EXHIBIT 10.2

                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE

THIS  SETTLEMENT  AGREEMENT AND MUTUAL  RELEASE is dated as of this 17th day of
March,  2000,  and is by and between ALPHA 1  BIOMEDICALS,  INC.  ("Alpha1"),  a
Delaware  corporation,   and  BACHEM  BIOSCIENCE  INC.  ("Bachem"),  a  Delaware
corporation.

WHEREAS:

A.   Alpha1 is  currently  indebted  to Bachem  in the  amount of  approximately
     US$543,000 plus simple interest accruing from August 1, 1999 to the present
     (the "Indebtedness");

B.   Bachem is in the process of manufacturing *** grams of GMP Thymosin
     (beta) 4 ("Product") for the account of Alpha1; and

C.   Alpha1  and Bachem  desire to settle and  discharge  the  Indebtedness  and
     provide  for  Alpha1  to  purchase  Product  on the  terms  and  conditions
     hereinafter set forth.

NOW,  THEREFORE,  in  consideration  of the  foregoing  and for  other  good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:

1.   Bachem does hereby  forever  release and discharge  Alpha1 from any and all
     actions, causes of action, damages,  judgments,  liabilities,  obligations,
     claims and demands of any kind or nature  whatsoever,  whether in law or in
     equity,  whether  known or unknown,  which it now has or which it hereafter
     may have,  for or by reason of any matter  arising out of or in  connection
     with the  circumstances  relating  to the  Indebtedness,  other  than those
     obligations arising under this Settlement Agreement and Mutual Release.

2.   Alpha1 does hereby  forever  release and discharge  Bachem from any and all
     actions, causes of action, damages,  judgments,  liabilities,  obligations,
     claims and demands of any kind or nature  whatsoever,  whether in law or in
     equity,  whether  known or unknown,  which it now has or which it hereafter
     may have,  for or by reason of any matter  arising out of or in  connection
     with  the  circumstances   relating  to  Indebtedness,   other  than  those
     obligations arising under this Settlement Agreement and Mutual Release.

3.   In further consideration of, and as a further inducement for, the foregoing
     mutual releases, the parties agree as follows:

     a.  Immediately upon the execution of this Mutual Release, Alpha1 shall pay
         to Bachem  the sum of  US$125,000  (the  "Settlement  Amount")  by wire
         transfer of same day, cash available funds to an account  designated in
         writing by Bachem.

     b.  Immediately upon the execution of this Mutual Release, Alpha1 shall pay
         to Bachem the sum of US$50,000 (the "Down Payment") by wire transfer of
         same day, cash available  funds to an account  designated in writing by
         Bachem,  as an advance  against the Initial  Order  Purchase  Price (as
         hereinafter defined).

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     c.  Within  thirty (30) days after Alpha1 is granted an  exclusive  license
         (the  "License")  from the  National  Institutes  of Health  ("NIH") to
         certain rights  pertaining to the use of Thymosin (beta) 4, Alpha1 will
         place an order  (the  "Initial  Order")  with  Bachem  for *** grams of
         Product at a price of US *** per gram,  or  US$100,000 in the aggregate
         (the "Initial Order Purchase Price").

     d.  Contemporaneously  with the placement of the Initial Order, Alpha1 will
         tender the balance of the Initial  Order  Purchase  Price (the "Balance
         Payment") of US$50,000 to Silver,  Freedman & Taff,  L.L.P.,  as Escrow
         Agent, by wire transfer of same day, cash available funds to an account
         to be  designated  in writing by the Escrow  Agent.  Interest,  if any,
         earned on funds held by the Escrow  Agent  pursuant to this  Settlement
         Agreement and Mutual Release, shall accrue to the benefit of Alpha1.

     e.  Upon  Alpha1's  receipt  of  the  Initial  Order  of  Product  and  its
         acceptance  thereof,  Alpha1 shall instruct the Escrow Agent to release
         the Balance Payment to Bachem. For the purpose hereof, acceptance shall
         be deemed to have occurred when Alpha1  receives the full amount of the
         Initial  Order  of  Product  and  the  Product  meets  or  exceeds  the
         Specifications  set forth on Exhibit A hereto.  If Alpha1 has  received
         the full amount of the Initial  Order of Product,  but it does not meet
         or exceed the Specifications, then Alpha1 shall so notify Bachem within
         thirty (30) days of Alpha1's  receipt of the full amount of the Initial
         Order of Product.  If Alpha1 does not notify  Bachem within thirty (30)
         days of Alpha1's  receipt of the full  amount of the  Initial  Order of
         Product  that the Product  does not meet or exceed the  Specifications,
         then the Initial  Order of Product will be deemed to have been accepted
         by Alpha1. If Alpha1 timely notifies Bachem in writing that the Product
         does not meet or exceed the Specifications, and if Bachem contests that
         determination  in a written  notice to Alpha1  within ten (10) calendar
         days after Alpha1's  notice is given,  then the parties shall appoint a
         mutually-agreeable, qualified independent laboratory (the "Laboratory")
         to test the  Product for  compliance  with the  Specifications.  If the
         Laboratory  concludes in a written report  delivered to the parties and
         to  the  Escrow   Agent  that  the   Product   meets  or  exceeds   the
         Specifications,  then (i) such  determination  shall be final, (ii) the
         Escrow  Agent shall  release the Balance  Payment to Bachem,  and (iii)
         Alpha1 shall be solely  responsible for the  Laboratory's  fees. If the
         Laboratory  concludes in a written report  delivered to the parties and
         to the  Escrow  Agent  that the  Product  does not meet or  exceed  the
         Specifications, then (i) such determination shall be final, (ii) Bachem
         shall be solely  responsible for the  Laboratory's  fees, and (iii) the
         Escrow Agent shall retain the Balance Payment until such time as Alpha1
         receives  the full  amount  of the  Initial  Order of  Product  and the
         Product meets or exceeds the Specifications.

     f.  The  Escrow  Agent  shall  hold and  disburse  the  Balance  Payment in
         accordance with the terms of the Escrow  Agreement,  attached hereto as
         Exhibit B.


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     g.  Bachem agrees to sell to Alpha1 at such time and in such quantities as
         Alpha1 may  request,  up to an  additional  *** grams of  Product at a
         price of US*** per gram and upon such other terms as the parties  shall
         mutually agree. To avoid misunderstanding, the foregoing sentence gives
         Alpha1 the right to purchase up to an additional  *** grams of Product,
         but does not impose an obligation on Alpha1 to do so.

     h.  For  Alpha1's  requirements  of Product in excess of *** grams,  Alpha1
         shall recognize  Bachem as a preferred (but not exclusive)  supplier of
         Product,  and Bachem agrees to sell Product to Alpha1 upon such pricing
         and other terms as the parties shall mutually agree.

4.   The releases set forth in  Paragraphs 1 and 2 above shall become  effective
     only upon the  payment of the  Settlement  Amount  and the Down  Payment by
     Alpha1 to Bachem in accordance  with  Paragraphs 3.a and 3.b above.  In the
     event NIH has not  granted  the  License to Alpha1  within the two (2) year
     period  beginning  on the  date of this  Settlement  Agreement  and  Mutual
     Release,  then Alpha1  hereby agrees to  nevertheless  purchase the Initial
     Order on the terms set forth in Paragraphs 3.c, 3.d, 3.e and 3.f above.

5.   It is the intention of the parties in executing this  Settlement  Agreement
     and Mutual Release and in providing the consideration  acknowledged  and/or
     required  by  this  Settlement  Agreement  and  Mutual  Release  that  this
     Settlement  Agreement  and  Mutual  Release  is a full,  final,  mutual and
     complete  release of and from the matters  referred to  Paragraphs  1 and 2
     above.

6.   All notices, requests, demands and other communications between the parties
     shall be in  writing  and shall be  deemed  to have been duly  given (a) if
     personally delivered and a receipt obtained therefor,  then on the date and
     at the time of delivery,  (b) if mailed by certified  or  registered  mail,
     postage  prepaid,  return receipt  requested,  then three (3) business days
     after mailing, (c) if by overnight courier,  then on the date following the
     date given to the courier firm, or (d) if  transmitted  by fax, then on the
     date of  transmission  (but only if the  sending  fax  machine  produces  a
     confirmation that the fax machine to which the notice was sent received the
     fax),  to the parties at the  following  addresses  or fax numbers (or such
     other  addresses  or fax numbers  which shall be given in writing by either
     party to the other):

                  If to Alpha1:             Alpha 1 Biomedicals, Inc.
                  ------------              3 Bethesda Metro Center
                                            Suite 700
                                            Bethesda, Maryland 20814
                                            Fax:     (301) 961-1991


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                  If to Bachem:             Bachem Bioscience Inc.
                  ------------              3700 Horizon Drive
                                            King of Prussia, Pennsylvania 19406
                                            Fax:     (610) 239-0800

7.   This Settlement  Agreement and Mutual Release shall inure to the benefit of
     each  party's  officers,  directors,   stockholders  and  employees,  their
     respective heirs,  administrators,  personal representatives and executors,
     and the Company's successors and assigns.

8.   This  Settlement  Agreement  and Mutual  Release may be amended  only by an
     instrument in writing signed by all of the parties hereto.

9.   This Mutual  Release  shall be  construed  and  governed by the laws of the
     State of  Maryland  without  regard to its  conflict  of law rules.  If any
     provision  of this Mutual  Release is held to be invalid or  unenforceable,
     such  invalidity  or  unenforceability  will not  affect  the  validity  or
     enforceability  of the other  provisions of this Mutual Release,  the other
     provisions  of this Mutual  Release shall be enforced as fully as possible,
     and the  unenforceable  provision  shall be deemed  modified to the limited
     extent  required  to  permit  its  enforcement  in a  manner  most  closely
     approximating the intention of the parties as expressed herein.

10.  This Settlement Agreement and Mutual Release may be executed simultaneously
     in one or more counterparts, each of which shall be deemed an original, but
     all of which together will constitute one and the same instrument.

11.  Each of the parties agrees to execute all further instruments and documents
     and to take all further action as the other party may reasonably request in
     order to give effect to the terms and purpose of this Settlement  Agreement
     and Mutual Release.

12.  Each person  executing  this  Settlement  Agreement  and Mutual  Release on
     behalf  of  a  party  to  this  Settlement  Agreement  and  Mutual  Release
     represents  and  warrants  that  he or she is duly  authorized  to do so on
     behalf of such party.


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IN WITNESS  WHEREOF,  this  Settlement  Agreement  and Mutual  Release  has been
executed by the parties,  the corporate party acting through its duly authorized
officers, as of the date and year first above written.

                                            ALPHA1:
                                            ------

                                            ALPHA 1 BIOMEDICALS, INC.


                                            By:/s/ Allan L. Goldstein
                                               -----------------------------
                                               Allan L. Goldstein,
                                               Chief Executive Officer


                                            BACHEM:
                                            ------

                                            BACHEM BIOSCIENCE INC.



                                            By: /s/ Thomas Fruh
                                               ------------------------------
                                               Thomas Fruh, Vice President and
                                               Chief Operating Officer


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