint Non-Product Patent (including the costs thereof), in which
            event such Joint Non-Product Patent will be assigned solely to the
            continuing Party, but the non-continuing Party and its Affiliates
            shall have a non-exclusive license under such Joint Non-Product
            Patent in perpetuity.

      (g)   Novartis shall give timely notice to Anadys of any decision not to
            file applications for, or to cease prosecution and/or maintenance
            of, or not to continue to pay the expenses of prosecution and/or
            maintenance of, any Anadys Patent Right or Joint Product Patent on a
            country-by-country basis and, in such case, shall permit Anadys, at
            its sole discretion and expense, to file or to continue prosecution
            or maintenance of such Anadys Patent Right or Joint Product Patent.
            If Anadys assumes responsibility for any Anadys Patent Right
            pursuant to this Clause, the license granted by Anadys to Novartis
            with respect to such Anadys Patent Right shall become non-exclusive.
            If Anadys assumes responsibility for any Joint Product Patent
            pursuant to this Clause, the Patent Right shall be deemed a Joint
            Non-Product Patent. Novartis will provide such notice at least
            [...***...] ([...***...])[...***...] prior to any filing or payment
            due date, or any other due date that requires action, in connection
            with such Patent Right.

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      (h)   The Parties agree that Joint Product Patents shall be exclusively
            licensed to Novartis in accordance with the terms of this Agreement
            and neither Party will use, or license or assign to any Third Party,
            any rights to the Joint Product Patents without the other Party's
            prior written consent. The Parties agree that Joint Non-Product
            Patents shall be exclusively licensed to Novartis solely for the
            purpose of manufacturing, developing and commercializing Anadys
            Compounds and Products in accordance with the terms of this
            Agreement, but that each Party may use, or license to any Third
            Party, any rights to the Joint Non-Product Patents for any other
            purpose without the other Party's prior written consent, provided
            that neither Party shall assign to any Third Party its interest in
            any Joint Non-Product Patent without the other Party's prior written
            consent (not to be unreasonably withheld).

      (i)   The Parties agree that the costs for filing, prosecuting and
            maintaining the Anadys Patent Rights listed in Exhibit B-1 (as
            amended from time to time) and the Joint Product Patents will be
            included as Development Costs for the purposes of this Agreement.

      (j)   As requested by Anadys from time to time pursuant to Clause 11.2(e),
            the Parties shall discuss and consider in good faith not including
            claims regarding solely-owned Inventions of a Party with claims
            regarding jointly-owned Inventions in the same Patent Right filing.
            In addition, as requested by Anadys from time to time pursuant to
            Clause 11.2(e), the Parties shall discuss and consider in good faith
            filing and maintaining separate Patent Rights for, on the one hand,
            jointly-owned Inventions directed to the composition of matter, or
            the manufacture, use or sale, of any Anadys Compound or Product
            (collectively, "PRODUCT INVENTIONS"), and, on the other hand,
            jointly-owned Inventions that are not Product Inventions.

      11.3  PATENT INFRINGEMENT.

      (a)   Each Party will promptly notify the other of any infringement by a
            Third Party of any Anadys Patent Rights, Joint Product Patents or
            Joint Non-Product Patents of which it becomes aware, including any
            "patent certification" filed by a Third Party FDA application which
            references the foregoing (collectively "THIRD PARTY INFRINGEMENT").
            The Parties will consult with each other through the JSC to
            determine the response to any Third Party Infringement.

      (b)   If the JSC fails to agree on a joint program of action, Novartis
            will have the first right to take any action in connection with the
            Third Party Infringement as it reasonably determines appropriate,
            and Anadys shall have the right, at its own expense, to be
            represented in any such action by counsel of its own choice.

      (c)   If Novartis fails to bring an action or proceeding with respect to,
            or to terminate, infringement of any such Anadys Patent Right, Joint
            Product Patent or Joint Non-Product Patent (i) within [...***...]
            ([...***...]) days following the notice of alleged infringement or
            (ii) prior to [...***...] ([...***...]) days before the time limit,
            if any, set forth in the appropriate laws and regulations for the
            filing of such actions, whichever comes first, Anadys shall have the
            right to bring and control any such action at its own expense and by
            counsel of its own choice, and Novartis

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            shall have the right, at its own expense, to be represented in any
            such action by counsel of its own choice; provided, however, that if
            Novartis notifies Anadys in writing prior to [...***...]
            ([...***...]) [...***...] before such time limit for the filing of
            any such action that Novartis intends to file such action before the
            time limit, then Novartis shall be obligated to file such action
            before the time limit, and Anadys will not have the right to bring
            and control such action.

      (d)   In no event shall either Party, through any court action or
            proceeding, any settlement arrangement or any proceeding, filing or
            communication with any patent office, admit the invalidity of, or
            otherwise impair the other Party's rights in, any Patent Right owned
            by or jointly with the other Party, without the other Party's prior
            written consent.

      (e)   At the request and expense of the Party controlling a Third Party
            Infringement action, the other Party shall provide reasonable
            assistance in connection therewith, including by executing any
            required documents and joining as a party to the action if required.

      (f)   Any recoveries resulting from an action relating to a claim of Third
            Party Infringement (after payment of each Party's costs and
            expenses) will be retained by the Party that brought and controlled
            such action; provided, however, that any portion of such recovery
            (after payment of each Party's costs and expenses) that is
            attributable to lost profits with respect to Products shall be paid
            to or retained by Novartis, subject to a royalty payment to Anadys
            of [...***...]% of the amount that would be due if such amount were
            Net Sales under this Agreement.

      11.4  DEFENSE OF ACTIONS. In the event that a declaratory judgment or
            similar action alleging the invalidity or non-infringement of any of
            the Anadys Patent Rights, Joint Product Patents or Joint Non-Product
            Patents is initiated by any Third Party, each Party will promptly
            notify the other. The Parties will consult with each other through
            the JSC to determine the response to such claim. If the JSC fails to
            agree on a joint program of action, Novartis shall have the right to
            defend and control such action and, at Novartis' request and
            expense, Anadys shall provide reasonable assistance to Novartis in
            connection therewith, including by executing any required documents
            and joining as a party to the action if required. Novartis shall
            give Anadys timely notice of any proposed settlement of any such
            proceeding relating to an Anadys Patent Right, Joint Product Patent
            or Joint Non-Product Patent and shall not enter into such settlement
            admitting the invalidity of, or otherwise impairing Anadys' rights
            in, the Patent Rights without the prior written consent of Anadys.

      11.5  TRADEMARKS. Novartis shall have the right to brand the Products
            using Novartis related trademarks and trade names and any other
            trademarks and trade names it determines appropriate for the
            Product, which may vary by country or within a country ("PRODUCT
            MARKS"). Novartis shall own all rights in the Product Marks and
            register and maintain the Product Marks in the countries and regions
            it determines reasonably necessary. Notwithstanding the foregoing,
            and during the Co-Promotion Period and solely in the US, Novartis
            shall include on the Product packaging the Anadys name or logo
            ("ANADYS MARK") and a disclosure that the Product is licensed from
            Anadys in the manner and form as determined by the

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            JSC. In such event, Anadys will grant Novartis the non-exclusive,
            royalty-free right to use the Anadys Mark in connection with the
            foregoing. Anadys or an Affiliate of Anadys shall retain the
            ownership of the entire right, title and interest in and to the
            Anadys Mark, and all goodwill associated with or attached to the
            Anadys Mark arising out of the use thereof by Novartis, its
            Affiliates and sublicensees shall inure to the benefit of Anadys.
            Novartis agrees that it will not contest, oppose or challenge
            Anadys' ownership of the Anadys Mark. Novartis agrees that it will
            not at any time do or suffer to be done any act or thing that will
            in any way impair Anadys' ownership of or rights in and to the
            Anadys Mark or any registration thereof or that may depreciate the
            value of the Anadys Mark or the reputation of Anadys. Novartis
            agrees that in using Anadys Mark upon any Product packaging,
            labeling, advertising or promotional materials, it will not
            represent in any way that it has any right or title to the ownership
            of the Anadys Mark or the registration thereof. Novartis shall
            obtain the prior written approval of Anadys (not to be unreasonably
            withheld or delayed) of the form and manner in which the Anadys Mark
            will be used upon, in connection with, or in relation to, the
            Products, or any packaging, labels, containers, advertisements and
            other materials related thereto.

      11.6  DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT.

      (a)   The Parties agree to cooperate in an effort to avoid loss of any
            Patent Rights which may otherwise be available to the Parties hereto
            under the provisions of the Drug Price Competition and Patent Term
            Restoration Act of 1984 or comparable laws outside the US, including
            by executing any documents as may be reasonably required. In
            particular, the Parties shall cooperate with each other in obtaining
            patent term restoration or supplemental protection certificates or
            their equivalents in any country and region where applicable to the
            Anadys Patent Rights or Joint Product Patents. Anadys shall provide
            all reasonable assistance to Novartis, including permitting Novartis
            to proceed with applications for such in the name of Anadys, if so
            required.

      (b)   The Parties shall cooperate in determining, if applicable, which of
            Anadys Patent Rights the Parties will attempt to extend, which
            determination shall be made by the JSC, except that Anadys will have
            sole discretion whether to permit the extension of any Anadys Patent
            Right listed in Exhibit B-2 (as amended from time to time).

      (c)   Anadys shall provide reasonable assistance to Novartis, including by
            executing any required documents and providing any relevant patent
            information to Novartis, so that Novartis, as NDA or MAA applicant,
            may inform the FDA or other Regulatory Authority.

12.   EXCLUSIVITY

      12.1  NOVARTIS EXCLUSIVITY. During the term of this Agreement, Novartis
            shall not, directly or indirectly, engage in or have conducted on
            its behalf or for its benefit, any [...***...] or [...***...]
            activities with respect to: (a) for any therapeutic application, (i)
            the Anadys Compounds or (ii) compounds that are [...***...], or (b)
            in the Primary Fields, [...***...] of any Anadys Compound or
            [...***...];

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            except, in each case, for activities conducted pursuant to and in
            accordance with this agreement. During [...***...] and, if this
            Agreement is terminated by Novartis pursuant to Clause [...***...]
            prior to expiration of the [...***...], until the [...***...]of the
            expiration of the [...***...] and the [...***...] anniversary of the
            date of such termination, Novartis shall not, directly or
            indirectly, engage in or have conducted on its behalf or for its
            benefit, any [...***...] or [...***...] activities with respect to
            any [...***...] in the Primary Fields; except for activities
            conducted pursuant to and in accordance with this Agreement.

      12.2  ANADYS EXCLUSIVITY. During the term of this Agreement, Anadys shall
            not, directly or indirectly, engage in or have conducted on its
            behalf or for its benefit, any [...***...] or [...***...] activities
            with respect to: (a) for any therapeutic application, (i) the Anadys
            Compounds or (ii) compounds that are [...***...], or (b) in the
            Primary Fields, (i) any TLR7 Compound or (ii) [...***...] of any
            Anadys Compound or [...***...]; except, in each case, for activities
            conducted pursuant to and in accordance with this Agreement and
            subject to the terms of Clause 3.5(f) with respect to TLR7 Compounds
            after [...***...] of the [...***...].

      12.3  [...***...] For the purposes of this Clause 12, "[...***...]
            activities" means [...***...] in respect of the applicable compound
            and [...***...] activities with respect thereto. For the avoidance
            of doubt, notwithstanding this Clause 12 or any other provision of
            this Agreement, either Party [...***...] (a) [...***...] with
            respect to [...***...] as it determines appropriate, and (b) any
            [...***...] with respect to [...***...] (subject to Clause
            [...***...] with respect to [...***...]) as it deems appropriate.

13.   CONFIDENTIALITY

      13.1  DUTY OF CONFIDENCE. All Confidential Information disclosed by a
            Party or its Affiliates under this Agreement will be maintained in
            confidence and otherwise safeguarded by the recipient Party. The
            recipient Party may only use the Confidential Information for the
            purposes of this Agreement and pursuant to the rights granted to the
            recipient Party under this Agreement. Each Party shall hold as
            confidential such Confidential Information of the other Party or its
            Affiliates in the same manner and with the same protection as such
            recipient Party maintains its own confidential information. A
            recipient Party may only disclose Confidential Information of the
            other Party to employees, agents, contractors, consultants and
            advisers of the Party and its Affiliates and sublicensees and to
            Third Parties to the extent reasonably necessary for the purposes
            of, and for those matters undertaken pursuant to, this Agreement;
            provided that such persons and entities are bound to maintain the
            confidentiality of the Confidential Information in a manner
            consistent with the confidentiality provisions of this Agreement.

      13.2  EXCEPTIONS. The mutual obligations under this Clause shall not apply
            to any information to the extent the recipient Party can demonstrate
            by competent evidence that such information:

      (a)   is (at the time of disclosure) or becomes (after the time of
            disclosure) known to the public or part of the public domain through
            no breach of this Agreement by the recipient Party or its
            Affiliates;

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      (b)   was known to, or was otherwise in the possession of, the recipient
            Party or its Affiliates prior to the time of disclosure by the
            disclosing Party;

      (c)   is disclosed to the recipient Party or an Affiliate on a
            non-confidential basis by a Third Party who is entitled to disclose
            it without breaching any confidentiality obligation to the
            disclosing Party or any of its Affiliates; or

      (d)   is independently developed by or on behalf of the recipient Party or
            its Affiliates, as evidenced by its written records, without
            reference to the Confidential Information disclosed by the
            disclosing Party or its Affiliates under this Agreement.

      13.3  AUTHORIZED DISCLOSURES.

      (a)   In addition to disclosures allowed under Clause 13.1, each Party may
            disclose Confidential Information belonging to the other Party to
            the extent such disclosure is necessary in the following instances:
            (i) filing or prosecuting Patent Rights as permitted by this
            Agreement; (ii) regulatory filings for Products such Party has a
            license or right to develop hereunder; (iii) prosecuting or
            defending litigation as permitted by this Agreement; and (iv)
            complying with applicable court orders or governmental regulations.

      (b)   In the event Novartis or any of its Affiliates discloses
            Confidential Information to any Regulatory Authority to obtain
            Regulatory Approval for any Product and/or Anadys Compound, or
            discloses such information in connection with the filing of a patent
            application or the prosecution and maintenance of any patent,
            Novartis shall give written notice of such disclosure to Anadys,
            and, if requested, a copy of such disclosure, and shall obtain
            confidential treatment for such disclosure to the extent permitted
            by law or regulation.

      (c)   In the event the recipient Party is required to disclose
            Confidential Information of the disclosing Party by law or in
            connection with bona fide legal process, such disclosure shall not
            be a breach of this Agreement; provided that the recipient Party (i)
            informs the disclosing Party as soon as reasonably practicable of
            the required disclosure, (ii) limits the disclosure to the required
            purpose, and (iii) at the disclosing Party's request and expense,
            assists in an attempt to object to or limit the required disclosure.

      (d)   Notwithstanding any other provision of this Agreement to the
            contrary, in no event shall Novartis disclose any Confidential
            Information of Anadys to [...***...], nor shall Novartis permit any
            of its Affiliates to do so [...***...] to [...***...] to it in
            [...***...]. In addition, in no event shall Novartis or any of its
            Affiliates be obligated to disclose [...***...] of [...***...] to
            Anadys.

14.   TERM AND TERMINATION

      14.1  TERM. The term of this Agreement will commence upon the Effective
            Date and continue until the later of (a) the expiration of the
            last-to-expire Valid Claim of the Anadys Patent Rights and (b) the
            expiration of the last-to-expire Royalty Term, unless earlier
            terminated as permitted by the Agreement.

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      14.2  TERMINATION BY EITHER PARTY.

      (a)   If either Novartis or Anadys are in material breach of any material
            obligation hereunder, the non-breaching Party may give written
            notice to the breaching Party specifying the claimed particulars of
            such breach, and in the event such material breach is not cured
            within [...***...] ([...***...]) [...***...] after such notice, the
            non-breaching Party shall have the right thereafter to terminate
            this Agreement immediately by giving written notice to the breaching
            Party to such effect; provided, however, that if such breach is
            capable of being cured, but cannot be cured within such [...***...]
            ([...***...])[...***...] period, and the breaching Party initiates
            actions to cure such breach within such period and thereafter
            diligently pursues such actions, the breaching Party shall have such
            additional period as is reasonable in the circumstances to cure such
            breach. Any termination by any Party under this Clause shall be
            without prejudice to any damages or other legal or equitable
            remedies to which it may be entitled from the other Party.

      (b)   Either Anadys or Novartis may terminate this Agreement without
            notice if the other Party becomes insolvent, makes or has made an
            assignment for the benefit of creditors, is the subject of
            proceedings in voluntary or involuntary bankruptcy instituted on
            behalf of or against such Party (except for involuntary bankruptcy
            proceedings which are dismissed within [...***...] ([...***...])
            [...***...]), or has a receiver or trustee appointed for
            substantially all of its property.

      14.3  TERMINATION BY NOVARTIS. Novartis may terminate this Agreement
            without cause at any time after the Effective Date on [...***...]
            ([...***...])[...***...] written notice to Anadys in its entirety or
            on a Product-by-Product or country-by-country basis; provided,
            however, that if Novartis terminates this Agreement without cause
            prior to the [...***...] of the Effective Date, Novartis will
            [...***...] the [...***...] the [...***...] the [...***...]. The
            Parties agree that [...***...] will [...***...], that the
            [...***...] the [...***...] will [...***...] the [...***...] the
            [...***...] for such [...***...] that the Parties shall [...***...]
            to [...***...] the [...***...]. Novartis will be under no obligation
            to [...***...] to the [...***...] are [...***...]. without limiting
            the generality of the foregoing, a [...***...] the [...***...] will
            [...***...]) of [...***...] prior to the date [...***...] of
            termination is provided and [...***...] be [...***...],[...***...]
            the [...***...].

      14.4  TERMINATION FOR FAILURE OF COMPOUND. Novartis may terminate this
            Agreement entirely, or on a compound-by-compound basis, at any time
            in the event that the [...***...] the [...***...] the [...***...] as
            [...***...].

      14.5  CHANGE OF CONTROL. In the event of a Change of Control of Anadys,
            Novartis may, by written notice to Anadys (or the successor entity)
            within [...***...] ([...***...])[...***...] after the Change of
            Control is effective, terminate Anadys' (or the successor entity's)
            interest and rights in the Development Plan, joint committees and/or
            Co-Promotion Option (or co-promotion activities) in the US, and
            otherwise maintain the Agreement in effect; provided, however, that
            Anadys (or the successor entity) will continue to fund its share of
            the Development Costs to the extent incurred in accordance with the
            Development Plan in effect as of the effective date of termination
            in accordance with the provisions of this Agreement, and Novartis
            shall not be obligated to disclose any Confidential Information

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            (other than such information as Novartis is obligated to disclose or
            make available pursuant to Clauses 9 and 10).

15.   EFFECT OF TERMINATION

      15.1  TERMINATION BY NOVARTIS FOR CAUSE. Upon termination of this
            Agreement by Novartis pursuant to Clause 14.2:

      (a)   any licenses granted by Novartis to Anadys will terminate and revert
            to Novartis;

      (b)   any licenses granted by Anadys to Novartis will remain in effect in
            accordance with their respective terms (including, without
            limitation, Clauses 9 and 10), provided, however, that [...***...];

      (c)   Novartis will be entitled to seek any other available legal and/or
            equitable remedies against Anadys for harm suffered by Novartis as a
            result of the breach;

      (d)   the Co-Promotion Option or any existing co-promotion rights of
            Anadys shall terminate, including any right to receive any portion
            of the Product Profits after such termination; and

      (e)   the provisions of Clause 2.5 shall survive such termination.

      15.2  TERMINATION BY ANADYS FOR BREACH OR BY NOVARTIS WITHOUT CAUSE OR FOR
            FAILURE OF COMPOUND. Upon termination of this Agreement by Anadys
            pursuant to Clause 14.2, or by Novartis pursuant to Clause 14.3 or
            Clause 14.4:

      (a)   any licenses granted by either Party to the other will terminate and
            revert to the granting Party;

      (b)   Novartis shall, and it hereby does, grant to Anadys a non-exclusive,
            worldwide, fully-paid, irrevocable and perpetual license, including
            the right to sublicense, under Novartis' interest in the Joint
            Product Patents, to develop, make, have made, use, sell, have sold,
            offer for sale and import Products;

      (c)   Anadys will have a right of first negotiation, exercisable by
            written notice to Novartis at any time within [...***...]
            ([...***...]) [...***...]of such termination, to obtain a worldwide,
            exclusive, royalty-bearing license, with the right to sublicense,
            Under the Novartis Patent Rights and Joint Product Patents, to
            develop, make, have made, use, sell, have sold, offer for sale and
            import Products on commercially reasonable terms to be negotiated in
            good faith by the Parties for up to an additional [...***...]
            ([...***...]) [...***...] following exercise of such right of first
            negotiation;

      (d)   any exclusive license granted to Anadys as described in the
            preceding sub-clause (c) will include the right to use clinical and
            regulatory data and information generated by Novartis for regulatory
            purposes relating to the Products;

      (e)   any exclusive license agreement entered into as described in
            sub-clause (c) will provide for Novartis to transfer and assign to
            Anadys all of its right, title and interest in and to all US and
            foreign regulatory submissions and Regulatory

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            Approvals with respect to the Products and all drug master files and
            drug dossiers with respect to the Products (other than those related
            to manufacturing facilities); and

      (f)   the provisions of Clauses 3.5(e) and 12.1 shall survive such
            termination in accordance with their respective terms.

      15.3  SURVIVAL. Expiration or termination of this Agreement shall not
            relieve the Parties of any obligation accruing prior to such
            expiration or termination. Without limiting the foregoing, the
            obligations pursuant to Clauses 10, 11.1, 11.2(f), 15 (including the
            additional Clauses that survive in accordance with the express terms
            of Clause 15), 17, 18.2 and 19 shall survive expiration or
            termination of this Agreement. The provisions of Clause 13
            (Confidentiality) shall survive the termination or expiration of
            this Agreement for a period of ten (10) years.

16.   REPRESENTATIONS AND WARRANTIES

      16.1  REPRESENTATIONS AND WARRANTIES BY EACH PARTY. Each Party represents
            and warrants to the other that:

      (a)   it is a corporation duly organized, validly existing, and in good
            standing under the laws of its jurisdiction of formation;

      (b)   it has full corporate power and authority to execute, deliver, and
            perform this Agreement, and has taken all corporate action required
            by law and its organizational documents to authorize the execution
            and delivery of this Agreement and the consummation of the
            transactions contemplated by this Agreement;

      (c)   this Agreement constitutes a valid and binding agreement enforceable
            against it in accordance with its terms (except as the
            enforceability thereof may be limited by bankruptcy, bank moratorium
            or similar laws affecting creditors' rights generally and laws
            restricting the availability of equitable remedies and may be
            subject to general principles of equity whether or not such
            enforceability is considered in a proceeding at law or in equity);
            and

      (d)   the execution and delivery of this Agreement and all other
            instruments and documents required to be executed pursuant to this
            Agreement, and the consummation of the transactions contemplated
            hereby do not and shall not (i) conflict with or result in a breach
            of any provision of its organizational documents, (ii) result in a
            breach of any agreement to which it is a party; or (iii) violate any
            law.

      16.2  REPRESENTATIONS AND WARRANTIES BY ANADYS. Anadys represents and
            warrants to Novartis as of the Execution Date that:

      (a)   Exhibits B-1 and B-2 collectively set forth a complete and accurate
            list of all Anadys Patent Rights in existence as of the Effective
            Date;

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      (b)   Anadys is the sole and exclusive owner or exclusive licensee of all
            of the Anadys Patent Rights free from Encumbrances and is listed (or
            is in the process of becoming listed) in the records of the
            appropriate United States and/or foreign governmental agencies as
            the sole and exclusive owner of record or exclusive licensee for
            each registration, grant and application included in the Anadys
            Patent Rights;

      (c)   Anadys has the right to grant to Novartis the licenses under the
            Anadys Technology that it purports to grant hereunder;

      (d)   Anadys has the right to use and disclose and to enable Novartis to
            use and disclose (in each case under appropriate conditions of
            confidentiality) the Anadys Know-How free from Encumbrances (other
            than Encumbrances imposed by this Agreement);

      (e)   to the knowledge of Anadys, the issued patents in the Anadys Patent
            Rights are valid and enforceable without any claims, challenges,
            oppositions, interference or other proceedings pending or threatened
            and Anadys has filed and prosecuted patent applications within the
            Anadys Patent Rights in good faith and complied with all duties of
            disclosure with respect thereto. In addition, to Anadys' knowledge,
            Anadys has not committed any act, or omitted to commit any act, that
            may cause the Anadys Patent Rights to expire prematurely or be
            declared invalid or unenforceable;

      (f)   except to the extent not yet due, all necessary and material
            application, registration, maintenance and renewal fees in respect
            of the Anadys Patent Rights in existence as of the Effective Date
            have been paid and, except to the extent not yet due, all necessary
            documents and certificates have been filed with the relevant
            agencies for the purpose of maintaining such Anadys Patent Rights;

      (g)   Anadys has not granted, and will not grant during the term of this
            Agreement, any Third Party, including any academic organization or
            agency, any rights to the Anadys Compounds or Products;

      (h)   to the best of Anadys' knowledge, the development, manufacture, use
            and sale of the Anadys Compounds do not infringe the patent rights
            or misappropriate the know-how of any Third Party, nor has Anadys
            received any written notice alleging such infringement;

      (i)   Anadys has not initiated or been a party to any proceedings or
            claims in which it alleges that any Third Party is or was infringing
            or misappropriating any Anadys Technology, nor have any such
            proceedings been threatened by Anadys in writing, nor does Anadys
            know of any valid basis for any such proceedings;

      (j)   Anadys has obtained from all individuals who participated in any
            respect in the invention or authorship of any Anadys Technology
            effective assignments of all ownership rights of such individuals in
            such Anadys Technology, either pursuant to written agreement or by
            operation of law;

                                       45
<PAGE>

      (k)   No officer or employee of Anadys is subject to any agreement with
            any other Third Party which requires such officer or employee to
            assign any interest in any Anadys Technology relating to the Anadys
            Compounds to any Third Party;

      (l)   Anadys has taken all reasonable precautions to preserve the
            confidentiality of the Anadys Know-How; and

      (m)   as of the Execution Date, [...***...] the [...***...].

      16.3  COVENANTS OF ANADYS. Anadys covenants and agrees that it will not
            grant any interest in the Anadys Patent Rights or Anadys Know-How
            which is inconsistent with the terms and conditions of this
            Agreement, nor shall Anadys assign its right, title or interest in
            or to the Anadys Patent Rights to any Third Party.

      16.4  NO OTHER WARRANTIES. Except as otherwise expressly set forth in this
            agreement, each Party expressly disclaims any and all
            representations or warranties of any kind, either express or
            implied, including any warranties of merchantability or fitness for
            a particular purpose.

17.   INDEMNIFICATION AND LIABILITY

      17.1  INDEMNIFICATION BY ANADYS. Anadys shall indemnify and hold Novartis
            and its Affiliates, and their respective officers, directors,
            employees, contractors, agents and assigns, harmless from and
            against any Claims against Novartis or any of the foregoing persons
            arising or resulting from:

      (a)   Anadys' actions in connection with the development or
            commercialization of the Anadys Compounds and/or Products under this
            Agreement;

      (b)   the negligence or willful misconduct of Anadys; or

      (c)   the breach of any of the covenants, warranties and representations
            made by Anadys to Novartis under this Agreement.

            Anadys shall only be obliged to so indemnify and hold Novartis
            harmless to the extent that such Claims do not arise from the
            breach, negligence or willful misconduct of Novartis.

      17.2  INDEMNIFICATION BY NOVARTIS. Novartis shall indemnify and hold
            Anadys and its Affiliates, and their respective officers, directors,
            employees, contractors, agents and assigns, harmless from and
            against any Claims against Anadys or any of the foregoing persons
            arising or resulting from:

      (a)   Novartis', its Affiliates' and its sublicensees' actions in
            connection with the development or commercialization of the Anadys
            Compounds and/or Products under this Agreement;

      (b)   the negligence or willful misconduct of Novartis; or

      (c)   the breach of any of the covenants, warranties and representations
            made by Novartis to Anadys under this Agreement.

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                                       46
<PAGE>

            Novartis shall only be obliged to so indemnify and hold Anadys
            harmless to the extent that such Claims do not arise from the
            breach, negligence or willful misconduct of Anadys.

      17.3  INDEMNIFICATION PROCEDURE.

      (a)   A Party hereto or any of its Affiliates seeking indemnification
            hereunder ("INDEMNIFIED PARTY") shall notify the other Party
            ("INDEMNIFYING PARTY") in writing reasonably promptly after the
            assertion against the Indemnified Party of any claim or allegation
            by a Third Party ("THIRD PARTY CLAIM") in respect of which the
            Indemnified Party intends to base a claim for indemnification
            hereunder, but the failure or delay so to notify the Indemnifying
            Party shall not relieve the Indemnifying Party of any obligation or
            liability that it may have to the Indemnified Party except to the
            extent that the Indemnifying Party demonstrates that its ability to
            defend or resolve such Third Party Claim is adversely affected
            thereby.

      (b)   Subject to the provisions of sub-Clauses (d) and (e) below, the
            Indemnifying Party shall have the right, upon written notice given
            to the Indemnified Party within thirty (30) days after receipt of
            the notice from the Indemnified Party of any Third Party Claim to
            assume the defense and handling of such Third Party Claim, at the
            Indemnifying Party's sole expense, in which case the provisions of
            sub-Clause (c) below shall govern.

      (c)   The Indemnifying Party shall select counsel reasonably acceptable to
            the Indemnified Party in connection with conducting the defense and
            handling of such Third Party Claim, and the Indemnifying Party shall
            defend or handle the same in consultation with the Indemnified
            Party, and shall keep the Indemnified Party timely apprised of the
            status of such Third Party Claim. The Indemnifying Party shall not,
            without the prior written consent of the Indemnified Party, agree to
            a settlement of any Third Party Claim which could lead to liability
            or create any financial or other obligation on the part of the
            Indemnified Party for which the Indemnified Party is not entitled to
            indemnification hereunder, or would involve any admission of
            wrongdoing on the part of the Indemnified Party. The Indemnified
            Party shall cooperate with the Indemnifying Party, at the request
            and expense of the Indemnifying Party, and shall be entitled to
            participate in the defense and handling of such Third Party Claim
            with its own counsel and at its own expense. Notwithstanding the
            foregoing, in the event the Indemnifying Party fails to conduct the
            defense and handling of any Third Party Claim in good faith after
            having assumed such, then the provisions of sub-Clause (e) below
            shall govern.

      (d)   If the Indemnifying Party does not give written notice to the
            Indemnified Party, within thirty (30) days after receipt of the
            notice from the Indemnified Party of any Third Party Claim, of the
            Indemnifying Party's election to assume the defense and handling of
            such Third Party Claim, the provisions of sub-Clause (e) below shall
            govern.

      (e)   The Indemnified Party may, at the Indemnifying Party's expense,
            select counsel reasonably acceptable to the Indemnifying Party in
            connection with conducting

                                       47
<PAGE>

            the defense and handling of such Third Party Claim and defend or
            handle such Third Party Claim in such manner as it may deem
            appropriate, provided, however, that the Indemnified Party shall
            keep the Indemnifying Party timely apprised of the status of such
            Third Party Claim and shall not settle such Third Party Claim
            without the prior written consent of the Indemnifying Party, which
            consent shall not be unreasonably withheld. If the Indemnified Party
            defends or handles such Third Party Claim, the Indemnifying Party
            shall cooperate with the Indemnified Party, at the Indemnified
            Party's request but at no expense to the Indemnified Party, and
            shall be entitled to participate in the defense and handling of such
            Third Party Claim with its own counsel and at its own expense.

      17.4  MITIGATION OF LOSS. Each Indemnified Party will take, and will
            procure that its Affiliates take, all such reasonable steps and
            action as are necessary or as the Indemnifying Party may reasonably
            require in order to mitigate any Claims under this Clause. Nothing
            in this Agreement shall or shall be deemed to relieve any Party of
            any common law or other duty to mitigate any losses incurred by it.

      17.5  SPECIAL, INDIRECT AND OTHER LOSSES. IN NO EVENT SHALL EITHER PARTY
            OR ANY OF ITS AFFILIATES BE LIABLE FOR SPECIAL, INDIRECT,
            INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR FOR ANY ECONOMIC
            LOSS OR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY, EXCEPT TO THE
            EXTENT ANY SUCH DAMAGES ARE REQUIRED TO BE PAID TO A THIRD PARTY AS
            PART OF A THIRD PARTY CLAIM.

      17.6  NO EXCLUSION. Neither Party excludes any liability for death or
            personal injury caused by its negligence or that of its employees,
            agents or sub-contractors.

18.   PUBLICATIONS AND PUBLICITY

      18.1  PUBLICATIONS. Any proposed oral public disclosures or written
            publications of Anadys relating to a Product and/or Anadys Compound
            shall require the written consent of Novartis prior to their
            release; provided, that the foregoing shall not apply to information
            which is not of a scientific or technical nature and which is in the
            public domain or any public disclosures required by law or
            governmental regulation or by the rules of any recognized stock
            exchange or quotation system.

      18.2  PUBLICITY. Each Party agrees not to issue any press release or other
            public statement, whether oral or written, disclosing the existence
            of this Agreement, the terms hereof or any information relating to
            this Agreement without the prior written consent of the other Party,
            provided however, that neither Party will be prevented from
            complying with any duty of disclosure it may have pursuant to law or
            governmental regulation or pursuant to the rules of any recognized
            stock exchange or quotation system and Novartis may issue press
            releases and other public statements as it deems appropriate in
            connection with the development and commercialization of Products
            under this Agreement. In the event of a disclosure required by law,
            governmental regulation or the rules of any recognized stock
            exchange or quotation system, the Parties shall coordinate with each
            other with respect to the timing, form and content of such required
            disclosure to the extent practicable under the circumstances, and,
            if so requested by the other Party, the

                                       48
<PAGE>

            Party subject to such obligation shall use commercially reasonable
            efforts to obtain an order protecting to the maximum extent possible
            the confidentiality of such provisions of this Agreement as
            reasonably requested by the other Party. If the Parties are unable
            to agree on the form or content of any required disclosure, such
            disclosure shall be limited to the minimum required, as determined
            by the disclosing Party in consultation with its legal counsel.

19.   GENERAL PROVISIONS

      19.1  ASSIGNMENT. Neither Party may assign its rights and obligations
            under this Agreement without the other Party's prior written
            consent, except that (a) either Party may assign its rights and
            obligations under this Agreement or any part hereof to one or more
            of its Affiliates without the consent of any other Party; and (b)
            either Party may assign this Agreement in its entirety to a
            successor to all or substantially all of its business (in the case
            of Anadys, subject to Novartis' rights under Clause 14.5). The
            assigning Party shall provide the other Party with prompt written
            notice of any such assignment. Any permitted assignee shall assume
            all obligations of its assignor under this Agreement, and no
            permitted assignment shall relieve the assignor of liability
            hereunder. Any attempted assignment in contravention of the
            foregoing shall be void.

      19.2  EXTENSION TO AFFILIATES. Each Party shall have the right to extend
            the rights and immunities granted in this Agreement to one or more
            of its Affiliates. All applicable terms and provisions of this
            Agreement, except this right to extend, shall apply to any such
            Affiliate to which this Agreement has been extended to the same
            extent as such terms and provisions apply to the Party extending
            such rights and immunities. The Party extending the rights and
            immunities granted hereunder shall remain primarily liable for any
            acts or omissions of its Affiliates.

      19.3  SEVERABILITY. Should one or more of the provisions of this Agreement
            become void or unenforceable as a matter of law, then this Agreement
            shall be construed as if such provision were not contained herein
            and the remainder of this Agreement shall be in full force and
            effect, and the Parties will use their best efforts to substitute
            for the invalid or unenforceable provision a valid and enforceable
            provision which conforms as nearly as possible with the original
            intent of the Parties.

      19.4  GOVERNING LAW. This Agreement shall be governed by and construed
            under the laws of the State of New York, USA, without giving effect
            to the conflicts of laws provision thereof.

      19.5  DISPUTE RESOLUTION. Any disputes between the Parties relating to
            this Agreement shall be subject to [...***...] and the Parties
            hereby waive any objection which they may have now or hereafter to
            the laying of venue of any proceedings in [...***...] and to any
            claim that such proceedings have been brought [...***...] and
            further agree that [...***...].

      19.6  FORCE MAJEURE. Neither Party shall be responsible to the other for
            any failure or delay in performing any of its obligations under this
            Agreement or for other nonperformance hereunder if such delay or
            nonperformance is caused by strike,

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<PAGE>

            stoppage of labor, lockout or other labor trouble, fire, flood,
            accident, war, act of terrorism, act of God or of the government of
            any country or of any local government, or by cause unavoidable or
            beyond the control of any Party hereto. In such event, the Party
            affected will use commercially reasonable efforts to resume
            performance of its obligations.

      19.7  WAIVERS AND AMENDMENTS. The failure of any Party to assert a right
            hereunder or to insist upon compliance with any term or condition of
            this Agreement shall not constitute a waiver of that right or excuse
            a similar subsequent failure to perform any such term or condition
            by the other Party. No waiver shall be effective unless it has been
            given in writing and signed by the Party giving such waiver. No
            provision of this Agreement may be amended or modified other than by
            a written document signed by authorized representatives of each
            Party.

      19.8  RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement
            shall be deemed to constitute a partnership, joint venture, or legal
            entity of any type between Anadys and Novartis, or to constitute one
            as the agent of the other. Each Party shall act solely as an
            independent contractor, and nothing in this Agreement shall be
            construed to give any Party the power or authority to act for, bind,
            or commit the other.

      19.9  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
            inure to the benefit of the Parties hereto and their respective
            successors and permitted assigns.

      19.10 NOTICES. All notices, consents, waivers, and other communications
            under this Agreement must be in writing and will be deemed to have
            been duly given when (a) delivered by hand (with written
            confirmation of receipt), (b) sent by fax (with written confirmation
            of receipt), provided that a copy is sent by an internationally
            recognized overnight delivery service (receipt requested), or (c)
            when received by the addressee, if sent by an internationally
            recognized overnight delivery service (receipt requested), in each
            case to the appropriate addresses and fax numbers set forth below
            (or to such other addresses and fax numbers as a Party may designate
            by notice):

      If to Anadys:

            Anadys Pharmaceuticals, Inc.
            3115 Merryfield Row
            San Diego, CA  92121
            USA
            Attention: [...***...]
            Fax: [...***...]

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                                       50
<PAGE>

      If to Novartis:

            Novartis International Pharmaceutical Ltd.
            "Hurst Holme", 12 Trott Road
            P.O. Box HM 2899
            Hamilton, HM LX
            Bermuda
            Attn: [...***...]
            Fax: [...***...]

      with a copy to:

            Novartis Pharma AG
            Lichtstrasse 35
            Post Office Box 4002
            Basel, Switzerland
            Attn: [...***...]
            Fax: [...***...]
            and

            Novartis Pharma AG
            Lichtstrasse 35
            Post Office Box 4002
            Basel,Switzerland
            Attn: [...***...]
            Fax: [...***...]

      19.11 FURTHER ASSURANCES. Novartis and Anadys hereby covenant and agree
            without the necessity of any further consideration, to execute,
            acknowledge and deliver any and all such other documents and take
            any such other action as may be reasonably necessary to carry out
            the intent and purposes of this Agreement.

      19.12 COMPLIANCE WITH LAW. Each Party shall perform its obligations under
            this Agreement in accordance with all applicable laws. No Party
            shall, or shall be required to, undertake any activity under or in
            connection with this Agreement which violates, or which it believes,
            in good faith, may violate, any applicable law.

      19.13 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is not intended to
            and shall not be construed to give any Third Party any interest or
            rights (including, without limitation, any third party beneficiary
            rights) with respect to or in connection with any agreement or
            provision contained herein or contemplated hereby.

      19.14 ENTIRE AGREEMENT. This Agreement, together with its Exhibits and the
            letter agreement between the parties dated of even date herewith
            pursuant to which the Parties have approved the initial Development
            Plan and Target Product Profile, sets forth the entire agreement and
            understanding of the Parties as to the subject matter hereof and
            supersedes all proposals, oral or written, and all other
            communications between the Parties with respect to such subject
            matter. In the

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<PAGE>

            event of any conflict between a substantive provision of this
            Agreement and any Exhibit hereto, the substantive provisions of this
            Agreement shall prevail.

      19.15 COUNTERPARTS. This Agreement may be executed in two or more
            counterparts, each of which shall be deemed an original, but all of
            which together shall constitute one and the same instrument.

      19.16 HSR FILING. Each of Novartis and Anadys agrees to prepare and make
            appropriate filings under the HSR Act relating to this Agreement and
            the transactions contemplated hereby as soon as reasonably
            practicable, but in any event within [...***...]
            ([...***...])[...***...]after the Execution Date (the "HSR FILING
            DATE"). The parties agree to cooperate in the antitrust clearance
            process and to furnish promptly to the FTC, the Antitrust Division
            of the Department of Justice and any other agency or authority, any
            information reasonably requested by them in connection with such
            filings. Other than the provisions of this Clause 19.16 and
            [...***...] and [...***...], the rights and obligations of the
            Parties under this Agreement shall not become effective until the
            waiting period provided by the HSR Act shall have terminated or
            expired without any action by any government agency or challenge to
            the transaction (the date of such termination or expiration shall be
            the "EFFECTIVE DATE" of this Agreement). Upon the occurrence of the
            Effective Date, all provisions of this Agreement shall become
            effective automatically without the need for further action by the
            Parties. In the event that antitrust clearance from the FTC and
            Antitrust Division of the Department of Justice [...***...]
            ([...***...])[...***...], or [...***...], this Agreement may be
            terminated by either Party. In the event a provision of this
            Agreement needs to be deleted or substantially revised in order to
            obtain regulatory clearance of this transaction, the parties will
            negotiate in good faith in accordance with Clause 19.3.

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                                       52
<PAGE>

            IN WITNESS WHEREOF, the Parties intending to be bound have caused
this Agreement to be executed by their duly authorized representatives.

NOVARTIS INTERNATIONAL                 ANADYS PHARMACEUTICALS, INC.
PHARMACEUTICAL LTD.

By: /s/ Emil Block                     By: /s/ Kleanthis G. Xanthopolous, Ph.D.
    ----------------------------           -------------------------------------

Name: Emil Block                       Name: Kleanthis G. Xanthopolous, Ph.D.

Title: Member of the Board of          Title: President and CEO
       Directors

By: /s/ Wendy Wiseman
    ----------------------------

Name: Wendy Wiseman

Title: Account Manager

                                       53
<PAGE>

                                    EXHIBIT A

                                ANADYS COMPOUNDS

                                   [...***...]

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                                       54

<PAGE>

                                  EXHIBIT B - 1

                                 ANADYS PATENTS

Patent Family A

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
[...***...]     [...***...]       [...***...]        [...***...]   [...***...]
</TABLE>

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

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                                       55

<PAGE>

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

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<PAGE>

Patent Family B

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

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<PAGE>

Patent Family C

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

*** Confidential Treatment Requested

                                       58

<PAGE>

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

*** Confidential Treatment Requested

                                       59

<PAGE>

                                   EXHIBIT B-2

                                 ANADYS PATENTS

Patent Family D

<TABLE>
<CAPTION>
                               PATENT APPLICATION
  COUNTRY          TITLE      NUMBER/PATENT NUMBER   FILING DATE     STATUS
-----------     -----------   --------------------   -----------   -----------
<S>             <C>           <C>                    <C>           <C>
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
[...***...]     [...***...]        [...***...]       [...***...]   [...***...]
</TABLE>

*** Confidential Treatment Requested

                                       60

<PAGE>

                                    EXHIBIT C

                       FULLY BURDENED MANUFACTURING COSTS

"Fully Burdened Manufacturing Costs" mean the total amount of the following:
[...***...], [...***...],[...***...] and [...***...]. All calculations hereunder
will be made using, and all defined and undefined terms will be construed in
accordance with, [...***...], consistently applied, and consistent with
generally accepted methods for costing for similar products in the
pharmaceutical industry. Notwithstanding any other provision of this [...***...]
to the contrary, no cost or expense item included in [...***...] shall include
any [...***...] or similar markups.

"[...***...]" mean the appropriate allocation (for [...***...] sales in the
[...***...]) of the total of the [...***...] and [...***...] to [...***...], as
determined in accordance with [...***...] Accounting Standards.

      "[...***...]" mean the costs of [...***...] needed for the manufacturing
      process and costs of [...***...] for these [...***...], in each case to
      the extent directly attributable to [...***...].

      "[...***...]" mean the direct and indirect costs of [...***...], plus an
      appropriate share of costs of [...***...], determined in accordance with
      the [...***...] for all other products manufactured in the applicable
      facility.

      [...***...] and [...***...] are to be established on a regular, standard
      basis, as more fully described below:

            Costs of [...***...] shall be based on a planned utilization of
            [...***...] in the [...***...] process for [...***...]. [...***...]
            are not to be included in [...***...] costs. [...***...] of
            [...***...] are costs of depreciation or [...***...] of the
            [...***...] accommodating that equipment plus [...***...] and
            [...***...] for the building, and costs for [...***...], and other
            [...***...] costs such as costs for [...***...] and [...***...]. The
            building costs shall be allocated [...***...]using an appropriate
            key such as [...***...].

            [...***...] costs are costs for [...***...] which typically embraces
            a controlling and [...***...] function, costs of indirect
            [...***...] such as costs for a [...***...], costs of [...***...]
            costs of [...***...] monitoring of [...***...], costs of [...***...]
            of [...***...][...***...], costs for [...***...] and [...***...],
            costs for [...***...] and [...***...], costs of [...***...], costs
            for [...***...] of [...***...], and costs of [...***...].

            [...***...]costs are costs of identifying and analyzing the
            [...***...], costs of [...***...], costs of [...***...], costs of
            [...***...], costs of [...***...], costs of [...***...], costs of
            [...***...], costs of [...***...], costs [...***...].

            [...***...] costs are costs for [...***...] of [...***...], costs of
            [...***...], costs of [...***...].

*** Confidential Treatment Requested

                                       61

<PAGE>

            [...***...] costs shall mean costs of plant and production
            management, costs for ensuring sufficient levels of safety, health
            and environment such as [...***...]. Other [...***...] costs include
            costs [...***...].

            [...***...]costs are costs associated with the [...***...].

            [...***...]costs are costs associated with the [...***...].

      "[...***...]" means [...***...] used to determine the total
      [...***...]attributable to Product.

      "[...***...]" mean the costs of [...***...].

      "[...***...]" mean any [...***...] on sales of [...***...] in the
      [...***...] paid by [...***...] to [...***...] in consideration of the
      [...***...] such [...***...] to [...***...] of a [...***...] under
      [...***...] controlled by such [...***...] that, in the absence of such
      license, would be [...***...] the
      [...***...],[...***...],[...***...],[...***...]or use of the [...***...]in
      [...***...].

*** Confidential Treatment Requested

                                       62

<PAGE>

                                    EXHIBIT D

                       THIRD PARTY MANUFACTURING CONTRACTS

1.    [...***...]

2.    [...***...]

3.    [...***...]

4.    [...***...]

5.    [...***...]

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

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

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

6.    [...***...]

7.    [...***...]

8.    [...***...]

9.    [...***...]

*** Confidential Treatment Requested

                                       63

<PAGE>

                                    EXHIBIT E

                                 SAMPLE INVOICE

SENDER'S LOGO                                                  INVOICE

                                                            INVOICE DATE:
Street                                                      MAY 11, 2006
Town, Country

Phone and Fax Nr.                                           INVOICE NO.: XXXX

BILL TO:                                        FOR:
Novartis Pharma AG                              [...***...]
[...***...]                                     [...***...]
Att. Mr. XXXX
[...***...]
[...***...]

<TABLE>
<CAPTION>
                        DESCRIPTION                                           AMOUNT (USD)
                        -----------                                          --------------
<S>                                                                          <C>
[...***...]                                                                  US$ 000'000.00

(Or milestone payment for event Y, according to paragraph
XY of agreement ZZZZ dated ......)

Novartis Contract Code

Please specify the event for which the invoice is due

PLEASE REMIT BY WIRE TRANSFER WITHIN [__] DAYS TO:

                     Receiving Bank - ........
                     Swift Code - ........
                     ABA Number - ........
                     Credit Account - ........
                     Beneficiary - ........

                                                           TOTAL                 000'000,00
</TABLE>

If you have any questions concerning this invoice, contact ............
or e-mail to ........

VAT -Reg. No. Xxxxxxxxxx (if applicable)

*** Confidential Treatment Requested

                                       64<PAGE>

                                                                   EXHIBIT 10.39

                        CONFIDENTIAL SEPARATION AGREEMENT
                        AND GENERAL RELEASE OF ALL CLAIMS

      This Confidential Separation Agreement and Release of All Claims
("Separation Agreement") is made by and between Anadys Pharmaceuticals, Inc.
("Anadys" or "the Company") and Michael J. Kamdar ("Mr. Kamdar") with respect to
the following facts:

      A. Mr. Kamdar currently is employed by Anadys as Senior Vice President
Corporate Development and Finance;

      B. Mr. Kamdar resigns his employment effective May 2, 2005 (the
"Separation Date"). As of the Separation Date, all payments and benefits from
the Company will cease, except as provided in this Agreement. On execution of
this Separation Agreement, Mr. Kamdar will have resigned for all internal and
external purposes.

      C. Anadys wishes to resolve all claims and issues that have, or could have
been raised, in relation to Mr. Kamdar's employment with Anadys and arising out
of or in any way related to the acts, transactions or occurrences between Mr.
Kamdar and Anadys to date, including, but not limited to, Mr. Kamdar's
employment with Anadys or the conclusion of that employment, on the terms set
forth below.

      THEREFORE, in consideration of the promises and mutual agreements set
forth in this Separation Agreement, it is agreed by and between the undersigned
as follows:

      1. Final Wages. Within three (3) days of his Separation Date, the Company
shall provide Mr. Kamdar with a final paycheck which includes accrued and unused
vacation pay, less all applicable federal, state and local income, social
security and other payroll taxes. Within fourteen (14) days of the Separation
Date, the Company shall provide Mr. Kamdar with election forms for medical
insurance continuation as provided by the Consolidated Omnibus Budget
Reconciliation Act (COBRA).

      2. Consideration from Anadys. Anadys provides the following consideration
in exchange for Mr. Kamdar's agreement to the terms of this Separation
Agreement.

            2.1 In the event Employee elects to continue coverage pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), Anadys
agrees to reimburse Mr. Kamdar for continued health insurance coverage for
himself and his family for the same portion of his COBRA health insurance
premium that it paid during his employment or until the earlier of (i) nine (9)
months from the Separation Date; or (ii) the date on which Mr. Kamdar begins
full-time employment with another company or business entity which provides him
with similar benefits.

            2.2 Additional Consideration. As additional consideration, Anadys
agrees to pay Mr. Kamdar Forty-Five Thousand Dollars ($45,000), less all
applicable Federal, state and

                                       1

<PAGE>

local income and employment taxes and other deductions required by law. This sum
will be paid in two equal payments, one paid within three (3) days of execution
of the Separation Agreement and the second made June 2, 2005.

      3. General Release.

            3.1 In exchange for the consideration described in Section 2 above,
except for claims under the Workers' Compensation Act and Unemployment
Insurance, Mr. Kamdar unconditionally, irrevocably and absolutely releases and
discharges Anadys, and any parent and subsidiary corporations, divisions and
affiliated corporations, partnerships or other affiliated entities of Anadys,
past and present, as well as Anadys's employees, officers, directors, agents,
attorneys, successors and assigns (collectively, "Released Parties"), from all
claims related in any way to the transactions or occurrences between them to
date, to the fullest extent permitted by law, including, but not limited to, Mr.
Kamdar's employment with Anadys, the termination of Mr. Kamdar's employment, and
all other losses, liabilities, claims, charges, demands and causes of action,
known or unknown, suspected or unsuspected, arising directly or indirectly out
of or in any way connected with Mr. Kamdar's employment with Anadys. This
release is intended to have the broadest possible application and includes, but
is not limited to, any tort, contract, common law, constitutional or other
statutory claims, including, but not limited to, alleged violations of the
California Labor Code, the federal Fair Labor Standards Act, Title VII of the
Civil Rights Act of 1964, the California Fair Employment and Housing Act, the
Americans with Disabilities Act, the federal Family and Medical Leave Act, the
California Family Rights Act, and all claims for attorneys' fees, costs and
expenses;

            3.2 The parties declare and represent that they intend this
Separation Agreement to be complete and not subject to any claim of mistake, and
that the release herein expresses a full and complete release and, regardless of
the adequacy or inadequacy of the consideration, they intend the release herein
to be final and complete. The parties execute this release with the full
knowledge that this release covers all possible claims against the Released
Parties, to the fullest extent permitted by law.

      4. California Civil Code Section 1542 Waiver. By executing this Agreement,
Mr. Kamdar acknowledges that he has read the document and has had the
opportunity to receive independent legal advice with respect to executing this
Agreement. Mr. Kamdar expressly acknowledges and agrees that all rights under
Section 1542 of the California Civil Code are waived. That section provides:

            A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
            NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
            THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
            SETTLEMENT WITH THE DEBTOR.

      5. Representation Concerning Filing of Legal Actions. Mr. Kamdar and
Anadys represent that, as of the date of this Separation Agreement, neither has
filed any lawsuits, charges, complaints, petitions, claims or other accusatory
pleadings against the other, or any of the other Released Parties in any court
or with any governmental agency. Mr. Kamdar agrees

                                       2

<PAGE>

that, to the fullest extent permitted by law, he will not prosecute, nor allow
to be prosecuted on his behalf, in any administrative agency, whether state or
federal, or in any court, whether state or federal, any claim or demand of any
type related to the matters released above, it being the intention of the
parties that with the execution of this release, the Released Parties will be
absolutely, unconditionally and forever discharged of and from all obligations
to or on behalf of Mr. Kamdar related in any way to the matters discharged
herein.

      6. Non-disparagement. Mr. Kamdar agrees that he will not make any
voluntary statements, written or oral, or cause or encourage others to make any
such statements that defame or disparage the personal and/or business
reputations, practices or conduct of Anadys or any of the other Released
Parties. Anadys agrees that its Senior Executives, including members of the
Anadys Board of Directors, will not make any voluntary statements, written or
oral, or cause or encourage others to make any such statements that defame or
disparage the personal and/or business reputations, practices or conduct of Mr.
Kamdar.

      7. Confidential Information.

            7.1 Mr. Kamdar acknowledges and agrees that he has a continuing
obligation to keep confidential and not to disclose Anadys' confidential and
proprietary information known or learned as a consequence of his employment with
the Company, including information that has been created, discovered or
developed by, or assigned or entrusted to, the Company or to Mr. Kamdar in the
course of his employment by the Company. This confidential and proprietary
information includes, but is not limited to, information which has commercial
value, formulas, structures, cloning vectors, nucleic acid sequences, proteins,
protein domains, organisms, cell lines and other biological materials, data,
processes, laboratory notebooks, know-how, improvements, techniques, marketing
plans, strategies, forecasts, business plans, financial information, graphs,
photographs, drawings, models, prototypes, computer media and customer lists,
research and development, or other technical or business information related to
the conduct of Anadys's business proprietary information and materials related
to investors or customers, the current, future or proposed business of Anadys,
customer accounts, consultants, vendors or others with whom Anadys does
business, personnel information respecting any employee of Anadys or the
proprietary information of any third party who may have disclosed such
information to Anadys or to Mr. Kamdar in the course of business;

            7.2 Mr. Kamdar agrees that he has a continuing obligation under the
terms of the Confidentiality Agreement which he signed on August 1, 2001, and
that the relevant terms of that agreement will continue in full force and
effect;

            7.3 Mr. Kamdar agrees that the terms and conditions of this
Separation Agreement, as well as the discussions that led to the terms and
conditions of this Separation Agreement, are confidential, and may be disclosed
only pursuant to a subpoena duly issued by a court of law or a government agency
having jurisdiction or power to compel such disclosure, or to retained attorneys
or to his immediate family (spouse, parents, children). When releasing this
information to any such person, Mr. Kamdar shall advise the person receiving the
information of its confidential nature.

                                       3

<PAGE>

      8. Property of Anadys. Within three (3) days of the Separation Date, Mr.
Kamdar will deliver to a Company representative, at a location to be determined,
all Company property which he has in his possession, including all equipment and
accessories, office equipment, financial information, account lists or client
contact lists, credit cards, keys, and documents, including copies of documents.

      9. Injunctive Relief. Mr. Kamdar acknowledges that his obligations as
outlined in Sections 7 and 8 of this Separation Agreement are of a special,
unique and extraordinary character, and that it would be difficult or impossible
to compensate Anadys in money damages for a breach of such provisions of this
Separation Agreement. Accordingly, Mr. Kamdar agrees and consents that if he
violates any such provisions of this Separation Agreement, Anadys, in addition
to all other rights and remedies available under this Separation Agreement or
otherwise, shall be entitled to injunctive relief without the necessity of
proving actual damages.

      10. No Admissions. Anadys expressly denies liability of any kind to Mr.
Kamdar and nothing contained in this Separation Agreement may be construed or
used as an admission of any liability in any legal or administrative proceeding.

      11. Applicable Law. The validity, interpretation and performance of this
Separation Agreement shall be construed and interpreted according to the laws of
California.

      12. Binding on Successors. This Separation Agreement shall be binding on,
and inure to the benefit of, their successors, heirs and/or assigns.

      13. Interpretation; Construction. The headings contained in this
Separation Agreement are for reference purposes only and shall not be used in
interpreting this Separation Agreement.

      14. Entire Agreement. This Separation Agreement, including the surviving
provisions of any agreement protecting the confidentiality of Anadys's
proprietary information is the only agreement and understanding between the
parties pertaining to the subject matter of this Separation Agreement and
supersedes all prior or simultaneous representations, discussions, negotiations
and agreements, whether written or oral. It is agreed that there are no
collateral

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       4

<PAGE>

agreements-or representations, written or oral, regarding the terms and
conditions of Mr. Kamdar's separation of employment with Anadys and settlement
of all claims between them other than those set forth in this Separation
Agreement.

     By: /s/ Michael J. Kamdar                                Date: 05/02/2005
         ---------------------
         Michael J. Kamdar

     Anadys Pharmaceuticals, Inc.

     By: /s/ Kleanthis G. Xanthopoulos, Ph.D.                 Date: 05/02/2005
         ------------------------------------
         Kleanthis G. Xanthopoulos, Ph.D.
         Anadys President and Chief Executive
         Officer

                                       5

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