Vice President, Finance Employment Agreement

Exhibit 10.40 [ANADYS logo] January 26, 2005 VIA HAND DELIVERY Jennifer K. Crittenden
[address]
[address]Dear Ms. Crittenden:I am very pleased to confirm the offer of employment made to you by Anadys Pharmaceuticals, Inc. for the position of Vice President, Finance, initially reporting to Michael Kamdar, Senior Vice President, Corporate Development and Finance. This position is exempt from state and federal requirements regarding overtime payments, meaning you do not qualify for overtime. We anticipate your hire date to be no later than February 22, 2005, however, the final date will be mutually agreed upon. The details of this offer are as follows: BASE SALARY: You will receive a base salary of $7,083.33 paid semi-monthly in accordance with the normal Anadys payroll cycle, which if annualized, amounts to $170,000.00 per year. STOCK OPTIONS: Upon commencement of your employment with Anadys and subject to the approval of the Board of Directors, you will be eligible for an initial stock option grant allowing you to purchase 30,000 shares of Anadys common stock at a fair market value on the date of the grant. These stock options are subject to the terms and conditions outlined in the Anadys Equity Incentive Plan. You will be provided full details of the Anadys Equity Incentive Plan once you begin employment. SIGN-ON BONUS: As a further incentive for you to join Anadys, you will be given a one-time sign-on bonus of $15,000, less applicable employment taxes. This bonus will be paid to you over three quarters after your hire date. Should you leave the Company within one year of your hire date you will be required to reimburse Anadys for thi ...