##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended March 31, 2006
 Commission File Number 000-13789
 NASTECH PHARMACEUTICAL COMPANY INC.
  Delaware
    
    11-2658569(State or other jurisdiction ofincorporation or organization)
    
    (I.R.S. Employer Identification No.)3450 Monte Villa Parkway, Bothell, WA
    
    98021(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
  þ o
  o þ o
  o þ
  Date
    
    Class
    
    Shares OutstandingApril 21, 2006
    
    Common stock  $0.006 par value
    
    21,703,105




---



##### 



NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
  
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1 - FINANCIAL STATEMENTS (unaudited)Condensed Consolidated Balance Sheets as of December 31, 2005 and March 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months ended
March 31, 2005 and March 31, 2006
    
    
    4Condensed Consolidated Statement of Stockholders Equity and Comprehensive Loss
for the three months ended March 31, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and March 31, 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    19ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 4 - CONTROLS AND PROCEDURES
    
    
    34PART II  OTHER INFORMATIONITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    35ITEM 6  EXHIBITS
    
    
    35SIGNATURES
    
    
    35EXHIBIT INDEX
    
    
    36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  Items 1, 1A, 3, 4, and 5 of PART II have not been included as they are not applicable
 2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(In Thousands, Except Share Data)
 December 31,
    
    
    March 31,2005
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,769
    
    
    $
    21,254Restricted cash and short term investments
    
    
    998
    
    
    
    1,498Short term investments
    
    
    32,142
    
    
    
    40,207Accounts receivable
    
    
    189
    
    
    
    1,548Inventories
    
    
    2,733
    
    
    
    2,777Prepaid expenses and other current assets
    
    
    1,545
    
    
    
    1,646Total current assets
    
    
    64,376
    
    
    
    68,930Property and equipment, net
    
    
    8,173
    
    
    
    8,949Security deposits and other assets
    
    
    404
    
    
    
    431Total assets
    
    $
    72,953
    
    
    $
    78,310LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,944
    
    
    $
    2,097Accrued payroll and employee benefits
    
    
    1,740
    
    
    
    1,159Accrued expenses
    
    
    474
    
    
    
    568Capital lease obligations  current portion
    
    
    2,431
    
    
    
    2,479Deferred revenue  current portion
    
    
    1,589
    
    
    
    4,937Total current liabilities
    
    
    9,178
    
    
    
    11,240Capital lease obligations, net of current portion
    
    
    3,170
    
    
    
    3,341Deferred revenue, net of current portion
    
    
    4,250
    
    
    
    6,418Other liabilities
    
    
    788
    
    
    
    868Total liabilities
    
    
    17,386
    
    
    
    21,867Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value; 100,000
authorized: no shares issued and outstanding:
    
    
    
    
    
    
    Common stock, $0.006 par value; 50,000,000
authorized: 20,750,477 and 21,672,243 shares
outstanding at December 31, 2005 and March 31,
2006, respectively
    
    
    124
    
    
    
    130Additional paid-in capital
    
    
    176,068
    
    
    
    179,860Deferred compensation
    
    
    (4,902
    )
    
    
    Accumulated deficit
    
    
    (115,616
    )
    
    
    (123,463
    )Accumulated other comprehensive loss
    
    
    (107
    )
    
    
    (84
    )Total stockholders equity
    
    
    55,567
    
    
    
    56,443Total liabilities and stockholders equity
    
    $
    72,953
    
    
    $
    78,310
  3




---



##### Table of Contents



NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
(In Thousands, Except Share Data)
 Three Months EndedMarch 31,2005
    
    
    2006RevenuesProduct revenue, net
    
    
    
    
    
    $
    419License and research fees
    
    $
    3,330
    
    
    
    6,299Total revenue
    
    $
    3,330
    
    
    $
    6,718Operating expenses:Cost of product revenue
    
    
    
    
    
    
    239Research and development
    
    
    7,231
    
    
    
    11,801Sales and marketing
    
    
    324
    
    
    
    395General and administrative
    
    
    2,161
    
    
    
    2,951Total operating expenses
    
    
    9,716
    
    
    
    15,386Loss from operations
    
    
    (6,386
    )
    
    
    (8,668
    )Other income (expense):Interest income
    
    
    409
    
    
    
    638Interest expense
    
    
    (120
    )
    
    
    (118
    )Other income and expense, net
    
    
    10
    
    
    
    10Loss before change in accounting principle
    
    $
    (6,087
    )
    
    $
    (8,138
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    291Net Loss
    
    $
    (6,087
    )
    
    $
    (7,847
    )Basic and diluted net loss per share:Prior to cumulative effect of change in accounting
principle
    
    $
    (0.34
    )
    
    $
    (0.39
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.01Net loss per common share  basic and diluted
    
    $
    (0.34
    )
    
    $
    (0.38
    )Shares used in computing net loss per share  basic
and diluted
    
    
    17,751
    
    
    
    20,689
  4




---



##### Table of Contents



NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 AND COMPREHENSIVE LOSS
For the Three Months Ended March 31, 2006
(Unaudited)
(In Thousands, Except Share Data)
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalPaid-In
    
    
    Accumulated
    
    
    Deferred
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Loss
    
    
    EquityBalance December
31, 2005
    
    
    20,750,477
    
    
    $
    124
    
    
    $
    176,068
    
    
    $
    (115,616
    )
    
    $
    (4,902
    )
    
    $
    (107
    )
    
    $
    55,567Proceeds from the
exercise of options
and warrants
    
    
    857,450
    
    
    
    5
    
    
    
    7,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,791Compensation
related to
restricted stock
    
    
    64,316
    
    
    
    1
    
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548Compensation
related to stock
options
    
    
    
    
    
    
    
    
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    652Cumulative effect
of change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    (5,193
    )
    
    
    
    
    
    
    4,902
    
    
    
    
    
    
    
    (291
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,847
    )
    
    
    
    
    
    
    
    
    
    
    (7,847
    )Change in
unrealized loss on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,824
    )Balance March 31,
2006
    
    
    21,672,243
    
    
    $
    130
    
    
    $
    179,860
    
    
    $
    (123,463
    )
    
    
    
    
    
    $
    (84
    )
    
    $
    56,443
  5




---



##### Table of Contents



NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(In Thousands)
 Three Months EndedMarch 31,2005
    
    
    2006Operating activities:Net loss
    
    $
    (6,087
    )
    
    $
    (7,847
    )Adjustments to reconcile net loss to net cash used in operating activities:Non-cash compensation related to stock options
    
    
    126
    
    
    
    652Non-cash compensation related to restricted stock
    
    
    264
    
    
    
    548Depreciation and amortization of property and equipment
    
    
    396
    
    
    
    583Gain on sale of property and equipment
    
    
    2
    
    
    
    1Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (291
    )Changes in assets and liabilities:Accounts receivable
    
    
    (825
    )
    
    
    (1,359
    )Inventories
    
    
    (98
    )
    
    
    (44
    )Prepaid expenses and other assets
    
    
    (109
    )
    
    
    (128
    )Accounts payable
    
    
    1,083
    
    
    
    (847
    )Deferred revenue
    
    
    (355
    )
    
    
    5,516Accrued expenses and other liabilities
    
    
    (693
    )
    
    
    (407
    )Net cash used in operating activities
    
    
    (6,296
    )
    
    
    (3,622
    )Investing activities:Property and equipment acquisitions
    
    
    (1,351
    )
    
    
    (1,360
    )Purchases of investments
    
    
    (5,074
    )
    
    
    (15,642
    )Sales and maturities of investments
    
    
    5,630
    
    
    
    7,600Net cash used in investing activities
    
    
    (795
    )
    
    
    (9,403
    )Financing activities:Change in restricted cash and short-term investments
    
    
    8,001
    
    
    
    (500
    )Payments on notes payable
    
    
    (8,352
    )
    
    
    Borrowings under capital lease obligations
    
    
    506
    
    
    
    953Payments on capital lease obligations
    
    
    (346
    )
    
    
    (734
    )Proceeds from exercise of stock options
    
    
    6
    
    
    
    2,466Proceeds from exercise of warrants
    
    
    
    
    
    
    5,325Net cash provided by (used in) financing activities
    
    
    (185
    )
    
    
    7,510Net decrease in cash and cash equivalents
    
    
    (7,276
    )
    
    
    (5,515
    )Cash and cash equivalents  beginning of period
    
    
    25,797
    
    
    
    26,769Cash and cash equivalents  end of period
    
    $
    18,521
    
    
    $
    21,254Supplemental disclosures of investing and financing activities:Cash paid for interest
    
    $
    120
    
    
    $
    118Non-cash investing activity:Change in unrealized loss on available-for-sale securities
    
    $
    (36
    )
    
    $
    23
  6




---



##### Table of Contents



NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the three months ended March 31, 2006 and March 31, 2005
(Unaudited)
 Note 1  Business and Summary of Significant Accounting Policies
 Business
       7




---



##### Table of Contents



Basis of Preparation
  Reclassifications
  Principles of Consolidation
  Use of Estimates
  Revenue Recognition
 Revenue Recognition, Revenue Arrangements with Multiple Deliverables.
 8




---



##### Table of Contents



Income Taxes
  Research and Development Costs
  9




---



##### Table of Contents



Stock-based Compensation
     Net Loss per Common Share
 10




---



##### Table of Contents



Inventory
  Recent Accounting Pronouncements
 Share-Based Payment.
  11




---



##### Table of Contents



Note 2  Stock-based compensation plans
  Determining Fair Value Under SFAS 123R
 Valuation and Amortization Method.
 Expected Life
 12




---



##### Table of Contents



Expected Volatility
 Risk-Free Interest Rate.
 Expected Dividend Yield.
 Expected Forfeitures.
  Three Months EndedMarch 31,2005
    
    2006(pro-forma)Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    3.9
    %
    
    
    4.1
    %Expected stock volatility
    
    
    79
    %
    
    
    74
    %Expected option life
    
    6 years
    
    6 yearsWeighted average fair value granted during period
    
    $
    7.36
    
    
    $
    10.39
 Stock-based Compensation Under SFAS 123R
  Three months endedMarch 31, 2006Stock-based compensation:Sales and marketing
    
    $
    45General and administrative
    
    
    675Research and development
    
    
    480Total stock-based compensation
    
    $
    1,200
   Three months ended March 31, 2006As Reported
    
    
    If ReportedFollowingFAS 123R
    
    

FollowingAPB 25Condensed consolidated statement of operations:Net loss
    
    $
    (7,847
    )
    
    $
    (7,616
    )Net loss per shareBasic and Diluted
    
    $
    (0.38
    )
    
    $
    (0.37
    )Condensed consolidated statement of cash flows:Net cash used in operating activities
    
    $
    (3,622
    )
    
    $
    (3,622
    )Net cash provided by financing activities
    
    
    7,510
    
    
    
    7,510
 13




---



##### Table of Contents



Stock Option Activity
   WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding December 31, 2005
    
    
    2,688
    
    
    $
    12.92Options granted
    
    
    39
    
    
    
    15.32Options exercised
    
    
    (197
    )
    
    
    13.02Options canceled
    
    
    (7
    )
    
    
    11.05Options expired
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    2,523
    
    
    $
    12.95
    
    
    6.1 years
    
    $
    13,436Exercisable at March 31, 2006
    
    
    1,654
    
    
    $
    12.39
    
    
    4.9 years
    
    $
    9,986
   Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual Life
    
    
    Exercise
    
    
    
    
    
    
    ExercisableRange of Exercise Prices
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$5.62 - $9.99
    
    
    419,896
    
    
    
    2.9
    
    
    $
    8.25
    
    
    
    334,999
    
    
    $
    8.03$10.00 - $12.65
    
    
    339,233
    
    
    
    5.0
    
    
    
    10.94
    
    
    
    304,735
    
    
    
    10.94$12.94 - $12.94
    
    
    800,000
    
    
    
    6.1
    
    
    
    12.94
    
    
    
    800,000
    
    
    
    12.94$13.35 - $16.00
    
    
    863,933
    
    
    
    8.2
    
    
    
    14.64
    
    
    
    115,101
    
    
    
    14.12$25.00 - $25.00
    
    
    100,000
    
    
    
    6.1
    
    
    
    25.00
    
    
    
    100,000
    
    
    
    25.00Totals
    
    
    2,523,062
    
    
    
    6.1
    
    
    $
    12.95
    
    
    
    1,654,835
    
    
    $
    12.39
 Pro Forma Information
  14




---



##### Table of Contents



Net loss as reported
    
    $
    (6,087
    )Add: Stock-based employee compensation included in the
reported net loss
    
    
    390Deduct: Stock-based employee compensation, determined under
fair value-based methods
    
    
    (1,114
    )Pro forma net loss
    
    $
    (6,811
    )Net Loss per shareBasic and diluted  as reported
    
    $
    (0.34
    )Basic and diluted  pro forma
    
    $
    (0.38
    )
 Note 3  Contractual Agreements
 Procter & Gamble (P&G) :
   Galenea :
 15




---



##### Table of Contents



Accounting for Research and Development Costs.
 Par Pharmaceutical
  Questcor ® ® ® ® ®
 ®
 16




---



##### Table of Contents



® ® ® ®
 ®
 ®
 Questcor assignment to QOL Medical, LLC 
 Alnylam Pharmaceuticals, Inc .
 Merck
  Note 4  Stockholders Equity
 Common Stock Offerings
 17




---



##### Table of Contents



Warrants
 Exercise Price of WarrantsTotal$6.34
    
    
    $11.09
    
    
    $14.40
    
    
    WarrantsWarrants outstanding at December 31, 2005
    
    
    458,395
    
    
    
    433,288
    
    
    
    511,364
    
    
    
    1,403,047Exercised during the three months ended
March 31, 2006
    
    
    (429,293
    )
    
    
    (240,715
    )
    
    
    
    
    
    
    (670,008
    )Warrants outstanding at March 31, 2006
    
    
    29,102
    
    
    
    192,573
    
    
    
    511,364
    
    
    
    733,039Warrants expiring in May 2006
    
    
    29,102
    
    
    
    
    
    
    
    
    
    
    
    29,102Warrants expiring in September 2008
    
    
    
    
    
    
    192,573
    
    
    
    
    
    
    
    192,573Warrants expiring in June 2009
    
    
    
    
    
    
    
    
    
    
    511,364
    
    
    
    511,364
 Restricted Stock Awards
 18




---



##### Table of Contents



Three Months Ended March 31,2005
    
    
    2006Unvested restricted shares outstanding, beginning of period
    
    
    145,620
    
    
    
    444,322Restricted shares issued
    
    
    41,321
    
    
    
    71,311Restricted shares forfeited
    
    
    (6,800
    )
    
    
    (6,995
    )Restricted shares vested
    
    
    
    
    
    
    (12,429
    )Unvested restricted shares outstanding, end of period
    
    
    180,141
    
    
    
    496,209Non-cash restricted stock compensation expense, net of
forfeitures
    
    $
    264,000
    
    
    $
    548,000Average award price during period
    
    $
    10.90
    
    
    $
    16.82
 Shelf Registration Statement
 Stockholders Rights Plan
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 Statements contained herein that are not historical fact may be forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are subject to a variety of risks and
uncertainties. There are a number of important factors that could cause actual results to differ
materially from those projected or suggested in any forward-looking statement made by us. These
factors include, but are not limited to: (i) our ability to obtain additional funding; (ii) our
ability to attract and/or maintain manufacturing, research, development and commercialization
partners; (iii) our and/or a partners ability to successfully complete product research and
development, including pre-clinical and clinical studies and commercialization; (iv) our and/or a
partners ability to obtain required governmental approvals, including product and patent
approvals; and (v) our and/or a partners ability to develop and commercialize products that can
compete favorably with those of competitors. In addition, significant fluctuations in quarterly
results may occur as a result of the timing of
 19




---



##### Table of Contents



milestone payments, the recognition of revenue from milestone payments and other sources not
related to product sales to third parties, and the timing of costs and expenses related to our
research and development programs. Additional factors that would cause actual results to differ
materially from those projected or suggested in any forward-looking statements are contained in our
filings with the Securities and Exchange Commission, including those factors discussed under the
captions Forward-Looking Information and Risk Factors in our most recent Annual Report on Form
10-K, which we urge investors to consider. We undertake no obligation to publicly release revisions
in such forward-looking statements that may be made to reflect events or circumstances after the
date hereof or to reflect the occurrences of unanticipated events or circumstances, except as
otherwise required by securities and other applicable laws.
     
    
    Applying Our Tight Junction Technology and Other Drug Delivery Methods to Product
Candidates.We will focus our research and development efforts on product candidates,
including small molecules, peptides, large molecules and therapeutic siRNA, where our
proprietary technologies utilizing tight junctions may offer clinical advantages such as
improved safety and clinical efficacy or increased patient compliance due to elimination of
injection site pain and avoidance of injection site irritation. We will also continue to
search for applications of our tight junction technology to improve other forms of drug
delivery, including oral, pulmonary and intravenous delivery.
    
    Pursuing Collaborations with Pharmaceutical and Biotechnology Companies.We will
continue to try to establish strategic collaborations with pharmaceutical and biotechnology
companies. Typically, we collaborate with partners to commercialize our product candidates
by utilizing their research and development, regulatory compliance, marketing and
distribution capabilities. We may also assist our collaboration partners in developing more
effective drug delivery methods for their product candidates that have already completed
early stage clinical trials, or are even currently marketed. We intend to structure our
collaborative arrangements to receive research and development funding and milestone
 20




---



##### Table of Contents



payments during the development phase, revenue from manufacturing upon commercialization and
patent-based royalties on future sales of products.
    
    Strategically Developing and Commercializing Product Candidates on Our Own.In select
cases where we deem it to be strategically advantageous to us, we plan to internally
develop, manufacture and distribute our products.
    
    Utilizing Our Manufacturing Expertise and Capabilities.We have invested substantial
time, money and intellectual capital in developing our manufacturing facilities and
know-how which we believe would be difficult for our competitors to replicate easily. These
capabilities give us competitive advantages including the ability to prepare the chemistry,
manufacturing and controls section of the new drug application (the NDA) filing with the
U.S. Food and Drug Administration (the FDA) and maintain a high-level of quality control
in manufacturing product candidates for clinical trials and FDA-approved products for
commercialization. We believe our manufacturing capabilities will meet our projected
capacity needs for the foreseeable future.
   Procter & Gamble Partnership
    21




---



##### Table of Contents



®
 ®
 Par Pharmaceutical Partnership
   22




---



##### Table of Contents



Merck Partnership
  RNAi Technology and Intellectual Property Acquisitions
  Alnylam.
 Galenea Corp./ MIT.
  23




---



##### Table of Contents



Recent Financings
    Critical Accounting Policies and Estimates
  24




---



##### Table of Contents



Revenue Recognition
 Revenue Recognition, Revenue Arrangements with
Multiple Deliverables.
       Stock-Based Compensation
  25




---



##### Table of Contents



Income Taxes
  Research and Development Costs
  26




---



##### Table of Contents



Results of Operations
 Revenue and cost of revenue
 ®
 ® ® ® ® ®
 Three Months Ended March 31,2005
    
    
    2006(Dollars in thousands)Product revenue
    
    $
    
    
    
    $
    419License and research fees:Questcor FDA approval milestone payment
    
    
    2,000
    
    
    
    Revenue recognized under the terminated
Merck agreements
    
    
    
    
    
    
    3,741Revenue recognized under the P&G agreement
    
    
    
    
    
    
    1,389Other license and research fees
    
    
    1,330
    
    
    
    1,169License and research fees, total
    
    
    3,330
    
    
    
    6,299Total revenue
    
    $
    3,330
    
    
    $
    6,718Dollar increase
    
    
    
    
    
    $
    3,388Percentage increase
    
    
    
    
    
    
    100
    %
 27




---



##### Table of Contents



Research and development
  Three Months EndedMarch 31,2005
    
    
    2006(Dollars in thousands)Peptide YY
    
    
    9
    %
    
    
    5
    %Calcitonin
    
    
    31
    %
    
    
    10
    %Tight Junctions and RNAi
    
    
    17
    %
    
    
    18
    %PTH(1-34)
    
    
    10
    %
    
    
    27
    %Influenza
    
    
    
    %
    
    
    6
    %Other R&D projects (1)
    
    
    33
    %
    
    
    34
    %100
    %
    
    
    100
    %Total R&D expense
    
    $
    7,231
    
    
    $
    7,707
    (2)Dollar increase
    
    
    
    
    
    
    476Percentage increase
    
    
    
    
    
    
    7
    %
 
 (1)
    
    Other research and development projects include our excipient projects, feasibility
projects, insulin, oral abuse-resistant opioid, morphine gluconate and other projects.(2)
    
    Excludes purchased in-process R&D from Galenea of approximately $4.1 million in the
three months ended March 31, 2006. We believe that presenting
R&D expense without the Galena transaction allows for better
comparability between periods given the significance of the amount
relative to total R&D expense.  §
    
    Personnel-related expenses increased by approximately 52% to $4.4 million compared to
$2.9 million in the prior year period due to an increase in headcount in support of our
research and development programs. R&D headcount increased from
86 at March 31, 2005 to 120 at March 31, 2006.§
    
    Costs of clinical trials, consulting, outside services and laboratory supplies
decreased by approximately 41% to $1.7 million compared to $2.9 million in the prior year
period due primarily to the timing of our pre-clinical and clinical programs for
PTH(1-34), PYY, calcitonin, and RNAi. The 2005 period included significant trial expenses
for calcitonin.§
    
    Facilities and equipment costs increased approximately 17% to $1.4 million from $1.2
million in the prior year period due to rent and related expenses on additional space
leased and an increase in depreciation of equipment resulting from capital expenditures to
acquire needed technical capabilities and to support increased capacity.§
    
    Research and development administrative expenses were relatively flat at approximately
$0.2 million in the each period.
  28




---



##### Table of Contents




    
    the number of sites included in the clinical trials;
    
    the length of time required to enroll suitable patient subjects;
    
    the number of patients that participate in the trials;
    
    the duration of patient follow-up that seems appropriate in view of results; and
    
    the number and complexity of safety and efficacy parameters monitored during the study.
 ®
  Sales and marketing
  Three Months EndedMarch 31,2005
    
    2006(Dollars in thousands)Total sales and marketing expense
    
    $
    324
    
    
    $
    395Dollar increase
    
    
    
    
    
    
    71Percentage increase
    
    
    
    
    
    
    22
    %
  29




---



##### Table of Contents



General and administrative
  Three Months EndedMarch 31,2005
    
    2006(Dollars in thousands)Total general and administrative expense
    
    $
    2,161
    
    
    $
    2,951Dollar increase
    
    
    
    
    
    
    790Percentage increase
    
    
    
    
    
    
    37
    %
  Interest Income
  Three Months EndedMarch 31,2005
    
    2006(Dollars in thousands)Interest income
    
    $
    409
    
    
    $
    638Average funds available for investment
    
    $
    66,000
    
    
    $
    60,600Average interest rate, annualized
    
    
    2.4
    %
    
    
    4.2
    %
  Interest Expense
  Three Months EndedMarch 31,2005
    
    2006(Dollars in thousands)Interest expense
    
    $
    120
    
    
    $
    118Average borrowings under capital leases and notes payable
    
    $
    7,400
    
    
    $
    5,500Average interest rate, annualized
    
    
    6.5
    %
    
    
    8.6
    %
 30




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Requirements
  Sources and Uses of Cash
     31




---



##### Table of Contents




    
    Under our collaborative arrangement with P&G, we received an initial cash payment of
$10 million in February 2006. The $10 million initial payment has been recorded as deferred
revenue and is being amortized into revenue over the estimated development period. The
arrangement includes the potential for additional milestone payments of up to $22 million
during the remainder of 2006. In total, milestone payments could reach $577 million over
the life of the project depending upon the successful completion of specified development,
regulatory and commercialization goals, although there can be no assurance that any such
milestones will be achieved. Under our agreement with P&G, we are eligible to receive
double-digit patent-based royalties, with the rate escalating upon the achievement of
certain sales levels.
    
    Under our collaborative arrangement with Merck, we received an initial cash payment of
$5 million in October 2004. The $5 million initial payment was being amortized over the
estimated development period until the collaboration with Merck for PYY was terminated on
March 1, 2006, at which time the balance of the unamortized license payment was recognized
as revenue. Under the agreement, Nastech reacquired its rights in the PYY program. At this
time, we intend to continue the clinical development of PYY either on our own or with a new
collaboration partner. Although the results of any research conducted by Merck remain
confidential and we are not permitted to disclose the results of any clinical trials at
this time, we continue to believe that PYY may be a viable product candidate for a
commercial therapeutic for the treatment of obesity.
    
    Under our collaborative arrangement with Par Pharmaceutical, we received an initial
cash payment in October 2004 which was amortized over the estimated development period. We
expect in the future to receive additional revenue from Par Pharmaceutical in the form of
milestone payments, product transfer payments for manufactured product and profit sharing
upon commercialization of generic calcitonin-salmon intranasal spray. However, we cannot
estimate when or if these additional revenue streams will commence, and there can be no
assurance that such revenues will ever be generated.
    
    Under our supply agreement with Questcor, in February 2005 we received and recognized a
payment of $2 million from Questcor upon FDA approval of a New Drug Application for the
Nascobal® nasal spray product. On October 17, 2005, with our consent, Questcor assigned all
of its rights and obligations under the Questcor Asset Purchase and Supply Agreements dated
June 2003 to QOL. We received $2.0 million from Questcor on October 19, 2005 in
consideration for our consent to the assignment and in connection with us entering into an
agreement with QOL which modified certain terms of the Asset Purchase and Supply
Agreements. The $2.0 million is being recognized ratably over the five-year life of the QOL
agreement. QOL has assumed Questcors obligation to pay us an additional $2.0 million
contingent upon issuance of a U.S. patent for the Nascobal® nasal spray product.
  Three Months EndedMarch 31,2005
    
    
    2006(Dollars in thousands)Cash used in operating activities
    
    $
    (6,296
    )
    
    $
    (3,622
    )Cash used in investing activities
    
    
    (795
    )
    
    
    (9,403
    )Cash provided by (used in) financing activities
    
    
    (185
    )
    
    
    7,510Net decrease in cash and cash equivalents
    
    $
    (7,276
    )
    
    $
    (5,515
    )
 32




---



##### Table of Contents



Liquidity
   Contractual Obligations
  
    
    At March 31, 2006 our operating lease obligations increased to approximately
$24.4 million (through February 2016) from approximately $19.3 million at December 31,
2005. This is due to one new facility lease adding approximately $5.5 million in rental
payments through February 2016, partially offset by approximately $0.4 million in rents
paid during the three months ended March 31, 2005;
    
    Our capital lease obligations increased by approximately $0.2 million to
approximately $5.8 million (including future interest payments) at March 31, 2006 due to
approximately $1.0 million in new leases funded offset by payments made during the three
months ended March 31, 2006; and
 33




---



##### Table of Contents




    
    Our purchase obligations increased by approximately $1.0 million from
approximately $0.6 million to approximately $1.6 million at March 31, 2006 due to
purchase order activity (primarily for PTH(1-34)) during the three months ended March
31, 2006.
 Off-Balance Sheet Arrangements
  
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting.
 34




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES
 Warrants.
 
 ITEM 6  EXHIBITS
  
 SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, duly authorized, in Bothell,
State of Washington, on May 3, 2006.
 NASTECH PHARMACEUTICAL COMPANY INC.By:
    
    /s/ Steven C. QuaySteven C. Quay, M.D., Ph.D.Chairman of the Board, President and Chief ExecutiveOfficerBy:
    
    /s/ Philip C. RankerPhilip C. RankerChief Financial Officer
 35




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Reorganization, dated August 8, 2000,
among the Company, Atossa Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company, and
Atossa HealthCare, Inc. (filed as Exhibit 2.1 to the Companys
Current Report on Form 8-K dated August 8, 2000, and
incorporated herein by reference).2.2
    
    Asset Purchase Agreement, dated September 30, 2002, with
Schwarz Pharma, Inc.(filed as Exhibit 2.1 to the Companys
Current Report on Form 8-K dated September 30, 2002 and
incorporated herein by reference).3.1
    
    Restated Certificate of Incorporation of the Company dated
July 20, 2005 (filed as Exhibit 3.1 to our Current Report on
Form 8-K dated July 20, 2005, and incorporated herein by
reference).3.2
    
    Amended and Restated Bylaws of the Company dated August 11,
2004 (filed as Exhibit 3.10 to our Registration Statement on
Form S-3, File No. 333-119429, and incorporated herein by
reference).4.1
    
    Investment Agreement, dated as of February 1, 2002, by and
between the Company and Pharmacia & Upjohn Company (filed as
Exhibit 4.1 to the Company Current Report on Form 8-K dated
February 1, 2002 and incorporated herein by reference).4.2
    
    Rights Agreement, dated February 22, 2000, between the Company
and American Stock Transfer & Trust Company as Rights Agent
(filed as Exhibit 1 to our Current Report on Form 8-K dated
February 22, 2000 and incorporated herein by reference).4.3
    
    Securities Purchase Agreement dated as of June 25, 2004 (filed
as Exhibit 99.2 to our Current Report on Form 8-K dated June
25, 2004 and incorporated herein by reference).4.4
    
    Form of Warrant (filed as Exhibit 99.3 to the Companys
Current Report on Form 8-K dated June 25, 2004 and
incorporated herein by reference).10.1
    
    Lease Agreement for facilities at 45 Davids Drive, Hauppauge,
NY, effective as of July 1, 2005 (filed as Exhibit 10.30 to
the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 and incorporated herein by reference).10.2
    
    Lease Agreement, dated April 23, 2002, with Phase 3 Science
Center LLC, Ahwatukee Hills Investors LLC and J. Alexanders
LLC (filed as Exhibit 10.26 to the Companys Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 2002 and
incorporated herein by reference).10.3
    
    First Amendment dated June 17, 2003, to Lease Agreement dated
April 23, 2002, with Phase 3 Science Center LLC, Ahwatukee
Hills Investors LLC and J. Alexanders LLC (filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2003 and incorporated herein by
reference).10.4
    
    Second Amendment, dated February 4, 2004, to Lease Agreement
dated April 23, 2002, with Phase 3 Science Center LLC,
Ahwatukee Hills Investors LLC and J. Alexanders LLC (filed as
Exhibit 10.24 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2003 and incorporated herein by
reference).10.5
    
    Lease Agreement for facilities at 80 Davids Drive, Hauppauge,
NY, effective as of July 1, 2005 (filed as Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 2005 and incorporated herein by reference).10.6
    
    Lease Agreement for facilities at 3830 Monte Villa Parkway,
Bothell, WA, effective as of March 1, 2006 (filed as Exhibit
10.1 to the Companys Current Report on Form 8-K dated March
1, 2006 and incorporated herein by reference).(1)10.7
    
    Amended and Restated Employment Agreement, dated May 2, 2002,
with Dr. Steven C. Quay, M.D., Ph.D. (filed as Exhibit 10.27
to the Companys Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 2002 and incorporated herein by reference).
 36




---



##### Table of Contents



ExhibitNo.
    
    Description10.8
    
    Employment Agreement dated June 3, 2005 by and between Nastech
Pharmaceutical Company Inc. and Steven C. Quay, M.D., Ph.D.
(filed as Exhibit 10.1 to the Companys Current Report on Form
8-K dated June 3, 2005 and incorporated herein by reference).10.9
    
    Amended and Restated Employment Agreement dated December 16,
2005 by and between Nastech Pharmaceutical Company Inc. and
Steven C. Quay, M.D., Ph.D. (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K dated December 16, 2005
and incorporated herein by reference)10.10
    
    Employment Agreement effective as of January 1, 2006 by and
between Nastech Pharmaceutical Company Inc. and Philip C.
Ranker (filed as Exhibit 10.1 to the Companys Current Report
on Form 8-K dated January 1, 2006 and incorporated herein by
reference).10.11
    
    Termination and Mutual Release Agreement, dated September 30,
2002, with Schwarz Pharma, Inc. (Filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K dated September 30, 2002
and incorporated herein by reference).10.12
    
    Divestiture Agreement, dated January 24, 2003, with Pharmacia
& Upjohn Company (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated January 24, 2003 and
incorporated herein by reference).10.13
    
    Nastech Pharmaceutical Company Inc. 1990 Stock Option Plan
(filed as Exhibit 4.2 to the Companys Registration Statement
on Form S-8, File No. 333-28785, and incorporated herein by
reference).10.14
    
    Amended and Restated Nastech Pharmaceutical Company Inc. 2000
Nonqualified Stock Option Plan (filed as Exhibit 4.4 to the
Companys Registration Statement on Form S-8, File No.
333-49514, and incorporated herein by reference).10.15
    
    Amendment No. 1 to the Amended and Restated Nastech
Pharmaceutical Company Inc. 2000 Nonqualified Stock Option
Plan. (filed as Exhibit 10.18 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2005 and
incorporated herein by reference).10.16
    
    Nastech Pharmaceutical Company Inc. 2002 Stock Option Plan
(filed as Exhibit 10.28 to the Companys Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 2002 and incorporated
herein by reference).10.17
    
    Amendment No. 1 to the Nastech Pharmaceutical Company Inc.
2002 Stock Option Plan. (filed as Exhibit 10.20 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2005 and incorporated herein by reference).10.18
    
    Nastech Pharmaceutical Company Inc. 2004 Stock Incentive Plan
(filed as Exhibit 99 to the Companys Registration Statement
on Form S-8, File No. 333-118206, and incorporated herein by
reference).10.19
    
    Amendment No. 1 to Nastech Pharmaceutical Company Inc. 2004
Stock Incentive Plan (filed as Exhibit 10.4 to the Companys
Current Report on Form 8-K dated July 20, 2005 and
incorporated herein by reference).10.20
    
    Amendment No. 2 to Nastech Pharmaceutical Company Inc. 2004
Stock Incentive Plan (filed as Exhibit 10.18 to the Companys
Quarterly Report on Form 10-Q for the Quarter Ended September
30, 2005 and incorporated herein by reference).10.21
    
    Amendment No. 3 to Nastech Pharmaceutical Company Inc. 2004
Stock Incentive Plan. (filed as Exhibit 10.24 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2005 and incorporated herein by reference).10.22
    
    Restricted Stock Grant Agreement effective July 20, 2005 by
and between Nastech Pharmaceutical Company Inc. and Dr. Steven
C. Quay, M.D., Ph.D. (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated July 20, 2005 and
incorporated herein by reference).10.23
    
    Incentive Stock Option Grant Agreement effective July 20, 2005
by and between Nastech Pharmaceutical Company Inc. and Dr.
Steven C. Quay, M.D., Ph.D. (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K dated July 20, 2005 and
incorporated herein by reference).
 37




---



##### Table of Contents



ExhibitNo.
    
    Description10.24
    
    Non-Qualified Stock Option Grant Agreement effective July 20,
2005 by and between Nastech Pharmaceutical Company Inc. and
Dr. Steven C. Quay, M.D., Ph.D. (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K dated July 20, 2005 and
incorporated herein by reference).10.25
    
    Amendments to Certain Grant Agreements effective as of July
20, 2005 by and between Nastech Pharmaceutical Company Inc.
and Steven C. Quay, M.D., Ph.D. (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K dated December 16, 2005
and incorporated herein by reference).10.26
    
    Stock Option Agreement dated as of August 25, 2004 between
Nastech Pharmaceutical Company Inc. and Mr. Philip C. Ranker
(filed as Exhibit 10.34 to the Companys Quarterly Report on
Form 10-Q for the Quarter Ended September 30, 2005 and
incorporated herein by reference).10.27
    
    Restricted Stock Grant Agreement effective August 25, 2004 by
and between Nastech Pharmaceutical Company Inc. and Mr. Philip
C. Ranker (filed as Exhibit 10.35 to the Companys Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 2005
and incorporated herein by reference).10.28
    
    Restricted Stock Grant Agreement effective July 1, 2005 by and
between Nastech Pharmaceutical Company Inc. and Mr. Philip C.
Ranker (filed as Exhibit 10.36 to the Companys Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 2005
and incorporated herein by reference).10.29
    
    Restricted Stock Grant Agreement effective September 7, 2005
by and between Nastech Pharmaceutical Company Inc. and Mr.
Philip C. Ranker. (filed as Exhibit 10.38 to the Companys
Quarterly Report on Form 10-Q for the Quarter Ended September
30, 2005 and incorporated herein by reference).10.30
    
    Restricted Stock Grant Agreement effective as of January 1,
2006 by and between Nastech Pharmaceutical Company Inc. and
Philip C. Ranker (filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K dated January 1, 2006 and
incorporated herein by reference).10.31
    
    Incentive Stock Option Grant Agreement dated as of January 1,
2006 by and between Nastech Pharmaceutical Company Inc. and
Philip C. Ranker (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K dated January 1, 2006 and
incorporated herein by reference).10.32
    
    Non-Qualified Stock Option Grant Agreement dated as of January
1, 2006 by and between Nastech Pharmaceutical Company Inc. and
Philip C. Ranker (filed as Exhibit 10.4 to the Companys
Current Report on Form 8-K dated January 1, 2006 and
incorporated herein by reference).10.33
    
    Restricted Stock Grant Agreement effective January 21, 2005 by
and between Nastech Pharmaceutical Company Inc. and Mr. Gordon
Brandt, M.D. (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K dated January 21, 2005 and incorporated
herein by reference).10.34
    
    Stock Option Agreement dated as of January 21, 2005 between
Nastech Pharmaceutical Company Inc. and Mr. Gordon Brandt,
M.D.(filed as Exhibit 10.2 to the Companys Current Report on
Form 8-K dated January 21, 2005 and incorporated herein by
reference).10.35
    
    Restricted Stock Grant Agreement effective December 16, 2005
by and between Nastech Pharmaceutical Company Inc. and Dr.
Gordon C. Brandt (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K dated December 16, 2005 and
incorporated herein by reference).10.36
    
    Stock Option Agreement dated as of December 16, 2005 between
Nastech Pharmaceutical Company Inc. and Dr. Gordon C. Brandt
(filed as Exhibit 10.4 to the Companys Current Report on Form
8-K dated December 16, 2005 and incorporated herein by
reference).10.37
    
    Restricted Stock Grant Agreement effective January 21, 2005 by
and between Nastech Pharmaceutical Company Inc. and Mr. Paul
H. Johnson, Ph.D. (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K dated January 21, 2005 and
incorporated herein by reference).10.38
    
    Restricted Stock Grant Agreement effective October 5, 2005 by
and between Nastech Pharmaceutical Company Inc. and Dr. Paul
H. Johnson, Ph.D (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated October 5, 2005 and
incorporated herein by reference).
 38




---



##### Table of Contents



ExhibitNo.
    
    Description10.39
    
    Stock Option Agreement dated as of January 21, 2005 between
Nastech Pharmaceutical Company Inc. and Mr. Paul H. Johnson,
Ph.D. (filed as Exhibit 10.4 to the Companys Current Report
on Form 8-K dated January 21, 2005 and incorporated herein by
reference).10.40
    
    Stock Option Agreement dated as of October 5, 2005 between
Nastech Pharmaceutical Company Inc. and Dr. Paul H. Johnson,
Ph.D. (filed as Exhibit 10.2 to the Companys Current Report
on Form 8-K dated October 5, 2005 and incorporated herein by
reference).10.41
    
    Restricted Stock Grant Agreement effective May 25, 2005 by and
between Nastech Pharmaceutical Company Inc. and Mr. David E.
Wormuth (filed as Exhibit 10.3 to the Companys Current Report
on Form 8-K dated May 25, 2005 and incorporated herein by
reference).10.42
    
    Stock Option Agreement dated as of May 25, 2005 between
Nastech Pharmaceutical Company Inc. and Mr. David E. Wormuth
(filed as Exhibit 10.4 to the Companys Current Report on Form
8-K dated May 25, 2005 and incorporated herein by reference).10.43
    
    Restricted Stock Grant Agreement effective as of January 30,
2006 by and between Nastech Pharmaceutical Company Inc. and
Timothy M. Duffy (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated January 30, 2006 and
incorporated herein by reference).10.44
    
    Incentive Stock Option Grant Agreement dated as of January 30,
2006 by and between Nastech Pharmaceutical Company Inc. and
Timothy M. Duffy (filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K dated January 30, 2006 and
incorporated herein by reference).10.45
    
    Non-Qualified Stock Option Grant Agreement dated as of January
30, 2006 by and between Nastech Pharmaceutical Company Inc.
and Timothy M. Duffy (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K dated January 30, 2006 and
incorporated herein by reference).10.46
    
    Restricted Stock Grant Agreement effective August 11, 2004 by
and between Nastech Pharmaceutical Company Inc. and Mr. Bruce
R. York. (filed as Exhibit 10.33 to the Companys Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 2005
and incorporated herein by reference).10.47
    
    Restricted Stock Grant Agreement effective July 1, 2005 by and
between Nastech Pharmaceutical Company Inc. and Mr. Bruce R.
York (filed as Exhibit 10.37 to the Companys Quarterly Report
on Form 10-Q for the Quarter Ended September 30, 2005 and
incorporated herein by reference).10.48
    
    Restricted Stock Grant Agreement effective September 7, 2005
by and between Nastech Pharmaceutical Company Inc. and Mr.
Bruce R. York (filed as Exhibit 10.39 to the Companys
Quarterly Report on Form 10-Q for the Quarter Ended September
30, 2005 and incorporated herein by reference).10.49
    
    Asset Purchase Agreement dated June 16, 2003, by and between
the Company and Questcor Pharmaceuticals, Inc. (filed as
Exhibit 2.1 to the Companys Current Report on Form 8-K dated
June 17, 2003 and incorporated herein by reference).10.50
    
    Form of Purchase Agreement (filed as Exhibit 99.2 to the
Companys Current Report on Form 8-K dated September 4, 2003
and incorporated herein by reference).10.51
    
    Form of Warrant (filed as Exhibit 99.3 to the Companys
Current Report on Form 8-K dated September 4, 2003, and
incorporated herein by reference).10.52
    
    Revolving Line of Credit Agreement with Wells Fargo Bank,
dated December 19, 2003 (filed as Exhibit 10.20 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).10.53
    
    Addendum to Promissory Note with Wells Fargo Bank, dated
January 20, 2004 (filed as Exhibit 10.21 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2003 and incorporated herein by reference).10.54
    
    Security Agreement Securities Account with Wells Fargo Bank,
dated December 19, 2003 (filed as Exhibit 10.22 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).
 39




---



##### Table of Contents



ExhibitNo.
    
    Description10.55
    
    Addendum to Security Agreement: Securities Account with Wells
Fargo Bank, dated December 19, 2003 (filed as Exhibit 10.23 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).10.56
    
    Revolving Line of Credit Agreement with Wells Fargo Bank,
dated October 20, 2004 (filed as Exhibit 10.29 to the
Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 and incorporated herein by reference).10.57
    
    Exclusive Development, Commercialization and License Agreement
by and between Merck & Co., Inc. and the Company effective as
of September 24, 2004 (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated September 24, 2004 and
incorporated herein by reference).(1)10.58
    
    Supply Agreement by and between the Company and Merck & Co.,
Inc. effective as of September 24, 2004 (filed as Exhibit 10.2
to the Companys Current Report on Form 8-K dated September
24, 2004 and incorporated herein by reference).(1)10.59
    
    License and Supply Agreement by and between Par
Pharmaceutical, Inc. and Nastech Pharmaceutical Company Inc.
effective as of October 22, 2004 (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K dated October 22, 2004
and incorporated herein by reference)(1)10.60
    
    Agreement dated as of September 23, 2005 by and between
Nastech Pharmaceutical Company Inc. and QOL Medical, LLC.
(filed as Exhibit 10.1 to the Companys Current Report on Form
8-K dated October 17, 2005 and incorporated herein by
reference).(1)10.61
    
    Product Development and License Agreement by and between
Nastech Pharmaceutical Company Inc. and Procter & Gamble
Pharmaceuticals, Inc. dated January 27, 2006 (filed as Exhibit
10.1 to the Companys Current Report on Form 8-K dated January
27, 2006 and incorporated herein by reference).(1)31.1
    
    Certification of the Companys Chairman of the Board,
President and Chief Executive Officer pursuant to Rules 13a14
and 15d-14 under the Securities Exchange Act of 1934, as
amended.(2)31.2
    
    Certification of the Companys Chief Financial Officer
pursuant to Rules 13a14 and 15d-14 under the Securities
Exchange Act of 1934, as amended.(2)32.1
    
    Certification of the Companys Chairman of the Board,
President and Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(2)32.2
    
    Certification of the Companys Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(2)
 
 (1)
    
    Portions of this exhibit have been omitted pursuant to a request for confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934, amended, and the omitted material has
been separately filed with the Securities and Exchange Commission.(2)
    
    Filed Herewith. 40