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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
  Form 10-K
  ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
    fiscal year ended December 31, 2007
  Commission File Number
    000-13789
  NASTECH PHARMACEUTICAL COMPANY
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

11-2658569(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)3830 Monte Villa Parkway
    Bothell, Washington(Address of principal
    executive offices)

98021(Zip Code)   Registrants telephone number, including area code:
 (425) 908-3600
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.006 par value

The Nasdaq Stock Market LLCPreferred Stock Purchase Rights, $0.01 par value

The Nasdaq Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
  Title of Each
    Class
  None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





NASTECH
    PHARMACEUTICAL COMPANY INC.
  Table of
    Contents
   
 PagePART IItem 1.


Business


5Item 1A.


Risk Factors


24Item 1B.


Unresolved Staff Comments


38Item 2.


Properties


38Item 3.


Legal Proceedings


38Item 4.


Submission of Matters to a Vote of Security
    Holders


38PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


39Item 6.


Selected Financial Data


41Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


42Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


61Item 8.


Financial Statements and Supplementary Data


62Item 9.


Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


92Item 9A.


Controls and Procedures


92Item 9B.


Other Information


93PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


93Item 11.


Executive Compensation


93Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


93Item 13.


Certain Relationships and Related Transactions


93Item 14.


Principal Accounting Fees and Services


93PART IVItem 15.


Exhibits, Financial Statement Schedules


93Signatures


94Exhibit Index


95EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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FORWARD-LOOKING
    STATEMENTS
  Form 10-K
  Form 10-K
    
    our ability to obtain additional funding for our company and for
    our subsidiaries;
    our efforts to establish and maintain collaboration partnerships
    for the development of PYY(3-36) nasal spray, PTH(1-34) nasal
    spray, insulin nasal spray, exenatide nasal spray, carbetocin
    nasal spray, generic calcitonin-salmon nasal spray, RNA
    interference or other programs;
    the success or failure of our research and development programs
    or the programs of our partners;
    the advantages and disadvantages of pharmaceuticals delivered
    intranasally;
    the need for improved and alternative drug delivery methods;
    our efforts to collaborate with pharmaceutical and biotechnology
    companies that have products under development;
    our ability to successfully complete product research and
    development, including pre-clinical and clinical trials and
    commercialization;
    our ability to obtain governmental approvals, including product
    and patent approvals;
    our ability to successfully manufacture the products of our
    research and development programs and our marketed products to
    meet current good manufacturing practices and to manufacture
    these products at a financially acceptable cost;
    our ability to attract and retain our key officers and employees
    and manufacturing, sales, distribution and marketing partners; 3




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
    costs associated with any product liability claims, patent
    prosecution, patent infringement lawsuits and other lawsuits;
    our ability to develop and commercialize our products before our
    competitors; and
    the projected size of the drug delivery market.  Form 10-K
 4




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PART I  ITEM 1.
    Business.  OVERVIEW
          ®
  ®
       5




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first-in-class
  RECENT
    DEVELOPMENTS
  Restructuring
    ®
  and/or
 6




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##### Table of Contents



Termination
    of Novo Nordisk Agreement
    PYY(3-36)
    Clinical Trial Enrollment
  ®
  Establishment
    of MDRNA
    and/or
  Changes
    in Management
     7




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CLINICAL 
    STAGE PRODUCT CANDIDATES
    InitialIndication

Product

Clinical Status

Next Steps

Marketing RightsDiabetes

Insulin

Phase 2 efficacy study ongoing

Partnering / Additional Phase 2 clinical trials

NastechObesity

PYY(3-36)

Phase 2 weight loss clinical trial ongoing

Partnering / Phase 3

NastechOsteoporosis

PTH(1-34) (Peptide)

Phase 2B clinical trial pending funding / partnering

Partnering / Pivotal Phase 3 clinical trial

NastechDiabetes

Exenatide

Phase 1 clinical trial completed

To be determined by Amylin

AmylinOsteoporosis

Calcitonin-salmon (Peptide)

ANDA review complete except for Citizens Petition

FDA review of Citizens Petition ongoing

Par Pharmaceutical (U.S.) Nastech (rest of world)Autism

Carbetocin

Phase 2 clinical trial pending funding/partnering

Additional Phase 2 clinical trials

Nastech   Insulin.
    ® ®
 8




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® ® ®
    Peptide YY(3-36). ® ® ® ®
  The New England Journal of Medicine 941-948) 24-hour
    
    an exclusive license to the Cedars-Sinai patent estate secured
    in May 2004 containing the only issued patents directed to the
    use of PYY to induce satiety;
    exclusive worldwide rights to the PYY patent applications within
    the field of nasal administration, licensed from Imperial
    College Innovations and Oregon Health Sciences University
    through Thiakis, Ltd.; and
    exclusive licenses to six issued U.S. patents and two
    pending U.S. patent applications from the University of
    Cincinnati related to second generation PYY analogs that have
    produced weight loss in animal experiments.   9




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®
  Parathyroid Hormone
    (1-34). 2004 Bone Health and Osteoporosis: A Report of the Surgeon
    General ® ®
  ® ®
   10




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® ® ®
  Exenatide. ® twice-per-day
        Calcitonin-salmon. ® ®
    ®
 11




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®
      ®
  Carbetocin.
       12




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PRECLINICAL-STAGE
    PRODUCT CANDIDATES
    InitialIndication

Product

Clinical Status

Next Steps

Marketing RightsAntivirals

RNAi directed against influenza virus

Preclinical

Preclinical safety and efficacy studies

NastechInflammation

RNAi directed against TNF-alpha

Preclinical

Preclinical safety and efficacy studies

NastechHemophilia

Factor IX

Formulation

Preclinical safety and PK studies

Undisclosed partnerSeizure

Undisclosed compounds

Preclinical safety and PK studies

Phase 1 clinical trial

Undisclosed partner   Antiviral
    National Strategy
    for Pandemic Influenza
  Pre-clinical Development Status.
  Inflammation
   13




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Pre-clinical Development Status.
  Feasibility
    Studies
    OTHER
    AGREEMENTS AND INTELLECTUAL PROPERTY ACQUISITIONS
  Questcor Pharmaceuticals, Inc./QOL Medical
    LLC. ® ® ®
  ® ® ®
  ® ®
  Cytyc Corporation.
 14




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Alnylam. tm
  Galenea.
    City of Hope.
  Government Grants
  DRUG
    DELIVERY TECHNOLGIES
   15




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Tight
    Junction Technology
  (Johnson PH and Quay SC. Advances in nasal delivery
    through tight junction biology. Expert Opinion Drug Delivery.
    (2005) 2(2):281-298).
    Intracellular
    and Targeted Delivery of RNAi-Based Therapeutics
  Peptide-based delivery.
    Lipid-based delivery.
   16




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Other Drug Delivery Technologies.
  
    experience in stabilizing liquid formulations;
    knowledge of physical properties of nasal sprays;
    experience with pro-drug selection to improve biological
    properties;
    experience with counter ion selection to increase drug
    solubility;
    correlations between in vitro and in vivo nasal delivery
    models; and
    manufacturing know-how.  BUSINESS
    STRATEGY
  ®
  
    Pursuing Collaborations with Pharmaceutical and Biotechnology
    Companies.We will continue to establish strategic
    collaborations with pharmaceutical and biotechnology companies.
    This process is currently focused on our internal clinical
    programs such as insulin, PYY(3-36), PTH(1-34) and carbetocin.
    Typically, we collaborate with partners to commercialize our
    internal product candidates by utilizing their late stage
    clinical development, regulatory, marketing and sales
    capabilities. We 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 currently marketed. We generally
    structure our collaborative arrangements to receive research and
    development funding and milestone payments during the
    development phase, revenue from manufacturing upon
    commercialization and patent-based royalties on future sales of
    products.
    Applying Our Tight Junction Technology and Other Drug
    Delivery Methods to Product Candidates.We focus our
    research and development efforts on product candidates,
    including peptides, large and small molecules and therapeutic
    siRNA, for which our proprietary technologies may offer clinical
    advantages, such as improved safety and clinical efficacy, or
    increased patient compliance.
    Leveraging Our Manufacturing Expertise and Capabilities.Although we have recently reduced our expenditures in
    manufacturing to focus on our clinical-stage product candidates,
    we believe our manufacturing capabilities will meet our
    projected capacity needs for the foreseeable future. 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 collaborators and competitors
    to replicate in the near term. These capabilities give us
    competitive advantages, including the ability to prepare the CMC
    section of NDA filings with the FDA, and to maintain a
    high-level of quality control in manufacturing product
    candidates for clinical trials and FDA-approved products for
    commercialization.   17




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MANUFACTURING
        SALES AND
    MARKETING
    COLLABORATION
    PARTNERS
    RESEARCH
    AND DEVELOPMENT
   18




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PROPRIETARY
    RIGHTS AND INTELLECTUAL PROPERTY
      PendingMDRNA(1)U.S.


124Foreign


24PCT


71Exclusive In-licensed(2)U.S.


10Foreign


33PCT


0Total pending


262PendingNastechU.S.


100Foreign


159PCT


24Exclusive In-licensed(2)U.S.


8Foreign


32PCT


0Total pending


323IssuedNastechU.S.


17Foreign


27Exclusive In-Licensed(2)U.S.


9Foreign


5Total issued


58Total cases


643     (1)
    
    Patent applications are those assigned to MDRNA from Nastech on
    December 12, 2007, as described as above.(2)
    
    Does not include undisclosed proprietary technologies that are
    the subject of our license agreements with Alnylam or the
    Carnegie Institution of Washington. 19




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and/or
  
    obtain patent and other proprietary protection for our
    intellectual property;
    enforce and defend patents once obtained;
    operate without infringing the patents and proprietary rights of
    third parties; and
    preserve our trade secrets.  GOVERNMENT
    REGULATION
    and/or
  ® ®
     20




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and/or 180-day
   21




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COMPETITION
     22




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Type 2 Diabetes. ® ® tm
  Obesity. ® tm ® ® ®
  Osteoporosis. ® ® ® ® ® ®
  RNAi.
 23




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PRODUCT
    LIABILITY
    EMPLOYEES
    AVAILABLE
    INFORMATION
  1-800-SEC-0330 e-mail http://www.sec.gov. http://www.nastech.com. Form 10-K, Form 10-Q, Form 8-K,
  ITEM 1A.
    Risk
    Factors.    Risks
    Related to our Business, Financial Position and Need for
    Additional Capital
  Our
    strategic direction is changing, including through
    restructuring, and our focus on our Phase 2 clinical programs,
    including those for insulin nasal spray for type 2 diabetes,
    PYY(3-36) nasal spray for obesity, PTH(1-34) nasal spray for
    osteoporosis, continuation of research and development
    activities focused on MDRNA and our funded partnerships, may not
    be successful. Even after giving effect to this restructuring,
    we may not have sufficient cash to execute our current business
    plan and any restructuring may impact our ability to execute on
    our business plan.
   24




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®
  and/or
  We do
    not generate operating income and will require additional
    financing in the future. If additional capital is not available,
    we may have to curtail or cease operations.
    
    conduct research and development;
    develop and commercialize our product candidates;
    enhance existing services;
    respond to competitive pressures; and
    acquire complementary businesses or technologies.    
    the scope, duration and expenditures associated with our
    research and development programs;
    continued scientific progress in these programs;
    the outcome of potential licensing transactions, if any;
    competing technological developments;
    our proprietary patent position, if any, in our
    products; and
    the regulatory approval process for our products.   25




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Our
    independent registered public accounting firm has expressed
    substantial doubt about our ability to continue as a going
    concern.
    We
    have not been profitable on an annual basis for ten years, and
    we may never become profitable.
      Risks
    Related to the Development and Regulatory Approval of our Drug
    Candidates
  Clinical
    trials of our product candidates are expensive and
    time-consuming, and the results of these trials are
    uncertain.
   26




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We are
    subject to extensive government regulation, including the
    requirement of approval before our products may be manufactured
    or marketed.
    ® ®
    New
    legal and regulatory requirements could make it more difficult
    for us to obtain approvals for our product candidates and could
    limit or make more burdensome our ability to commercialize any
    approved products.
   27




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If our
    generic calcitonin-salmon product is approved under the
    FDAs Abbreviated New Drug Approval Authority, our ability
    to commercialize it will be subject to exclusivity periods
    provided by law.
    We use
    hazardous chemicals and radioactive and biological materials in
    our business. Any disputes relating to improper use, handling,
    storage or disposal of these materials could be time-consuming
    and costly.
    Failure
    to comply with foreign regulatory requirements governing human
    clinical trials and marketing approval for drugs could prevent
    us from selling our drug candidates in foreign markets, which
    may adversely affect our operating results and financial
    condition.
    Risks
    Related to our Dependence on Third Parties
  We
    depend on a limited number of customers for a significant
    percentage of our revenue. These customers may be able to
    terminate their contracts with us on short notice, with or
    without cause. Accordingly, the loss of, or delay in payment
    from, one or a small number of customers could have a
    significant impact on our revenue, operating results and cash
    flows.
   28




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We are
    dependent on our collaborative arrangements and feasibility
    study agreements with third parties for a substantial portion of
    our revenue, and our development and commercialization
    activities may be delayed or reduced if we fail to negotiate or
    maintain successful collaborative arrangements.
        Our
    success depends to a significant degree upon the commercial
    success of products manufactured by us pursuant to supply
    agreements or marketed by our collaboration
    partners.
   29




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An
    interruption in the supply of our raw and bulk materials needed
    to make our products could cause our product development and
    commercialization to be slowed or stopped.
    We
    rely on third parties to conduct our clinical trials, and those
    third parties may not perform satisfactorily, including failing
    to meet established deadlines for the completion of such
    clinical trials.
      We
    have limited experience in marketing or selling our products,
    and we may need to rely on marketing partners or contract sales
    companies.
   30




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Risks
    Related to our Intellectual Property and Other Legal
    Matters
  If we
    are unable to adequately protect our proprietary technology from
    legal challenges, infringement or alternative technologies, our
    competitive position may be hurt and our operating results may
    be negatively impacted.
            Because
    intellectual property rights are of limited duration, expiration
    of intellectual property rights and licenses will negatively
    impact our operating results.
    Our
    patent applications may be inadequate in terms of priority,
    scope or commercial value.
   31




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We may
    be required to defend lawsuits or pay damages for product
    liability claims.
      Risks
    Related to the Commercialization of our Drug
    Candidates
  Our
    product development efforts may not result in commercial
    products.
    
    a product candidate may not perform as expected in later or
    broader trials in humans and limit marketability of such product
    candidate;
    necessary regulatory approvals may not be obtained in a timely
    manner, if at all;
    a product candidate may not be able to be successfully and
    profitably produced and marketed;
    third parties may have proprietary rights to a product
    candidate, and do not allow sale on reasonable terms; 32




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
    a product candidate may not be financially successful because of
    existing therapeutics that offer equivalent or better
    treatments; or
    suppliers of product pumps or actuators required to atomize our
    formulations may increase their price or cease to manufacture
    them without prior notice.  ® ®
  Even
    if we are successful in commercializing a product candidate, it
    is possible that the commercial opportunity for
    nasally-administered products will be limited.
  ® ®
  
    establishment and demonstration of the effectiveness and safety
    of the drugs;
    timing of market entry as compared to competitive products;
    the benefits of our drugs relative to their prices and the
    comparative price of competing products;
    actual and perceived benefits and detriments of nasal drug
    delivery, which may be affected by press and academic literature;
    marketing and distribution support of our products; and
    any restrictions on labeled indications.  Our
    revenues and profits from our generic calcitonin-salmon product,
    if approved, and any other approved products, will decline as
    our competitors introduce their own generic
    equivalents.
    If we
    have a problem with our manufacturing facilities, we may not be
    able to market our products or conduct clinical
    trials.
   33




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Risks
    Related to our Industry
  Reforms
    in the healthcare industry and the uncertainty associated with
    pharmaceutical pricing, reimbursement and related matters could
    adversely affect the marketing, pricing and demand for our
    products.
    Coverage
    and reimbursement status of newly-approved drugs is uncertain
    and the failure to obtain adequate reimbursement coverage could
    limit our ability to generate revenue.
    We may
    be unable to compete successfully against our current and future
    competitors.
     34




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Risks
    Related to Employee Matters and Managing Growth
  If we
    lose our key personnel, or if we are unable to attract and
    retain additional personnel, then we may be unable to
    successfully develop our business.
    If we
    make strategic acquisitions, we will incur a variety of costs
    and might never realize the anticipated benefits.
    Failure
    of our internal control over financial reporting could harm our
    business and financial results.
   35




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Risks
    Related to our Common Stock
  We
    cannot assure you that our stock price will not
    decline.
    
    negative results from our clinical or pre-clinical trials or
    adverse FDA decisions related to our product candidates or third
    party products that are in the same drug class as our products;
    changes in revenue estimates or publication of research reports
    related to our company by analysts;
    failure to meet analysts revenue estimates;
    speculation in the press or investment community;
    strategic actions by our company or our competitors, such as
    acquisitions or restructurings;
    actions by institutional stockholders and other significant
    stockholders;
    low average daily trading volumes due to relatively small number
    of shares outstanding;
    general market conditions; and
    domestic and international economic factors unrelated to our
    performance.      We
    have never paid cash or stock dividends on our common stock and
    we do not anticipate paying cash dividends in the foreseeable
    future.
    The
    anti-takeover provisions of our stockholder rights plan may
    entrench management, may delay or prevent beneficial takeover
    bids by third parties and may prevent or frustrate any
    stockholder attempt to replace or remove the current management
    even if the stockholders consider it beneficial to do
    so.
   36




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Our
    operating results are subject to significant fluctuations and
    uncertainties, and our failure to meet expectations of public
    market analysts or investors regarding operating results may
    cause our stock price to decline.
    
    timing and achievement of licensing transactions, including
    milestones and other performance factors associated with these
    contracts;
    time and costs involved in patent prosecution and development of
    our proprietary position;
    continued scientific progress and level of expenditures in our
    research and development programs;
    cost of manufacturing
    scale-up and
    production batches, including vendor-provided activities and
    costs;
    time and costs involved in obtaining regulatory approvals;
    changes in general economic conditions and drug delivery
    technologies;
    expiration of existing patents and related revenues; and
    new products and product enhancements that we or our competitors
    introduce.      A
    significant number of shares of our common stock are subject to
    options and warrants, and we expect to sell additional shares of
    our common stock in the future. Sales of these shares will
    dilute the interests of other security holders and may depress
    the price of our common stock.
   37




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ITEM 1B.
    Unresolved
    Staff Comments.    ITEM 2.
    Properties.    3830 Monte Villa Parkway, Bothell,
    Washington.
  3450 Monte Villa Parkway, Bothell,
    Washington.
  45 Davids Drive, and 80 Davids Drive, Hauppauge, New
    York.
  ITEM 3.
    Legal
    Proceedings.    ITEM 4.
    Submission
    of Matters to a Vote of Security Holders.   38




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PART II  ITEM 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.  Market
    Information
    Quarter

High


Low2006:First Quarter

$
23.14


$
13.70Second Quarter


18.16



12.05Third Quarter


16.00



11.15Fourth Quarter


19.98



15.012007:First Quarter

$
15.39


$
9.50Second Quarter


14.29



10.66Third Quarter


17.05



10.69Fourth Quarter


16.07



3.342008:First Quarter through March 6, 2008

$
3.94


$
1.91     Holders
    Dividends
   39




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Performance
    Graph
    Comparison
    of Cumulative Total Return
  
  12/31/02


12/31/03


12/31/04


12/31/05


12/31/06


12/31/07Nastech Pharmaceutical Company Inc.


$
100.00



$
112.40



$
141.52



$
172.16



$
175.79



$
36.26Nasdaq Stock Market Index (U.S.)


$
100.00



$
149.52



$
162.72



$
166.18



$
182.57



$
197.98Nasdaq Pharmaceutical Stocks Index


$
100.00



$
146.59



$
156.13



$
171.93



$
168.29



$
176.97   Unregistered
    Sales of Equity Securities
  Warrants.
 40




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ITEM 6.
    Selected
    Financial Data.  Form 10-K.
  Years Ended December 31,Consolidated Statements of Operations Data:

2003


2004


2005


2006


2007REVENUELicense and research fees

$
17,635


$
1,556


$
7,416


$
27,265


$
17,349Government grants














488



433Product revenue


1,805



291



33



737



355Total revenue


19,440



1,847



7,449



28,490



18,137OPERATING EXPENSES:Cost of product revenue


498



258



21



355



100Research and development(1)


17,097



21,083



30,334



43,244



52,254Sales and marketing


2,377



1,046



1,326



1,927



2,392General and administrative


5,679



7,951



9,569



12,281



17,922Total operating expenses


25,651



30,338



41,250



57,807



72,668LOSS FROM OPERATIONS


(6,211
)


(28,491
)


(33,801
)


(29,317
)


(54,531
)Interest income


227



344



1,990



2,789



3,308Interest and other expense


(393
)


(462
)


(352
)


(640
)


(1,149
)Gain on sale of product


4,236















Loss before cumulative effect of change in accounting principle


(2,141
)


(28,609
)


(32,163
)


(27,168
)


(52,372
)Cumulative effect of change in accounting principle














291



NET LOSS

$
(2,141
)

$
(28,609
)

$
(32,163
)

$
(26,877
)

$
(52,372
)LOSS PER SHARE  BASIC AND DILUTEDLoss before cumulative effect of change in accounting principle

$
(0.20
)

$
(2.21
)

$
(1.72
)

$
(1.28
)

$
(2.10
)Cumulative effect of change in accounting principle














.01



Net loss per common share  basic and diluted

$
(0.20
)

$
(2.21
)

$
(1.72
)

$
(1.27
)

$
(2.10
)Shares used in computing net loss per share  basic
    and diluted


10,751



12,955



18,719



21,218



24,995   Consolidated Balance Sheet Data:

2003


2004(3)


2005(4)


2006


2007(5)Cash, cash equivalents, restricted cash and short term
    investments(2)

$
25,081


$
74,474


$
59,909


$
50,993


$
41,573Working capital


14,766



58,362



55,198



42,833



31,111Total assets


31,138



80,775



72,953



73,832



61,616Notes payable and capital lease obligations


8,737



11,603



5,601



11,683



10,725Total stockholders equity


17,906



58,148



55,567



43,336



39,220     (1)
    
    The 2006 amount includes $4.1 million related to purchased
    in-process research and development. 41




---



##### Table of Contents



(2)
    
    Amount includes restricted cash of approximately
    $6.3 million at December 31, 2003, $9.0 million
    at December 31, 2004, $1.0 million at
    December 31, 2005 and $2.2 million at both
    December 31, 2006 and 2007.(3)
    
    During 2004, we received net proceeds of $12.3 million from
    a public offering of 1,136,364 shares of common stock and
    warrants to purchase 516,384 shares of common stock, and
    net proceeds of $52.9 million from a public offering of
    4,250,000 shares of common stock.(4)
    
    During 2005, we received net proceeds of $21.6 million from
    a public offering of 1,725,000 shares of common stock.(5)
    
    During 2007, we received net proceeds of approximately
    $40.9 million from a public offering of
    3,250,000 shares of common stock.  ITEM 7.
    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, and Section 21E of
    the Exchange Act, 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) the
    ability of our company or a subsidiary to obtain additional
    funding; (ii) the ability of our company or a subsidiary to
    attract
    and/or
    maintain manufacturing, research, development and
    commercialization partners; (iii) the ability of our
    company, a subsidiary
    and/or a
    partner to successfully complete product research and
    development, including pre-clinical and clinical studies and
    commercialization; (iv) the ability or our company, a
    subsidiary
    and/or a
    partner to obtain required governmental approvals, including
    product and patent approvals; and (v) the ability or our
    company, a subsidiary
    and/or a
    partner to develop and commercialize products that can compete
    favorably with those of competitors. In addition, significant
    fluctuations in annual or quarterly results may occur as a
    result of the timing of 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
    SEC, including those factors discussed under the caption
    Risk Factors in this Report, 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.
    
    The section entitled Background describes our
    principal operational activities and summarizes significant
    trends and developments in our business and in our industry.
    Critical Accounting Policies and Estimates discusses
    our most critical accounting policies.
    Recently Issued Accounting Standards discusses new
    accounting standards.
    Consolidated Results of Operations discusses the
    primary factors that are likely to contribute to significant
    variability of our results of operations for the year ended
    December 31, 2007 as compared to the year ended
    December 31, 2006, and the year ended December 31,
    2006 as compared to the year ended December 31, 2005. 42




---



##### Table of Contents




    Liquidity, Capital Resources and Going Concern
    discusses our cash requirements, sources and uses of cash and
    liquidity, including going concern qualifications.
    Contractual Obligations discusses our contractual
    obligations as of December 31, 2007.
    Off-Balance Sheet Arrangements indicates that we did
    not have any off-balance sheet arrangements as of
    December 31, 2007.    Background
        ®
  ®
       43




---



##### Table of Contents



first-in-class and/or
    ®
  and/or
 44




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    Revenue
    Recognition
  00-21, 01-14,
 45




---



##### Table of Contents



EITF 00-21, EITF 00-21,
         46




---



##### Table of Contents



EITF 01-14,
        Research
    and Development Costs
       47




---



##### Table of Contents



Stock-Based
    Compensation
        Current Estimate of- One Year


Expected Term


+ One YearEffect of a one year change in
    estimated expected term:Variable changedEstimated option life


4.8 years



5.8 years



6.8 yearsVariables held constantExercise price

$
11.40


$
11.40


$
11.40Expected dividend yield


0
%


0
%


0
%Risk free rate


4.5
%


4.5
%


4.5
%Expected stock volatility


63
%


63
%


63
%Estimated fair value

$
6.40


$
6.97


$
7.40  48




---



##### Table of Contents



Current Estimate of- 10%


Volatility


+ 10%Effect of a 10% change in
    estimated volatility:Variable changedExpected stock volatility


53
%


63
%


73
%Variables held constantExercise price

$
11.40


$
11.40


$
11.40Expected dividend yield


0
%


0
%


0
%Risk free rate


4.5
%


4.5
%


4.5
%Estimated option life


5.8 years



5.8 years



5.8 yearsEstimated fair value

$
6.20


$
6.97


$
7.62           Income
    Taxes
     49




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##### Table of Contents



Recently
    Issued Accounting Standards
    No. 123R-5, FAS 123R-1,
  No. 07-03, (EITF 07-03). EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-03
   50




---



##### Table of Contents



No. 07-1, (EITF 07-1). EITF 07-1 EITF 07-1, EITF 07-1 EITF 07-1 EITF 07-1 EITF 07-1
 51




---



##### Table of Contents



Consolidated
    Results of Operations
  Comparison
    of Annual Results of Operations
    Years Ended








Years EndedDecember 31,


Change


December 31,


Change2006


2007


$


%


2005


2006


$


%RevenueLicense and research fees

$
27,265


$
17,349


$
(9,916
)


(36
)%

$
7,416


$
27,265


$
19,849



268
%Government grants


488



433



(55
)


(11
)%






488



488Product revenue


737



355



(382
)


(52
)%


33



737



704Total revenue


28,490



18,137



(10,353
)


(36
)%


7,449



28,490



21,041



282
%Operating expensesCost of product revenue


355



100



(255
)


(72
)%


21



355



334Research and development


43,244



52,254



9,010



21
%


30,334



43,244



12,910



43
%Sales and marketing


1,927



2,392



465



24
%


1,326



1,927



601



45
%General and administrative


12,281



17,922



5,641



46
%


9,569



12,281



2,712



28
%Total operating expenses


57,807



72,668



14,861



26
%


41,250



57,807



16,557



40
%Interest income


2,789



3,308



519



19
%


1,990



2,789



799



40
%Interest and other expense


(640
)


(1,149
)


(509
)


80
%


(352
)


(640
)


(288
)


82
%Loss before cumulative effect of change in accounting principle


(27,168
)


(52,372
)


(25,204
)


93
%


(32,163
)


(27,168
)


4,995



(16
)%Cumulative effect of change in accounting principle


291







(291
)


(100
)%






291



291Net loss

$
(26,877
)

$
(52,372
)

$
(25,495
)


95
%

$
(32,163
)

$
(26,877
)

$
(5,286
)


(16
)%   Comparison
    of Year Ended December 31, 2007 to the Year Ended
    December 31, 2006
  Revenue.
  Years Ended December 31,2006


2007P&G


77
%


62
%QOL


4
%


15
%Novo Nordisk


2
%


18
%Merck


13
%


0
%Total


96
%


95
%   License and research fees revenue.
 52




---



##### Table of Contents



®
    Government grants revenue.
  Product Revenue. ® ®
  Cost of product revenue. ® ® ®
  Research and Development.
  
    Personnel-related expenses increased by approximately 21% to
    $20.5 million in 2007 compared to $17.0 million in
    2006 due to an increase in headcount in support of our R&D
    programs.
    Non-cash stock-based compensation included in R&D expense
    increased to $3.0 million in 2007 from $2.1 million in
    2006.
    Facilities and equipment costs increased by approximately 32% to
    $9.8 million in 2007 compared to $7.4 million in 2006
    due to rent and related expenses and an increase in depreciation
    of equipment resulting from capital expenditures to acquire
    needed technical capabilities. Depreciation expense included in
    R&D in 2007 was $3.3 million, compared with
    $2.3 million in 2006.
    In 2007, we initiated additional Phase 2 clinical trials to
    evaluate our PYY(3-36) nasal spray in obese patients, PTH(1-34)
    nasal spray for the treatment of osteoporosis, our rapid-acting
    insulin nasal spray in patients with type 2 diabetes and our
    carbetocin nasal spray for patients with ASDs, causing a related
    increase in R&D expenses. Costs of clinical trials,
    consulting, outside services and laboratory supplies increased
    by approximately 57% to $17.6 million in 2007 compared to
    $11.2 million in 2006 due primarily to our increased
    efforts related to PYY, insulin, carbetocin and RNAi. 53




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##### Table of Contents




    In November 2006, we acquired a license from the Beckman
    Research Institute/City of Hope for exclusive and non-exclusive
    licenses to the Dicer-substrate RNAi IP developed there. We
    obtained exclusive rights to five undisclosed targets selected
    by us, as well as broad non-exclusive rights to Dicer-substrates
    directed against all mammalian targets subject to certain City
    of Hope limitations that will have no impact on our programs. We
    are developing this IP and technology, causing a related
    increase in R&D expenses.      Years Ended December 31,2006(2)


2007RNAi and TNF-α


20
%


17
%Influenza


8
%


7
%Subtotal


28
%


24
%PTH(1-34)


31
%


11
%PYY(3-36)


6
%


22
%Insulin


11
%


11
%Carbetocin


3
%


8
%Calcitonin


5
%


3
%Other research and development projects(1)


16
%


21
%Total


100
%


100
%     (1)
    
    Other research and development projects include our tight
    junction projects, excipient projects, feasibility projects and
    other projects.(2)
    
    Excludes purchased IPR&D in the field of RNAi related to
    influenza from Galenea of approximately $4.1 million in
    2006. We believe that presenting R&D expense by project as
    a percentage of total R&D project expense without the
    Galenea transaction allows for better comparability between
    periods given the significance of the amount relative to total
    R&D project expense.   54




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##### 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 clinical trial.  ® ®
    Sales and marketing.
  General and administrative.
  
    Costs of legal and accounting fees, corporate insurance and
    other administrative costs increased by 69% to approximately
    $9.1 million in 2007 compared to approximately
    $5.4 million in 2006. Included in the $9.1 million in
    2007 were $4.9 million in legal expenses, compared to
    $2.4 million in the prior year, $1.3 million in
    consulting fees, compared to $0.3 million in the prior
    year, and $0.7 million in accounting fees, compared to
    $0.5 million in the prior year.
    Non-cash stock-based compensation expense included in general
    and administrative expense increased to approximately
    $2.8 million in 2007 from approximately $2.6 million
    in 2006.
    Personnel-related expenses increased by 31% to $4.7 million
    in 2007 compared to $3.6 million in 2006 due primarily to
    increased headcount related to administrative activities.   55




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##### Table of Contents



Interest Income.
  Years Ended December 31,2006


2007(Dollars in thousands)Interest income

$
2,789


$
3,308Average funds available for investment


57,600



64,300Average interest rate


4.8
%


5.1
%     Interest and Other Expense.
  Years Ended December 31,2006


2007(Dollars in thousands)Interest and other expense

$
640


$
1,149Average borrowings under capital leases


6,800



11,500Average interest rate


9.8
%


10.0
%     Comparison
    of Year Ended December 31, 2006 to Year Ended
    December 31, 2005
  Revenue.
  License and research fees.
  ® 5-year
  Government grants revenue.
 56




---



##### Table of Contents



Product revenue and cost of product
    revenue. ® ®
  Research and Development.
  
    In February 2006, we acquired RNAi IP and other RNAi
    technologies from Galenea, including patent applications
    licensed from MIT that have early priority dates in the
    antiviral RNAi field focused on viral respiratory infections,
    including influenza, rhinovirus and other respiratory diseases.
    We also acquired Galeneas research and IP relating to
    pulmonary drug delivery technologies for RNAi. We also assumed
    Galeneas awarded and pending grant applications from NIAID
    and the Department of Defense to support the development of
    RNAi-based antiviral drugs. In connection with this transaction,
    in Q1 2006 we recorded a charge of approximately
    $4.1 million for acquired research associated with products
    in development for which, at the acquisition date, technological
    feasibility had not been established and there was no
    alternative future use. We did not incur any purchased
    IPR&D expenses in the prior year.
    In November 2006, we acquired a license from the Beckman
    Research Institute/City of Hope for exclusive and non-exclusive
    licenses to the Dicer-substrate RNAi IP developed there. We
    obtained exclusive rights to five undisclosed targets selected
    by us, as well as broad non-exclusive rights to Dicer-substrates
    directed against all mammalian targets subject to certain City
    of Hope limitations that will have no impact on our programs. We
    intend to further develop this IP and technology, which should
    cause a related increase in R&D expenses.
    Personnel-related expenses increased by 36% to
    $17.0 million in 2006 compared to $12.6 million in
    2005 due to an increase in headcount in support of our R&D
    programs.
    Non-cash stock-based compensation included in R&D expense
    increased to $2.1 million in 2006 from approximately
    $0.5 million in 2005 due to the adoption of SFAS 123R
    on January 1, 2006.
    Facilities and equipment costs increased by 54% to
    $7.4 million in 2006 compared to $4.8 million in 2005
    due to rent and related expenses on additional space leased at
    our Bothell, Washington facility and an increase in depreciation
    of equipment resulting from capital expenditures to acquire
    needed technical capabilities and to support increased capacity.
    Depreciation expense included in R&D in 2006 was
    $2.3 million, compared with $1.5 million in 2005.
    Costs of clinical trials, consulting, outside services and
    laboratory supplies increased by 2% to approximately
    $11.2 million in 2006 compared to approximately
    $11.0 million in 2005 due primarily to our increased
    efforts related to PTH(1-34), PYY(3-36), calcitonin and RNAi.  Sales and Marketing.
  General and Administrative.
  
    Costs of legal fees, accounting fees, corporate insurance and
    other administrative costs increased by 21% to approximately
    $5.4 million in 2006 compared to approximately
    $4.5 million in 2005.
    Non-cash stock-based compensation included in general and
    administrative expense increased to approximately
    $2.6 million in 2006 compared to $1.3 million in 2005,
    primarily due to the adoption of SFAS 123R on January 1,
    2006.
    Personnel-related expenses increased by 10% to $3.6 million
    in 2006 compared to $3.3 million in 2005 due primarily to
    increased headcount related to administrative activities. 57




---



##### Table of Contents



Interest Income.
  Interest and Other Expense.
  Liquidity,
    Capital Resources and Going Concern
  Cash
    Requirements
    Sources
    and Uses of Cash
       58




---



##### Table of Contents



®
  and/or
  and/or
    
    Under our collaborative arrangement with P&G, payments
    included a $7.0 million milestone payment that we received
    and recognized in full as revenue in 2006 and an initial cash
    payment of $10.0 million in February 2006. The
    $10.0 million initial payment was being amortized into
    revenue over the estimated development period until the
    collaboration was terminated in November 2007, at which time the
    unamortized balance of the license payment of approximately
    $5.5 million was recognized as revenue.
    Under our collaborative arrangement with Merck for PYY(3-36), we
    received an initial cash payment of $5.0 million in October
    2004. The $5.0 million initial payment was being amortized
    over the estimated development period until the collaboration
    was terminated in March 2006, at which time the unamortized
    balance of the license payment of approximately
    $3.7 million was recognized as revenue.
    Under our supply agreement with Questcor, in February 2005 we
    received and recognized a payment of $2.0 million from
    Questcor upon FDA approval of an NDA for our
    Nascobal®
    nasal spray product. In October 2005, with our consent, Questcor
    assigned all of its rights and obligations under the Questcor
    Agreements dated June 2003 to QOL. We received $2.0 million
    from Questcor in October 2005 in consideration for our consent
    to the assignment and in connection with our entering into an
    agreement with QOL that modified certain terms of the Questcor
    Agreements. The $2.0 million is being recognized ratably
    over the five-year life of the QOL agreement. QOL 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. This payment became due and was received
    and recognized as revenue in the second quarter of 2007. 59




---



##### Table of Contents



Liquidity
     60




---



##### Table of Contents



Contractual
    Obligations
    Total


2008


2009


2010


2011


2012


Thereafter(Dollars in thousands)Facility leases

$
26,796


$
3,004


$
3,108


$
3,164


$
3,197


$
3,303


$
11,020Capital lease obligations


10,725



4,968



4,036



1,414



307







Purchase obligations


2,275



2,275



















Total

$
39,796


$
10,247


$
7,144


$
4,578


$
3,504


$
3,303


$
11,020     Total


2008


2009


2010


2011


2012


Thereafter(Dollars in thousands)Capital lease obligations

$
1,366


$
869


$
387


$
99


$
11


$



$
Total

$
1,366


$
869


$
387


$
99


$
11


$



$
     Off-Balance
    Sheet Arrangements
  Regulation S-K.
  ITEM 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.      2008


2009


2010


2011


Total


Fair Value(Dollars in thousands)Capital lease obligations  principal

$
4,968


$
4,036


$
1,414


$
307


$
10,725


$
10,725Capital lease obligations  interest


869



387



99



11



1,366



1,317Total

$
5,837


$
4,423


$
1,513


$
318


$
12,091


$
12,042  61




---



##### 



ITEM 8.
    Financial
    Statements and Supplementary Data.   
 REPORTS OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM


63FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAConsolidated Balance Sheets at December 31,
    2006 and 2007


65Consolidated Statements of Operations for the
    years ended December 31, 2005, 2006 and 2007


66Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for the years ended
    December 31, 2005, 2006 and 2007


67Consolidated Statements of Cash Flows for the
    years ended December 31, 2005, 2006 and 2007


68Notes to Consolidated Financial Statements


69   62




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm               Internal Control  Integrated Framework
  KPMG
    LLP
    63




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Internal Control  Integrated Framework
        Internal Control  Integrated Framework
    KPMG
    LLP
    64




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2007(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
28,481


$
27,704Restricted cash


2,155



2,155Short-term investments


20,357



11,714Accounts receivable


2,798



324Inventories


2,203



1,084Prepaid expenses and other current assets


1,564



1,698Total current assets


57,558



44,679Inventories, non-current


515



1,605Property and equipment, net


15,444



15,004Other assets


315



328Total assets

$
73,832


$
61,616LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
4,437


$
4,216Accrued payroll and employee benefits


2,652



2,378Accrued expenses


882



1,331Capital lease obligations  current portion


4,226



4,968Deferred revenue  current portion


2,528



675Total current liabilities


14,725



13,568Capital lease obligations, net of current portion


7,457



5,757Deferred revenue, net of current portion


6,138



718Deferred rent and other liabilities


2,176



2,353Total liabilities


30,496



22,396Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 100,000 shares
    authorized: no shares issued and outstanding






Common stock and additional paid-in capital, $0.006 par
    value; 50,000,000 shares authorized: 22,117,124 shares
    issued and outstanding as of December 31, 2006 and
    26,753,430 shares issued and outstanding as of
    December 31, 2007


185,849



234,065Accumulated deficit


(142,493
)


(194,865
)Accumulated other comprehensive income (loss)


(20
)


20Total stockholders equity


43,336



39,220Total liabilities and stockholders equity

$
73,832


$
61,616    65




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2005


2006


2007(In thousands, except per share data)Revenue:License and research fees

$
7,416


$
27,265


$
17,349Government grants






488



433Product revenue


33



737



355Total revenue


7,449



28,490



18,137Operating expenses:Cost of product revenue


21



355



100Research and development


30,334



43,244



52,254Sales and marketing


1,326



1,927



2,392General and administrative


9,569



12,281



17,922Total operating expenses


41,250



57,807



72,668Loss from operations


(33,801
)


(29,317
)


(54,531
)Other income (expense):Interest income


1,990



2,789



3,308Interest and other expense


(352
)


(640
)


(1,149
)Total other income


1,638



2,149



2,159Loss before cumulative effect of change in accounting principle


(32,163
)


(27,168
)


(52,372
)Cumulative effect of change in accounting principle






291



Net loss

$
(32,163
)

$
(26,877
)

$
(52,372
)Loss per common share  basic and diluted:Loss before cumulative effect of change in accounting principle

$
(1.72
)

$
(1.28
)

$
(2.10
)Cumulative effect of change in accounting principle






0.01



Net loss per common share  basic and diluted

$
(1.72
)

$
(1.27
)

$
(2.10
)Shares used in computing net loss per share  basic
    and diluted


18,719



21,218



24,995    66




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND
 COMPREHENSIVE INCOME (LOSS)
  AccumulatedCommon Stock and








Other


TotalAdditional Paid-In Capital


Deferred


Accumulated


Comprehensive


StockholdersShares


Amount


Compensation


Deficit


Income (Loss)


Equity(In thousands, except share data)Balance December 31, 2004


17,895,976


$
142,960


$
(1,358
)

$
(83,453
)

$
(1
)

$
58,148Proceeds from the issuance of common shares, net


1,725,000



21,583















21,583Proceeds from the exercise of options and warrants


743,868



6,205















6,205Compensation related to restricted stock


385,633



5,436



(3,823
)










1,613Compensation related to stock options






8



279











287Net loss














(32,163
)






(32,163
)Unrealized loss on securities available for sale


















(106
)


(106
)Comprehensive loss






















(32,269
)Balance December 31, 2005


20,750,477



176,192



(4,902
)


(115,616
)


(107
)


55,567Cumulative effect of change in accounting principle






(5,193
)


4,902











(291
)Proceeds from the exercise of options and warrants


1,105,010



9,867















9,867Compensation related to restricted stock


261,637



2,326















2,326Compensation related to stock options






2,657















2,657Net loss














(26,877
)






(26,877
)Unrealized gain on securities available for sale


















87



87Comprehensive loss






















(26,790
)Balance December 31, 2006


22,117,124



185,849







(142,493
)


(20
)


43,336Proceeds from the issuance of common shares, net


3,250,000



40,923















40,923Proceeds from the exercise of options and warrants


1,114,288



1,046















1,046Compensation related to restricted stock


272,018



3,520















3,520Compensation related to stock options and employee stock
    purchase plan






2,727















2,727Net loss














(52,372
)






(52,372
)Unrealized gain on securities available for sale


















40



40Comprehensive loss






















(52,332
)Balance December 31, 2007


26,753,430


$
234,065


$



$
(194,865
)

$
20


$
39,220    67




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2005


2006


2007(In thousands)Operating activities:Net loss

$
(32,163
)

$
(26,877
)

$
(52,372
)Adjustments to reconcile net loss to net cash used in operating
    activities:Non-cash compensation related to stock options and employee
    stock purchase plan


287



2,657



2,727Non-cash compensation related to restricted stock


1,613



2,326



3,520Depreciation and amortization


1,832



2,903



4,392Loss on disposition of property and equipment


121



25



56Cumulative effect of change in accounting principle






(291
)


Changes in assets and liabilities:Accounts receivable


(189
)


(2,609
)


2,474Inventories


(2,676
)


15



29Prepaid expenses and other assets


(865
)


70



(147
)Accounts payable


1,292



1,493



(221
)Deferred revenue


(418
)


2,827



(7,273
)Accrued expenses and deferred rent and other liabilities


(113
)


2,708



352Net cash used in operating activities


(31,279
)


(14,753
)


(46,463
)Investing activities:Change in restricted cash






(1,157
)


Purchases of investments


(122,822
)


(67,595
)


(33,773
)Sales and maturities of investments


130,251



79,467



42,456Purchases of property and equipment


(4,966
)


(10,199
)


(4,008
)Net cash provided by investing activities


2,463



516



4,675Financing activities:Change in restricted cash


8,002







Proceeds from sales of common shares and warrants, net


21,583







40,923Payments on notes payable


(8,352
)






Borrowings under capital lease obligations


4,273



9,288



3,802Payments on capital lease obligations


(1,923
)


(3,206
)


(4,760
)Proceeds from exercise of stock options and warrants


6,205



9,867



1,046Net cash provided by financing activities


29,788



15,949



41,011Net increase (decrease) in cash and cash equivalents


972



1,712



(777
)Cash and cash equivalents  beginning of year


25,797



26,769



28,481Cash and cash equivalents  end of year

$
26,769


$
28,481


$
27,704Supplemental disclosure:Cash paid for interest

$
367


$
677


$
1,145    68




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    the Three Years Ended December 31, 2007
  Note 1 
    Business,
    Going Concern and Summary of Significant Accounting
    Policies  Business
           69




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ®
  and/or
  Going
    Concern
     70




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Summary
    of Significant Accounting Policies
  Principles of Consolidation
  Use of Estimates
  Cash Equivalents
  Restricted Cash
  Short-term Investments
  Allowance for Doubtful Accounts
 71




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories (first-in,
  Property and Equipment
  Impairment of long-lived assets
  Fair Value of Financial Instruments
  Concentration of Credit Risk and Significant
    Customers and/or
    Years Ended December 31,2005


2006


2007P&G


0
%


77
%


62
%QOL


0
%


4
%


15
%Novo Nordisk


0
%


2
%


18
%Questcor Pharmaceuticals, Inc.


27
%


0
%


0
%Par Pharmaceutical


11
%


0
%


0
%Merck


48
%


13
%


0
%Total


86
%


96
%


95
%  72




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue Recognition 00-21, 01-14,
  EITF 00-21, EITF 00-21,
     73




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          01-14,
        Shipping and Handling Costs
  Research and Development Costs
 74




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Stock-Based Compensation
    Year EndedDecember 31, 2005Net loss, as reported

$
(32,163
)Add: stock-based employee compensation under APB 25 included in
    reported net loss


1,900Deduct: stock-based employee compensation, determined under fair
    value method


(6,189
)Proforma net loss

$
(36,452
)Loss per share:Basic and diluted  as reported

$
(1.72
)Basic and diluted  proforma

$
(1.95
)    75




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Net Loss per Common Share
  Years Ended December 31,2005


2006


2007Stock options outstanding under our various stock option plans


2,688,199



2,412,412



2,412,318Unvested restricted stock


444,322



544,480



610,092Warrants


1,403,047



660,814



144,430Total


4,535,568



3,617,706



3,166,840   Operating leases
  Income Taxes
   76




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Comprehensive Income (Loss)
  Reclassifications
  Recent Accounting Pronouncements
  No. 123R-5, FAS 123R-1,
  No. 07-03, (EITF 07-03). EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-03
 77




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        No. 07-1, (EITF 07-1). EITF 07-1 EITF 07-1, EITF 07-1 EITF 07-1 EITF 07-1 EITF 07-1
 78




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2 
    Short-term
    Investments    Unrealized


Unrealized


RecordedDecember 31, 2006

Cost Basis


Gains


Losses


BasisType of security:U.S. Government and Agency Securities

$
20,373


$



$
(16
)

$
20,357Total

$
20,373


$



$
(16
)

$
20,357   Unrealized


Unrealized


RecordedDecember 31, 2007

Cost Basis


Gains


Losses


BasisType of security:U.S. Government and Agency Securities

$
11,697


$
17


$



$
11,714Total

$
11,697


$
17


$



$
11,714       Note 3 
    Property
    and Equipment    2006


2007Furniture and fixtures

$
1,701


$
1,804Machinery and equipment


10,342



12,371Computer equipment and software


3,846



5,191Leasehold improvements


7,492



7,72623,381



27,092Less accumulated depreciation and amortization


7,937



12,088Net property and equipment

$
15,444


$
15,004     Note 4 
    Establishment
    of MDRNA  and/or
 79




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 5 
    Employee
    Benefit Plan    Note 6 
    Letter of
    Credit    Note 7 
    Stockholders
    Equity  Preferred Stock
  Common Stock winding-up,
    Stockholder Rights Plan
 80




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Shelf Registration Statements Form S-3,
  Common Stock Offerings
    Stock Incentive Plans
 81




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Restricted Stock Awards
  Years Ended December 31,2005


2006


2007Unvested restricted shares outstanding, beginning of period


145,620



444,322



544,480Restricted shares issued


415,253



300,536



366,705Restricted shares forfeited


(29,620
)


(21,988
)


(88,698
)Restricted shares vested


(86,931
)


(178,390
)


(212,395
)Unvested restricted shares outstanding, end of period


444,322



544,480



610,092Weighted average grant date fair value per share

$
13.90


$
14.43


$
12.89    82




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock Options
  Years Ended December 31,2005


2006


2007Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


PriceOutstanding at beginning of period


2,760,752


$
11.36



2,688,199


$
12.92



2,412,412


$
13.18Granted


703,000



14.59



123,633



13.98



228,773



11.40Exercised


(660,842
)


8.25



(390,887
)


11.69



(134,167
)


9.59Expired


(65,846
)


15.13



(1,500
)


12.65



(90,867
)


11.76Terminated and canceled


(48,865
)


9.20



(7,033
)


11.05



(3,833
)


13.26Outstanding at end of period


2,688,199


$
12.92



2,412,412


$
13.18



2,412,318


$
13.26Exercisable at end of period


1,717,240


$
11.29



1,778,015


$
12.76



1,849,957


$
13.23     Options Outstanding


Options ExercisableWeighted-Average


Weighted-





Weighted-Remaining


Average





AverageNumber


Contractual Life


Exercise


Number


ExercisableRange of Exercise Prices

Outstanding


(Years)


Price


Exercisable


Price$ 3.86 - $11.60


510,412



4.4


$
9.10



393,912


$
9.07$12.30 - $12.94


806,000



4.3



12.94



806,000



12.94$13.16 - $13.92


223,773



7.3



13.40



135,500



13.56$14.72 - $15.95


772,133



7.5



14.79



414,545



14.80$25.00 - $25.00


100,000



4.3



25.00



100,000



25.00Totals


2,412,318



5.6


$
13.26



1,849,957


$
13.23Exerciseable at Dec. 31, 2007


1,849,957



4.8   Determining
    Fair Value Under SFAS 123R
  Valuation and Amortization Method.
  Expected Life.
 83




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Expected Volatility.
  Risk-Free Interest Rate.
  Expected Dividend Yield.
  Expected Forfeitures.
    2005


2006


2007Expected dividend yield


0
%


0
%


0
%Risk free interest rate


4.1
%


4.7
%


4.5
%Expected stock volatility


74
%


70
%


63
%Expected option life


6 years



5.7 years



5.8 yearsWeighted average fair value granted

$
10.29


$
9.05


$
6.97   Stock-based Compensation
  2005


2006


2007Research and development

$
519


$
2,106


$
2,993Sales and marketing


68



250



413General and administrative


1,313



2,627



2,841Total

$
1,900


$
4,983


$
6,247      84




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##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee Stock Purchase Plan No. 97-1,
  Warrants
  Note 8 
    Income
    Taxes    Years Ended December 31,2006


2007Deferred tax assets:Net operating loss carryforwards

$
44,019


$
63,320Federal and state tax credits


5,944



7,649Depreciation & amortization


2,981



3,523Deferred revenue


3,033



487Other


2,112



2,584Total deferred tax assets


58,089



77,563Valuation allowance


(58,089
)


(77,563
)Net deferred taxes

$



$
    85




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 9 
    Commitments
    and Contingencies  Leases
        Operating


Capital


Total2008

$
3,004


$
5,837


$
8,8412009


3,108



4,423



7,5312010


3,164



1,513



4,6772011


3,197



318



3,5152012


3,303







3,303Thereafter


11,020







11,020Less amount representing interest






(1,366
)


(1,366
)Total

$
26,796


$
10,725


$
37,521  86




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Contingencies
  Note 10 
    Contractual
    Agreements  Procter & Gamble
    (P&G)
  Galenea
      Amylin Pharmaceuticals, Inc.
     87




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Par Pharmaceutical
  ® ®
      ®
  Questcor/QOL Medical, LLC ® ® ® ® ® ® ®
   88




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ®
  ®
  Alnylam Pharmaceuticals, Inc.  tm
  Merck
  Government Grants
  Thiakis Limited
  Cytyc Corporation 
 89




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    City of Hope
  Feasibility Agreements
  Note 11 
    Restructuring   90




---



##### Table of Contents



NASTECH
    PHARMACEUTICAL COMPANY INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 12 
    Quarterly
    Financial Data (Unaudited) (in thousands, except per share
    data)  March 31,


June 30,


Sept 30,


Dec 31,


March 31,


June 30,


Sept 30,


Dec 31,2006


2006


2006


2006


2007


2007


2007


2007Total revenue

$
6,718


$
11,411


$
5,545


$
4,816


$
4,992


$
4,860


$
1,897


$
6,388Operating expenses


(15,386
)


(12,564
)


(13,943
)


(15,914
)


(17,218
)


(17,888
)


(18,864
)


(18,698
)Loss before cumulative effect of change in accounting principle


(8,138
)


(560
)


(7,808
)


(10,662
)


(11,540
)


(12,367
)


(16,450
)


(12,015
)Cumulative effect of change in accounting principle


291



























Net loss


(7,847
)


(560
)


(7,808
)


(10,662
)


(11,540
)


(12,367
)


(16,450
)


(12,015
)Loss per share  Basic and Diluted:Loss before cumulative effect of change in accounting principle

$
(0.39
)

$
(0.03
)

$
(0.36
)

$
(0.50
)

$
(0.47
)

$
(0.50
)

$
(0.66
)

$
(0.47
)Cumulative effect of change in accounting principle


.01



























Net loss per share  Basic and Diluted

$
(0.38
)

$
(0.03
)

$
(0.36
)

$
(0.50
)

$
(0.47
)

$
(0.50
)

$
(0.66
)

$
(0.47
)    91




---



##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    ITEM 9A.
    Controls
    and Procedures.  Disclosure Controls and
    Procedures. Form 10-K, Rules 13a-15(e) 15d-15(e)
  Internal Control over Financial
    Reporting.
  Management Report on Internal
    Control. Rules 13a-15(f) 15d-15(f)
        Internal Control  Integrated Framework
    Form 10-K.
 92




---



##### Table of Contents



ITEM 9B.
    Other
    Information.   PART III  ITEM 10.
    Directors,
    Executive Officers and Corporate Governance.    ITEM 11.
    Executive
    Compensation.    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    ITEM 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    ITEM 14.
    Principal
    Accounting Fees and Services.   PART IV  ITEM 15.
    Exhibits,
    Financial Statement Schedules.  Financial Statements and Financial Statement
    Schedule
  Form 10-K.
  Exhibits
   93




---



##### Table of Contents



SIGNATURES    NASTECH PHARMACEUTICAL COMPANY INC.
  By:
    /s/  Steven
    C. Quay, M.D., Ph.D.        Signature

Title/s/  Steven
    C. Quay, M.D., Ph.D.Steven
    C. Quay, M.D., Ph.D.

Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)/s/  Bruce
    R. YorkBruce
    R. York

Secretary and Chief Financial Officer (Principal Financial
    Officer and Principal Accounting Officer)/s/  Susan
    B. BayhSusan
    B. Bayh

Director/s/  Dr. Alexander
    D. CrossDr. Alexander
    D. Cross

Director/s/  Dr. Ian
    R. FerrierDr. Ian
    R. Ferrier

Director/s/  Myron
    Z. HolubiakMyron
    Z. Holubiak

Director/s/  Leslie
    D. MichelsonLeslie
    D. Michelson

Director/s/  John
    V. PollockJohn
    V. Pollock

Director/s/  Gerald
    T. StanewickGerald
    T. Stanewick

Director/s/  Bruce
    R. ThawBruce
    R. Thaw

Director/s/  Devin
    N. WenigDevin
    N. Wenig

Director  94




---



##### Table of Contents



EXHIBIT INDEX  ExhibitNo.

Description2
.1

Agreement and Plan of Reorganization, dated August 8, 2000,
    among Nastech, Atossa Acquisition Corporation, a Delaware
    corporation and our wholly-owned subsidiary, and Atossa
    HealthCare, Inc. (filed as Exhibit 2.1 to our Current
    Report on
    Form 8-K
    dated August 8, 2000, and incorporated herein by reference).2
.2

Asset Purchase Agreement, dated September 30, 2002, between
    Nastech and Schwarz Pharma, Inc. (filed as Exhibit 2.1 to
    our Current Report on
    Form 8-K
    dated September 30, 2002, and incorporated herein by
    reference).3
.1

Restated Certificate of Incorporation of Nastech 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 Nastech dated September 19,
    2007 (filed as Exhibit 3.1 to our Current Report on
    Form 8-K
    dated September 19, 2007, and incorporated herein by
    reference).3
.3

Certificate of Designation, Rights and Preferences of
    Series A Junior Participating Preferred Stock dated
    January 17, 2007 (filed as Exhibit 3.1 to our Current
    Report on
    Form 8-K
    dated January 19, 2007, and incorporated herein by
    reference).4
.1

Investment Agreement, dated as of February 1, 2002, by and
    between Nastech and Pharmacia & Upjohn Company (filed
    as Exhibit 4.1 to our Current Report on
    Form 8-K
    dated February 1, 2002, and incorporated herein by
    reference).4
.2

Rights Agreement, dated February 22, 2000, between Nastech
    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

Amendment No. 1 to Rights Agreement dated as of
    January 17, 2007 by and between Nastech and American Stock
    Transfer and Trust Company (filed as Exhibit 4.1 to
    our Current Report on
    Form 8-K
    dated January 19, 2007, and incorporated herein by
    reference).4
.4

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
.5

Form of Warrant (filed as Exhibit 99.3 to our 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 our 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 our
    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 our 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 our 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 our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005, and incorporated
    herein by reference).10
.6

Lease Agreement with Ditty Properties Limited Partnership for
    facilities at 3830 Monte Villa Parkway, Bothell, WA, effective
    as of March 1, 2006 (filed as Exhibit 10.1 to
    Amendment No. 1 to our Current Report on
    Form 8-K/A
    dated March 1, 2006 and filed on July 26, 2006, and
    incorporated herein by reference).(1) 95




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##### Table of Contents



ExhibitNo.

Description10
.7

First Amendment to Lease Agreement with Ditty Properties Limited
    Partnership for facilities at 3830 Monte Villa Parkway,
    Bothell, WA, effective as of July 17, 2006 (filed as
    Exhibit 10.7 to our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006, and incorporated
    herein by reference).10
.8

Amended and Restated Employment Agreement, dated May 2,
    2002, between Nastech and Dr. Steven C.
    Quay, M.D., Ph.D. (filed as Exhibit 10.27 to our
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2002, and incorporated
    herein by reference).10
.9

Employment Agreement dated June 3, 2005 by and between
    Nastech and Steven C. Quay, M.D., Ph.D. (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated June 3, 2005, and incorporated herein by reference).10
.10

Amended and Restated Employment Agreement dated
    December 16, 2005 by and between Nastech and Steven C.
    Quay, M.D., Ph.D. (filed as Exhibit 10.1 to our
    Current Report on
    Form 8-K
    dated December 16, 2005, and incorporated herein by
    reference).10
.11

Employment Agreement effective as of January 1, 2006 by and
    between Nastech and Philip C. Ranker (filed as Exhibit 10.1
    to our Current Report on
    Form 8-K
    dated January 1, 2006, and incorporated herein by
    reference).10
.12

Employment Agreement effective as of August 17, 2006 by and
    between Nastech and Dr. Gordon C. Brandt (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated August 17, 2006, and incorporated herein by
    reference).10
.13

Employment Agreement dated December 19, 2007 between
    Nastech and Dr. Gordon C. Brandt (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated December 19, 2007, and incorporated herein by
    reference).10
.14

Employment Agreement effective as of September 15, 2006 by
    and between Nastech and Timothy M. Duffy (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated September 15, 2006, and incorporated herein by
    reference).10
.15

Employment Agreement effective as of November 1, 2006 by
    and between Nastech and Dr. Paul H. Johnson (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated November 1, 2006, and incorporated herein by
    reference).10
.16

Employment Agreement effective as of March 7, 2008 by and
    between Nastech and Bruce R. York (filed as
    Exhibit 10.1 to our Current Report on Form 8-K dated
    March 10, 2008, and incorporated herein by reference).10
.17

Termination and Mutual Release Agreement, dated
    September 30, 2002, between Nastech and Schwarz Pharma,
    Inc. (Filed as Exhibit 10.3 to our Current Report on
    Form 8-K
    dated September 30, 2002, and incorporated herein by
    reference).10
.18

Divestiture Agreement, dated January 24, 2003, between
    Nastech and Pharmacia & Upjohn Company (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated January 24, 2003, and incorporated herein by
    reference).10
.19

Nastech Pharmaceutical Company Inc. 1990 Stock Option Plan
    (filed as Exhibit 4.2 to our Registration Statement on
    Form S-8,
    File
    No. 333-28785,
    and incorporated herein by reference).10
.20

Amended and Restated Nastech Pharmaceutical Company Inc. 2000
    Nonqualified Stock Option Plan (filed as Exhibit 4.4 to our
    Registration Statement on
    Form S-8,
    File
    No. 333-49514,
    and incorporated herein by reference).10
.21

Amendment No. 1 to the Amended and Restated Nastech 2000
    Nonqualified Stock Option Plan (filed as Exhibit 10.18 to
    our Annual Report on
    Form 10-K
    for the year ended December 31, 2005, and incorporated
    herein by reference).10
.22

Amendment No. 2 to the Amended and Restated Nastech
    Pharmaceutical Company Inc. 2000 Nonqualified Stock Option Plan
    (filed as Exhibit 10.19 to our Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006, and incorporated
    herein by reference).10
.23

Nastech Pharmaceutical Company Inc. 2002 Stock Option Plan
    (filed as Exhibit 10.28 to our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002, and incorporated
    herein by reference). 96




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##### Table of Contents



ExhibitNo.

Description10
.24

Amendment No. 1 to the Nastech Pharmaceutical Company Inc.
    2002 Stock Option Plan (filed as Exhibit 10.20 to our
    Annual Report on
    Form 10-K
    for the year ended December 31, 2006, and incorporated
    herein by reference).10
.25

Nastech Pharmaceutical Company Inc. 2004 Stock Incentive Plan
    (filed as Exhibit 99 to our Registration Statement on
    Form S-8,
    File
    No. 333-118206,
    and incorporated herein by reference).10
.26

Amendment No. 1 to the Nastech Pharmaceutical Company Inc.
    2004 Stock Incentive Plan (filed as Exhibit 10.4 to our
    Current Report on
    Form 8-K
    dated July 20, 2005, and incorporated herein by reference).10
.27

Amendment No. 2 to the Nastech Pharmaceutical Company Inc.
    2004 Stock Incentive Plan (filed as Exhibit 10.18 to our
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005, and incorporated
    herein by reference).10
.28

Amendment No. 3 to the Nastech Pharmaceutical Company Inc.
    2004 Stock Incentive Plan (filed as Exhibit 10.24 to our
    Annual Report on
    Form 10-K
    for the year ended December 31, 2005, and incorporated
    herein by reference).10
.29

Amendment No. 4 to the Nastech Pharmaceutical Company Inc.
    2004 Stock Incentive Plan (filed as Exhibit 10.5 to our
    Registration Statement on
    Form S-8,
    File No
    333-135724,
    and incorporated herein by reference).10
.30

Amendment No. 5 to the Nastech Pharmaceutical Company Inc.
    2004 Stock Incentive Plan (filed as Exhibit 10.27 to our
    Quarterly Report on
    Form 10-K
    for the quarter ended September 30, 2006, and incorporated
    herein by reference).10
.31

Asset Purchase Agreement dated June 16, 2003, by and
    between Nastech and Questcor Pharmaceuticals, Inc. (filed as
    Exhibit 2.1 to our Current Report on
    Form 8-K
    dated June 17, 2003, and incorporated herein by reference).10
.32

Form of Purchase Agreement (filed as Exhibit 99.2 to our
    Current Report on
    Form 8-K
    dated September 4, 2003, and incorporated herein by
    reference).10
.33

Form of Warrant (filed as Exhibit 99.3 to our Current
    Report on
    Form 8-K
    dated September 4, 2003, and incorporated herein by
    reference).10
.34

Revolving Line of Credit Agreement with Wells Fargo Bank, dated
    December 19, 2003 (filed as Exhibit 10.20 to our
    Annual Report on
    Form 10-K
    for the year ended December 31, 2003, and incorporated
    herein by reference).10
.35

Addendum to Promissory Note with Wells Fargo Bank, dated
    January 20, 2004 (filed as Exhibit 10.21 to our Annual
    Report on
    Form 10-K
    for the year ended December 31, 2003, and incorporated
    herein by reference).10
.36

Security Agreement: Securities Account with Wells Fargo Bank,
    dated December 19, 2003 (filed as Exhibit 10.22 to our
    Annual Report on
    Form 10-K
    for the year ended December 31, 2003, and incorporated
    herein by reference).10
.37

Addendum to Security Agreement: Securities Account with Wells
    Fargo Bank, dated December 19, 2003 (filed as
    Exhibit 10.23 to our Annual Report on
    Form 10-K
    for the year ended December 31, 2003, and incorporated
    herein by reference).10
.38

Revolving Line of Credit Agreement with Wells Fargo Bank, dated
    October 20, 2004 (filed as Exhibit 10.29 to our
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2004, and incorporated
    herein by reference).10
.39

License and Supply Agreement by and between
    Par Pharmaceutical Companies, Inc. and Nastech effective as
    of October 22, 2004 (filed as Exhibit 10.1 to our
    Current Report on
    Form 8-K
    dated October 22, 2004, and incorporated herein by
    reference).(1)10
.40

Agreement dated as of September 23, 2005 by and between
    Nastech and QOL Medical, LLC (filed as Exhibit 10.1 to our
    Current Report on
    Form 8-K/A
    dated October 17, 2005 and filed on July 26, 2006, and
    incorporated herein by reference).(1)10
.41

Product Development and License Agreement by and between Nastech
    and Procter & Gamble Pharmaceuticals, Inc. dated
    January 27, 2006 (filed as Exhibit 10.1 to our Current
    Report on
    Form 8-K
    dated January 27, 2006, and incorporated herein by
    reference).(1) 97




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##### Table of Contents



ExhibitNo.

Description10
.42

Supply Agreement by and between Nastech and Procter &
    Gamble Pharmaceutical, Inc. dated June 2, 2006 (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated June 2, 2006, and incorporated herein by
    reference).(1)10
.43

First Amendment dated as of December 4, 2006 to Product
    Development and License Agreement by and between Nastech and
    Procter & Gamble Pharmaceuticals, Inc. (filed as
    Exhibit 10.46 to our Annual Report on
    Form 10-K
    for the year ended December 31, 2006, and incorporated
    herein by reference.(1)10
.44

Development and License Agreement by and between Nastech and
    Amylin Pharmaceuticals, Inc. dated June 23, 2006 (filed as
    Exhibit 10.66 to our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006, and incorporated
    herein by reference).(1)10
.45

Form of Restricted Stock Grant Agreement (filed as
    Exhibit 10.1 to our Current Report on
    Form 8-K
    dated February 6, 2007, and incorporated herein by
    reference).10
.46

Form of Stock Option Agreement (filed as Exhibit 10.2 to
    our Current Report on
    Form 8-K
    dated February 6, 2007, and incorporated herein by
    reference).10
.47

Form of Omnibus Amendment to Certain Grant Agreements, dated
    May 4, 2007 (filed as Exhibit 10.42 to our Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2007, and incorporated
    herein by reference.10
.48

Nastech Pharmaceutical Company Inc. 2007 Employee Stock Purchase
    Plan (filed as Exhibit 10.1 to our Registration Statement
    on
    Form S-8,
    File
    No. 333-146183,
    and incorporated herein by reference).23
.1

Consent of KPMG LLP, independent registered public accounting
    firm.(2)31
.1

Certification of our Chairman of the Board 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 our 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 our Chairman of the Board 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 our 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. 98