<PAGE>   1
                                                                    EXHIBIT 10.2

"[ * ]" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.

                     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:

1.      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");

2.      Bachem is in the process of manufacturing [ * ] grams of GMP Thymosin
        Beta 4 ("Product") for the account of Alpha1; and

3.      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).

<PAGE>   2


        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.

"[ * ]" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.

        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
<PAGE>   3


                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

"[ * ]" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.


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

                                      -3-
<PAGE>   4

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.


                                      -4-
<PAGE>   5

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


                                      -5-
<PAGE>   6





                                    EXHIBIT A

                             PRODUCT SPECIFICATIONS

                                 (See attached)


<PAGE>   7


[   *   ]

























"[ * ]" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.


<PAGE>   8


                                    EXHIBIT B

                                ESCROW AGREEMENT

                                 (See Attached)


<PAGE>   9




                                ESCROW AGREEMENT

        This Escrow Agreement (this "Agreement") dated this 17th day of March,
2000, by and among ALPHA 1 BIMEDICALS, INC. ("Alpha1"), a Delaware corporation,
BACHEM BIOSCIENCE INC. ("Bachem"), a Delaware corporation, and SILVER, FREEDMAN
& TAFF, L.L.P. (hereinafter referred to as "Escrow Agent"), a registered limited
liability partnership located in Washington, D.C.

                              W I T N E S S E T H:

        WHEREAS, Alpha1 and Bachem are parties to that certain Settlement
Agreement and Mutual Release of even date herewith, (the "Settlement
Agreement"), pursuant to which Alpha1 has agreed to purchase a certain quantity
of Product, as such term is defined in the Settlement Agreement;

        WHEREAS, in accordance with the terms of the Settlement Agreement, the
Balance Payment, as such term is defined in the Settlement Agreement, is to be
delivered to the Escrow Agent and held and disbursed by the Escrow Agent in
accordance with the terms of this Escrow Agreement;

        WHEREAS, Alpha1 and Bachem desire that Silver, Freedman & Taff, L.L.P.
act as the Escrow Agent hereunder, and Silver, Freedman & Taff, L.L.P. is
willing to act as said Escrow Agent, upon the terms and conditions hereafter set
forth; and

        WHEREAS, capitalized terms used in this Escrow Agreement shall have the
meanings ascribed to them in the Settlement Agreement unless otherwise defined
herein.

        NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:

        1.      Appointment of Escrow Agent. Alpha1 and Bachem hereby appoint
Silver, Freedman & Taff, L.L.P. as the Escrow Agent to accept, hold and disburse
the Balance Payment in accordance with the terms of this Agreement. The Escrow
Agent accepts the appointment and the responsibilities set forth in this
Agreement. Bachem acknowledges that the Escrow Agent is counsel to Alpha1 and
that the Escrow Agent has represented Alpha1 in connection with the transactions
contemplated by this Agreement and the Settlement Agreement. Bachem hereby
waives any actual or apparent conflict of interest that may exist by reason of
the Escrow Agent's serving as such counsel and as the escrow agent under this
Agreement. Bachem agrees that the Escrow Agent may hereafter serve as counsel to
Alpha1 in connection with any dispute that may hereafter arise in connection
with this Agreement, the Settlement Agreement and/or the transactions
contemplated hereby and thereby.

        2.      Duties of Escrow Agent.

                (a)     Upon receipt, the Escrow Agent shall place the Balance
Payment in a segregated, interest-bearing account at First Union National Bank
of Washington, D.C. (the

<PAGE>   10


"Depositary"), under the name of "Alpha 1 Biomedicals, Inc. - Silver, Freedman &
Taff, L.L.P., Escrow Agent" (hereinafter referred to as the "Escrow Account").
The Escrow Account will be otherwise identified by Alpha1's employer
identification number, 52-1253406, and Alpha1 will execute and deliver to the
Escrow Agent an IRS Form W-9, in the form attached hereto as EXHIBIT A,
verifying its employer identification number and stating that it is not subject
to backup withholding. There shall be no obligation or duty on the part of the
Escrow Agent to determine the nature or purpose of any funds delivered to it. To
the contrary, the Escrow Agent is excused from any such obligation or duty, and
shall deposit in the Escrow Account any funds made payable thereto without
requirement of independent verification or certification.

                (b)     Only the Escrow Agent or its designated
representative(s) shall have signature authority over the Escrow Account.

                (c)     Upon establishing the Escrow Account, the Escrow Agent
shall request that the Depositary send a copy of each periodic statement of the
Escrow Account to Alpha1.

                (d)     The Balance Payment shall hereinafter be referred to as
the Escrow Funds, and the interest earned thereon shall hereinafter be referred
to as the Escrow Interest.

                (e)     The Escrow Agent shall continue to hold and maintain the
Escrow Funds and the Escrow Interest in the Escrow Account until authorized
under Paragraph 3 of this Agreement to distribute and disburse same.

        3.      Distributions from the Escrow Account.

                (a)     The Escrow Agent shall release and disburse any Escrow
Interest to Alpha1 at any time upon receipt of a written request from Alpha1.

                (b)     The Escrow Agent shall release and disburse the Escrow
Funds to Bachem and any Escrow Interest to Alpha1 upon either to occur of the
following events:

                        (i)     the Escrow Agent receives instructions from
Alpha1 to release the Balance Payment to Bachem; or

                        (ii)    the Escrow Agent receives a report from the
Laboratory that Initial Order of Product meets or exceeds Specifications.

                (c)     The Escrow Agent shall release and disburse the Escrow
Funds and any Escrow Interest to Alpha1 upon either to occur of the following
events:

                        (i)     Receipt from either Alpha1 or Bachem of Bachem's
written notice that it is unable to produce the Initial Order of Product so that
it meets or exceeds Specifications; or



                                      -2-
<PAGE>   11

                        (ii)    The passage of six (6) months from the Escrow
Agent's receipt of the Escrow Funds.

                (d)     Effect of Complete Disbursement of Escrow Funds. Upon
the complete and final distribution by the Escrow Agent of all of the Escrow
Funds and the Escrow Interest, this Agreement shall terminate and the parties
shall be relieved of all further obligations hereunder.

        4.     Obligations of the Escrow Agent.

                (a)     The Escrow Agent undertakes to perform only such duties
as are specifically set forth herein and shall not be bound in any way by any
agreement or contract between Alpha1 and Bachem (whether or not the Escrow Agent
has knowledge thereof). The Escrow Agent, acting or refraining from acting in
good faith, shall not be liable for any mistake of fact or error of judgment by
it or for any acts or omissions by it of any kind unless caused by willful
misconduct or gross negligence. The Escrow Agent shall be entitled to rely upon
the advice of counsel (which may be of the Escrow Agent's own choosing). The
Escrow Agent shall have no responsibility for the contents of any writing
submitted to it hereunder and shall be entitled in good faith to rely without
any liability upon the contents thereof and may assume that any person
purporting to give any such writing in connection with the provisions of this
Agreement has been duly authorized to do so.

                (b)     In the event any property held by the Escrow Agent
hereunder shall be attached, garnished or levied upon under any court order, or
if the delivery of such property shall be stayed or enjoined by any court order,
or if any court order, judgment or decree shall be made or entered affecting
such property or affecting any act by the Escrow Agent, the Escrow Agent may, in
its sole discretion, obey and comply with all writs, orders, judgments or
decrees so entered or issued, whether with or without jurisdiction,
notwithstanding any provision of this Agreement to the contrary. If the Escrow
Agent obeys and complies with any such writs, orders, judgments or decrees, and
if the Escrow Agent shall have given prompt written notification to Alpha1 and
Bachem, it shall not be liable to any of the parties hereto or to any other
person, firm or corporation, by reason of such compliance, notwithstanding that
such writs, orders, judgments or decrees may be subsequently reversed, modified,
annulled, set aside or vacated.

                (c)     The Escrow Agent makes no representation as to the
validity, value, genuineness or the collectibility of any check, draft or other
instrument deposited to the Escrow Account.

        5.      Resignation of Escrow Agent. The Escrow Agent may resign and be
discharged from its duties hereunder at any time by giving notice of such
resignation to Alpha1 and Bachem specifying a date (not less than thirty (30)
days after the giving of such notice) when such resignation shall take effect.
Promptly after such notice, a successor escrow agent shall be appointed by
Alpha1 and Bachem upon the resignation date specified in such notice. If no
successor escrow agent shall have been so appointed, or if an appointed
successor escrow agent has not accepted such appointment, within thirty (30)
days after the retiring Escrow Agent's giving of notice of resignation, then the
retiring Escrow Agent may either (a) on behalf of the parties hereto, appoint a
successor escrow agent, which shall be a commercial bank organized under the
laws of the United States of



                                      -3-
<PAGE>   12

America or of any State thereof and having a combined capital and surplus of at
least $250,000,000.00; or (b) at the expense of Alpha1 and Bachem, petition any
court of competent jurisdiction for the appointment of a successor escrow agent.

        6.      Expenses of Escrow Agent. The Escrow Agent shall not be entitled
to any fees for serving as Escrow Agent hereunder. The Escrow Agent shall,
however, be entitled to reimbursement from Alpha1 for any expenses incurred in
connection with its acting as Escrow Agent. The Escrow Agent may deduct its
expenses directly from the Escrow Interest, and it shall send a copy of its
invoice for any such expenses to Alpha1.

        7.      Termination and Amendment. This Agreement shall terminate at
such time as the entire Escrow Fund and Escrow Interest shall have been
distributed and disbursed in accordance with the provisions of this Agreement.
Except for the right of the Escrow Agent to resign pursuant to Paragraph 5
hereinabove, this Agreement cannot be terminated, altered or amended except
pursuant to an instrument in writing signed by Alpha1, Bachem and the Escrow
Agent.

        8.      Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given as
provided for in the Settlement Agreement. Notices to the Escrow Agent shall be
sent or delivered to Silver, Freedman & Taff, L.L.P., 1100 New York Avenue,
N.W., Seventh Floor, Washington, D.C. 20005, Attention: Sidney J. Silver,
Esquire; Fax No. (202) 682-0354..

        9.      Miscellaneous. This Agreement (a) shall be construed and
governed by the laws of the State of Maryland without regard to its conflict of
law rules; (b) shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns; (c) may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute the one and the same agreement; and (d)
contains section headings for reference purposes only which are not to be
construed as part of the Agreement.


            (The remainder of this page is intentionally left blank.)



                                      -4-
<PAGE>   13




        IN WITNESS WHEREOF, this Agreement has been executed by the parties, the
corporate parties by 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


                                     ESCROW AGENT:

                                     SILVER, FREEDMAN & TAFF, L.L.P.



                                     By:    /s/ Sidney J. Silver
                                            ------------------------------------
                                            Sidney J. Silver, Partner



                                      -5-
<PAGE>   14





                                    EXHIBIT A

                                  IRS Form W-9

                                 (See Attached)