<PAGE>


                                                                    Exhibit 10.1

                                                                  EXECUTION COPY


                              DIVESTITURE AGREEMENT

                          dated as of January 24, 2003

                                     between

                           PHARMACIA & UPJOHN COMPANY

                                       and

                      NASTECH PHARMACEUTICAL COMPANY, INC.

[*] designates portion of this document that has been omitted pursuant to a
request for confidential treatment filed separately with the Securities and
Exchange Commission.
<PAGE>
                              DIVESTITURE AGREEMENT

This DIVESTITURE AGREEMENT is dated as of January 24, 2003 (this "Agreement")
between Pharmacia & Upjohn Company, a Delaware corporation ("Pharmacia"), and
Nastech Pharmaceutical Company, Inc., a Delaware corporation ("Nastech").

      WHEREAS, Pharmacia and Nastech are parties to that certain Collaboration
and License Agreement dated as of February 1, 2002 (the "Collaboration and
License Agreement"), pursuant to which they have engaged in a licensing and
collaboration arrangement regarding the development and commercialization of
certain Collaboration Products containing Apomorphine delivered Intranasally for
the prevention, treatment, diagnosis or control of sexual dysfunction in humans,
including male erectile dysfunction and female sexual dysfunction;

      WHEREAS, Pharmacia and Nastech have, at the same time as the Collaboration
and License Agreement, also entered into the Supply Agreement, pursuant to which
Nastech agreed to manufacture and supply, and Pharmacia agreed to purchase from
Nastech, Collaboration Products in finished packaged form;

      WHEREAS, certain development activities have been, and are currently
being, conducted by each of the Parties pursuant to the Collaboration and
License Agreement for purposes of the development and commercialization of the
Collaboration Products;

      WHEREAS, Pfizer Inc. ("Pfizer"), Pilsner Acquisition Sub Corp. and
Pharmacia Corporation (the "Parent") have entered into that certain Agreement
and Plan of Merger dated as of July 13, 2002 (as amended, the "Merger
Agreement");

      WHEREAS, Pharmacia is a wholly owned subsidiary of the Parent;

      WHEREAS, the United States Federal Trade Commission has determined that
the Current Collaboration Product containing Intranasally-delivered Apomorphine
is directly competitive with Pfizer's product Viagra (sildenafil citrate) for
the treatment of erectile dysfunction, and that future uses and derivative
products of the Current Collaboration Product are likely to be directly
competitive with derivative uses and products of Viagra for the treatment of
sexual dysfunction in humans (including without limitation erectile dysfunction
and female sexual dysfunction);

      WHEREAS, the United States Federal Trade Commission has, therefore,
required that the Parent divest, among other specified assets, Pharmacia's and
its Affiliates' rights and licenses with respect to the Current Collaboration
Product and all other Nastech products containing Intranasally-delivered
Apomorphine; and

      WHEREAS, Pharmacia has elected to fulfill such divestiture requirement by
entering into this Agreement, and the Parties hereto are entering into this
Agreement in order to set forth their respective rights and obligations with
respect to such divestiture pursuant to the terms hereof, by which, among other
things:


                                       1
<PAGE>
            (a) the Collaboration and License Agreement and Supply Agreement
will each be terminated;

            (b) all foreign and domestic regulatory filings and Regulatory
Approvals, including all INDs, if any, with respect to Collaboration Product,
will be transferred to Nastech; and

            (c) Nastech will have an exclusive (even as to Pharmacia, Pfizer and
their respective Affiliates), fully paid-up, royalty-free, worldwide,
irrevocable license (including the right to sublicense):

                  (i) under the Pharmacia Know-How and Pharmacia Patents
existing as of the time immediately prior to the closing of the contemplated
Pharmacia-Pfizer merger, to Develop, make, have made, use, import, export, offer
for sale and sell for the prevention, treatment, diagnosis or control of male or
female sexual dysfunction in humans the Current Collaboration Product; and

                  (ii) under any Pharmacia Patent claiming any inventions or
discoveries conceived or reduced to practice by Nastech or Pharmacia (or one or
more of their respective employees, agents or consultants) in the Development of
an Intranasally-delivered Apomorphine product pursuant to the Collaboration and
License Agreement, to research, Develop, make, have made, use, import, export,
offer for sale and sell Intranasally-delivered Apomorphine products for the
prevention, treatment, diagnosis or control of sexual dysfunction in humans
(including male erectile dysfunction and female sexual dysfunction).

all as further described, and subject to the terms and conditions set forth, in
this Agreement

         NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereto hereby
agree as follows:

                                   ARTICLE 1

                            DEFINITIONS; CONSTRUCTION

      1.1 Definitions. The following terms, when used in this Agreement, shall
have the respective meanings ascribed to them below.

            "Affiliate" means any corporation, company, partnership, joint
venture or firm which controls, is controlled by or is under common control with
a specified person or entity. For purposes of this definition, "control" shall
be presumed to exist if one of the following conditions is met: (a) in the case
of corporate entities, direct or indirect ownership of at least 50% of the stock
or shares having the right to vote for the election


                                       2
<PAGE>
of directors; and (b) in the case of non-corporate entities, direct or indirect
ownership of at least 50% of the equity interest with the power to direct the
management and policies of such non-corporate entities. For the purpose of
clarity, upon and after the Closing, Pharmacia's Affiliates shall include Pfizer
and its Affiliates.

            "Agreement" has the meaning set forth in the preamble hereto.

            "Apomorphine" means the compound designated by the IUPAC name
(R)-5,6,6a,7-Tetrahydro-6-methyl-4H-dibenzo[de,g]quinoline-10,11-diol depicted
by the chemical structure set forth in Schedule 1.1, together with any salts,
esters, metabolites, isomers, hydrates, solvates, ethers, quaternary amines,
polymorphs and prodrugs thereof.

            "Business Day" means any day other than Saturday, Sunday or any day
on which banks in New York, New York are required or authorized to be closed.

            "Closing" means the closing of the Merger.

            "Collaboration and License Agreement" means that certain
Collaboration and License Agreement dated as of February 1, 2002 between
Pharmacia and Nastech.

            "Collaboration Product" means a Licensed Product that is Developed
or Commercialized in the Field pursuant to the terms of the Collaboration and
License Agreement.

            "Commercialization" means any and all activities directed to
marketing, promoting, distributing, offering for sale and selling a product,
importing a product for sale, conducting Phase IIIB Studies and Phase IV
Studies, manufacturing for commercial sale, and interacting with Regulatory
Authorities regarding the foregoing, and "Commercialize" means to engage in
Commercialization.

            "Confidential Information" means all proprietary materials, know-how
or other information (whether or not patentable) regarding Pharmacia's or
Nastech's technology, products, business information or objectives relating to
the Licensed Product. Disclosures of Confidential Information can be made by
written, graphic, oral, electronic or in any other form. The terms of this
Agreement shall be considered Confidential Information of the Parties hereto.

            "Consent Decree" means the Consent Agreement and the Decision and
Order issued by the FTC with respect to the Merger.

            "Control" or "Controlled" means with respect to any (a) material,
item of information, method, data or other know-how, or (b) intellectual
property right, in each case the possession (whether by ownership or license,
other than pursuant to the Collaboration and License Agreement) by a Party
hereto or its Affiliates of the ability to grant to the other Party hereto
access or a license as provided herein under such item or right without
violating the terms of any agreement or other arrangement with any Third Party,
whether existing as of or after the Execution Date.


                                       3
<PAGE>
            "CRO" has the meaning set forth in Section 3.1.

            "CRO Agreement" has the meaning set forth in Section 3.2.

            "Current Collaboration Product" means the specific formulations of
the Collaboration Product that have been the subject of the clinical trials
conducted by Nastech prior to the Execution Date (0.25, 0.5, 0.75, 1.0, 1.25 and
1.5 mg/spray versions), all as more particularly described in Schedule 1.2
attached hereto, as well as any other formulations of the Licensed Product which
differ from the foregoing specific formulations only with respect to the
quantity or concentration of active ingredient contained therein or the quantity
or concentration of any of the excipients (e.g., buffering agents, preservatives
or other inactive ingredients) contained in such specific formulations;
provided, however, that any Licensed Product which includes different excipients
or active ingredients from those contained in the current formulations or which
utilizes any proprietary Pharmacia drug delivery or formulation technology that
has not been applied to the Collaboration Product as of the Execution Date shall
not be considered the "Current Collaboration Product".

            "Development" means preclinical and clinical drug development
activities, including test method development and stability testing, toxicology,
formulation, process development, manufacturing scale-up, development-stage
manufacturing, quality assurance/quality control development, statistical
analysis and report writing, conducting clinical trials for the purpose of
obtaining Regulatory Approval, product approval and registration, and regulatory
affairs related to the foregoing, and "Develop" means to engage in Development.
For the purpose of clarity, "Development" does not include Phase IIIB Studies or
Phase IV Studies.

            "Divestiture Payment" has the meaning set forth in Section 4.1.

            "Due Diligence Report" has the meaning set forth in Section 7.1.

            "Execution Date" means January 24, 2003.

            "Exercise Price" has the meaning set forth in Section 8.4(b)

            "FDA" means the United States Food and Drug Administration, or a
successor agency thereto.

            "Field" means the prevention, treatment, diagnosis or control of
sexual dysfunction in humans, including without limitation male erectile
dysfunction and female sexual dysfunction.

            "FTC" means the United States Federal Trade Commission, or a
successor agency thereto.

            "Global Development Plan" means the plan prepared pursuant to
section 4.3 of the Collaboration and License Agreement.


                                       4
<PAGE>
            "IND" means (a)(i) an Investigational New Drug Application, as
defined in the U.S. Federal Food, Drug, and Cosmetic Act, as amended from time
to time, and the regulations promulgated thereunder, that is required to be
filed with the FDA before beginning clinical testing of a Collaboration Product
in human subjects, or any successor application or procedure, and (ii) any
counterpart of a U.S. Investigational New Drug Application in any other country
in the world, and (b) all supplements and amendments that may be filed with
respect to the foregoing.

            "Intranasal" and "Intranasally" means delivery of a pharmaceutical
product to the body by means of direct administration through the nostrils
resulting in contact of the pharmaceutical product with the nasal mucosa or
other aspects of the nasal cavity.

            "Joint Know-How" means confidential information and materials,
including (a) pharmaceutical and chemical products, (b) technical and
non-technical data, and information relating to the results of tests, assays,
methods or processes, and (c) drawings, plans, diagrams, specifications or other
documents containing such information and data, in each case which is made
jointly by employees, consultants or agents of Nastech or its Affiliates and by
employees, consultants or agents of Pharmacia or its Affiliates following
February 1, 2002 and in the course of Development or Commercialization of
Collaboration Product, but excluding the Joint Patents.

            "Joint Patents" means all Patent Rights that claim Program
Inventions and name as inventors one or more employees, consultants or agents of
Nastech or its Affiliates together with one or more employees, consultants or
agents of Pharmacia or its Affiliates.

            "Licensed Product" means any product that contains Apomorphine and
that is delivered Intranasally.

            "Market Research Report" has the meaning set forth in Section
7.3(d).

            "Merger" means the merger contemplated by the Merger Agreement.

            "Merger Agreement" has the meaning set forth in the recitals hereto.

            "Milestone Event" has the meaning set forth in section 8.3(b) of the
Collaboration and License Agreement.

            "Nastech" has the meaning set forth in the preamble hereto.

            "Nastech Development Activities" means all of Nastech's Development
activities required to manufacture the Collaboration Product, including test
method development and stability testing, formulation, process development,
manufacturing scale-up, development stage manufacturing, and quality
assurance/quality control development, in each case in accordance with the
Global Development Plan.

            "Nastech Licenses" has the meaning set forth in Section 5.1.


                                       5
<PAGE>
            "Nastech Patents" means all Patent Rights which are Controlled by
Nastech or its Affiliates at any time during the period commencing with the
Execution Date and ending as of the time immediately prior to Closing, and all
patent applications filed after the Closing that claim any inventions that were
conceived prior to the Closing and the rights to which are Controlled by Nastech
or its Affiliates at any time during such period (as such Affiliates exist
immediately prior to the Closing), that contain claims which would be infringed
by the manufacture, use, importation, offer for sale or sale of Licensed
Product, or any component thereof, in the Field. The Nastech Patents as of the
Execution Date are listed in Schedule 1.2.

            "Nastech Releasees" means (a) Nastech and its Affiliates; (b)
Nastech's and its Affiliates' respective licensees, sublicensees, manufacturers,
suppliers, distributors and customers; (c) the respective officers, directors,
shareholders, partners, principals, trustees, members, managers, agents,
employees, attorneys and accountants of the foregoing Nastech Releasees
identified in clauses (a) or (b) (in such capacity only); and (d) the respective
predecessors, successors, heirs, representatives, executors, administrators and
assigns of the foregoing Nastech Releasees identified in clauses (a), (b) or (c)
(in such capacity only).

            "Option Period" has the meaning set forth in Section 8.4(b).

            "Parent" has the meaning set forth in the recitals hereto.

            "Party" means Pharmacia or Nastech as required by the context;
"Parties" means Pharmacia and Nastech.

            "Patent Rights" means all patents and patent applications, including
any continuations, continuations-in-part, divisions, provisionals or any
substitute applications, any patent issued with respect to any such patent
applications, any reissue, reexamination, renewal or extension (including any
supplementary protection certificate) of any such patent, and any confirmation
patent or registration patent or patent of addition based on any such patent,
and all foreign counterparts of any of the foregoing.

            "Person" means any person, organization or entity, whether natural,
legal or other, including any individual, corporation, partnership, limited
liability company, joint venture, estate, trust, unincorporated association or
governmental entity.

            "Pfizer" has the meaning set forth in the recitals hereto.

            "Pharmacia" has the meaning set forth in the preamble hereto.

            "Pharmacia Know-How" means confidential information and materials
Controlled by Pharmacia or its Affiliates at any time during the period
commencing with the Execution Date and ending as of the time immediately prior
to the Closing, to the extent such is useful or necessary for the manufacture,
testing, use or sale of a Licensed Product in the Field, or any component
thereof, including but not limited to (a) pharmaceutical or chemical products,
(b) technical and non-technical data, and information relating to the results of
tests, assays, methods and processes, and (c)


                                       6
<PAGE>
drawings, plans, diagrams, specifications and other documents containing said
information and data. The "Pharmacia Know-How" shall include the Joint Know-How
to the extent Controlled by Pharmacia. For clarity, for purposes of this
definition of "Pharmacia Know-How", neither Pfizer nor any of its Affiliates (as
they were constituted immediately prior to the Closing) shall be considered
Affiliates of Pharmacia.

            "Pharmacia Patents" means all Patent Rights which are Controlled by
Pharmacia or its Affiliates at any time during the period commencing with the
Execution Date and ending as of the time immediately prior to Closing, and all
patent applications filed after the Closing that claim any inventions that were
conceived prior to Closing and the rights to which are Controlled by Pharmacia
or its Affiliates at any time during such period (as such Affiliates exist
immediately prior to the Closing), that would be infringed by the manufacture,
use, importation, offer for sale or sale of Licensed Product, or any component
thereof, in the Field in the absence of this Agreement, but excluding the
Nastech Patents. Pharmacia Patents shall include the Joint Patents to the extent
Controlled by Pharmacia. For clarity, for purposes of this definition of
"Pharmacia Patents", neither Pfizer nor any of its Affiliates (as they were
constituted immediately prior to the Closing) shall be considered Affiliates of
Pharmacia.

            "Pharmacia Technology" means the Pharmacia Know-How and the
Pharmacia Patents. For the purpose of clarity, the Pharmacia Technology shall
include the Joint Know-How, Joint Patents and Program Inventions, in each case
to the extent Controlled by Pharmacia.

            "Phase IIIB Study" means a clinical trial intended to enhance the
commercial profile of a product for a non-approved indication and not required
or pivotal for Regulatory Approval for the initial indication.

            "Phase IV Study" means clinical, preclinical, epidemiological
modeling, and pharmacoeconomic studies that are designed to support marketing,
publications or future labeling changes within an approved indication.

            "Program Inventions" means all patentable inventions and discoveries
that are conceived or reduced to practice by one or more employees, agents or
consultants of Nastech or one or more employees, agents or consultants of
Pharmacia under the Collaboration and License Agreement in the course of
performing the Development of a Collaboration Product.

            "Registration Rights Agreement" has the meaning set forth in Section
8.4(b).

            "Regulatory Approval" means any and all approvals, licenses,
registrations or authorizations of any federal, national, multinational, state,
provincial or local regulatory agency, department, bureau or other governmental
entity necessary for the manufacture, use, storage, import, export, transport,
promotion, marketing and sale of a product in a country, together with any
governmental price or reimbursement approvals.

            "Regulatory Authority" means any governmental regulatory authority


                                       7
<PAGE>
involved in granting Regulatory Approvals of any Collaboration Product,
including the FDA and European Commission.

            "Shares" has the meaning set forth in Section 8.4.

            "Special Account" has the meaning set forth in Section 4.4(a).

            "Supply Agreement" means that certain Supply Agreement dated as of
February 1, 2002 between Pharmacia and Nastech.

            "Third Party" means any person or entity other than Pharmacia,
Nastech or any of their respective Affiliates.

            "Third Party Patent Rights" means all Patent Rights owned or
controlled by a Third Party that contain claims which would be infringed by the
manufacture, use, importation, offer for sale or sale of Licensed Product, or
any component thereof, in the Field.

            "Validation Activities" has the meaning set forth in Section 3.1.

      1.2 Construction. For purposes of this Agreement, except as otherwise
expressly provided herein or unless the context otherwise requires: (a) words
using the singular or plural number also include the plural or singular number,
respectively, and the use of any gender herein shall be deemed to include the
other genders; (b) references herein to "Articles," "Sections," "subsections"
and other subdivisions are to the specified Articles, Sections, subsections and
other subdivisions of this Agreement; (c) references herein to Schedules and
other attachments without reference to a document are to Schedules and other
attachments to this Agreement, which are hereby incorporated and made a part
hereof; (d) a reference to a subsection without further reference to a Section
is a reference to such subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to other subdivisions within a
Section or subsection; (e) the words "herein," "hereof," "hereunder," "hereby"
and other words of similar import refer to this Agreement as a whole and not to
any particular provision; (f) the words "include," "includes" and "including"
are deemed to be followed by the phrase "without limitation"; (g) references to
agreements and contracts shall include any amendments and supplements thereto;
(h) references to "law" and "laws" are to all governmental, judicial and
arbitral laws, codes, treaties, conventions, ordinances, rules, regulations,
judgments, awards, orders and directives (whether domestic, foreign, national,
federal, state, local or other), and to any successor laws, and references to
particular provisions of a law include any corresponding provisions of any
succeeding law; (i) Article, Section, Paragraph and other captions and headings
are used for convenience of reference only and shall in no way be construed in
any manner to define or modify any of the provisions of this Agreement; and (j)
the word "or" is used in the inclusive sense "and/or." This Agreement has been
prepared jointly and shall not be strictly construed against either Party.


                                       8
<PAGE>
                                   ARTICLE 2

                         REPRESENTATIONS AND WARRANTIES

      2.1 Representation and Warranties of Nastech and Pharmacia. Nastech and
Pharmacia each represent and warrant to the other Party as follows:

            (a) Authority and Consents. As of the Execution Date (i) it has full
right, power and authority to enter into this Agreement, (ii) this Agreement has
been duly executed by such Party, (iii) so far as it is aware (not having taken
legal advice in jurisdictions other than the USA) (A) this Agreement constitutes
a legal, valid and binding obligation of such Party, enforceable in accordance
with its terms, subject to all limitations of bankruptcy, liquidation,
reorganization, insolvency, moratorium and enforcement of creditors' rights
generally, general principles of equity (including those relating to specific
performance, injunctions and other remedies) and public policy constraints
(including those pertaining to limitations or exclusions of liability,
competition law, penalties and jurisdictional issues including conflicts of
laws), and (B) subject to the provisions of Section 11.14, all necessary
consents, approvals and authorizations of all government authorities and other
persons and entities required to be obtained by such Party in connection with
the execution, delivery and performance of this Agreement have been and shall be
obtained.

            (b) No Conflict. As of the Execution Date and the time of Closing,
notwithstanding anything to the contrary in this Agreement, the execution and
delivery of this Agreement and the performance of such Party's obligations
hereunder (i) do not and will not conflict with or violate such Party's
corporate charter and bylaws or any requirement of applicable laws or
regulations and (ii) do not and will not conflict with, violate or breach or
constitute a default under, any contractual obligation of such Party except
where such conflict, violation, breach or default will not materially affect the
ability of such Party to execute and deliver this Agreement and perform its
obligations hereunder.

            (c) Knowledge of Pending or Threatened Litigation. As of the
Execution Date there is no claim, investigation, suit, action or proceeding
pending against it and of which it has received written notice or, to the
knowledge of such Party, threatened against it before or by any governmental
entity or arbitrator that, individually or in the aggregate, could reasonably be
expected to materially impair the ability of such Party to perform any
obligation under this Agreement; provided that the foregoing representation and
warranty does not apply to (i) interference proceedings before the United States
Patent and Trademark Office, opposition proceedings before the European Patent
Office or any similar or analogous proceeding before any similar competent
authority responsible for issuing patents (and including appeals from the same),
or (ii) any investigation or proceeding by or before any government agency or
other regulatory authority responsible for enforcing competition laws in any
jurisdiction, including the FTC or the European Commission.


                                       9
<PAGE>
      2.2 Representations and Warranties of Pharmacia. Pharmacia represents and
warrants to Nastech as follows:

            (a) Infringement. As of the Execution Date (i) there are no
Pharmacia Patents, and (ii) to the best of Pharmacia's actual knowledge, there
are no Third Party Patent Rights, in each case that would be infringed by the
use, importation, offer for sale or sale of the Current Collaboration Product in
the Field, or the manufacture of the Current Collaboration Product in the manner
in which such product is currently being manufactured. Upon or promptly after
the Closing, Pharmacia shall execute and deliver to Nastech a written amendment
of this Agreement updating and, if necessary, modifying the foregoing
representations and warranties of this Section 2.2(a) so as to make them
effective as of the time of the Closing. It is understood that the
representations and warranties provided by Pharmacia pursuant to the provisions
of Section 2.2(a)(ii) shall not imply any obligation on the part of Pharmacia to
have conducted any specific level of investigation.

            (b) Grants of License. As of the Execution Date and thereafter
Pharmacia has not granted and will not grant to any Third Party any sublicense
or similar rights under the Licenses (as such term is defined in the
Collaboration and License Agreement).

            (c) Third Party Royalty Obligations. As of the Execution Date, the
Nastech Licenses do not and will not include any intellectual property of any
Third Parties that would give rise to any obligation to pay any royalties, fees
or other consideration to any Third Parties in respect of such Nastech Licenses
that are related to the Current Collaboration Product; provided, however, that
with respect to Pharmacia Patents included in the Nastech Licenses, the
foregoing representation and warranty shall apply only to patents that have been
granted, and patent applications that have actually been filed, as of the
Execution Date and provided further that no representation and warranty is made
by Pharmacia pursuant to this Section 2.2(c) with respect to any Licensed
Product other than the Current Collaboration Product. Upon or promptly after the
Closing, Pharmacia shall execute and deliver to Nastech a written amendment of
this Agreement updating and, if necessary, modifying the foregoing
representations and warranties of this Section 2.2(c) so as to make them
effective as of the time of the Closing.

It is understood by the Parties that except as expressly set forth in Section
5.8(b), Pharmacia shall have no liability to Nastech for the breach or
inaccuracy of any representation or warranty set forth in this Section 2.2
except to the extent that Pharmacia had actual knowledge that such
representation and warranty was inaccurate at the time the representation and
warranty was made.

      2.3 Disclaimers.

            (a) Except as expressly set forth in this Article 2, Pharmacia has
not made, and nothing in this Agreement shall be construed as, a warranty or
representation (i) that any Licensed Product made, used, sold or otherwise
disposed of is


                                       10
<PAGE>
or shall be free from infringement of patents, copyrights, trademarks,
industrial design or other intellectual property rights of any Third Party, (ii)
regarding the effectiveness, value, prospects for success (whether financial,
regulatory or otherwise), safety, non toxicity, patentability, or
non-infringement of any patented technology, Licensed Product, or any
information or results provided, or rights granted, by Pharmacia pursuant to
this Agreement, or (iii) regarding the accuracy or completeness of any data,
information or materials provided to Nastech pursuant to this Agreement. Nastech
explicitly accepts all of the same as experimental and for development purposes,
and without any express or implied warranty from Pharmacia. EXCEPT AS EXPRESSLY
SET FORTH IN THIS ARTICLE 2, PHARMACIA EXPRESSLY DISCLAIMS, WAIVES, RELEASES,
AND RENOUNCES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED
EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, WHETHER WRITTEN
OR ORAL, OR ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
TRADE, INCLUDING ANY REPRESENTATION OR WARRANTY WITH RESPECT TO NONINFRINGEMENT,
VALUE, ADEQUACY, FREEDOM FROM FAULT, QUALITY, EFFICIENCY, SUITABILITY,
CHARACTERISTICS OR USEFULNESS, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.

            (b) Except as expressly set forth in Section 8.2, nothing in this
Agreement shall be construed as requiring Pharmacia to file any patent
application, secure any patent or maintain any patent in force.

                                   ARTICLE 3

                   TRANSITION OF DEVELOPMENT RESPONSIBILITIES

      3.1 The CRO. As soon as practicable following the execution and delivery
of this Agreement, the Parties hereto shall contract with a contract research
organization mutually acceptable to Pharmacia and Nastech (the "CRO") to conduct
the [*] described in Schedule 3.1. Pharmacia shall use Commercially Reasonable
and Diligent Efforts (as such term is defined in the Collaboration and License
Agreement) to initiate such studies in accordance with Pharmacia's current
Development timelines as set forth in Schedule 3.1 (subject to the Parties'
negotiation and execution of the CRO Agreement (defined below) on a timely basis
in accordance with the provisions of Section 3.2). As part of such efforts,
Pharmacia shall endeavor to supplement data supporting the quantitative and
qualitative aspects of the assays for active ingredient in the Current
Collaboration Product, degradation products and key excipients of the Current
Collaboration Product, generate additional data with these methods to allow
specifications to be established for release of clinical supplies and monitor
supplies on stability (collectively, the "Validation Activities").

      3.2 The CRO Agreement. Pharmacia and Nastech shall negotiate in good faith
with each other and the CRO to enter into a mutually acceptable written
agreement governing the arrangement described in Section 3.1 (the "CRO
Agreement"), including

[*] Confidential material omitted and filed separately with the Commission.


                                       11
<PAGE>
all discount, payment and other favorable terms available to Pharmacia, if any,
by virtue of its preferred provider status with the CRO. The terms of the CRO
Agreement shall include the following:

            (a) The CRO shall be required to commence performance of its
responsibilities under the CRO Agreement within the timelines set forth in the
current Global Development Plan (subject to successful completion of the
Validation Activities).

            (b) Until the termination of the Collaboration and License Agreement
pursuant to Section 9.1(b), Pharmacia shall supervise the activities of the CRO,
but, during this period, as between the Parties, the CRO shall in no event be
deemed an agent or subcontractor of Nastech or Pharmacia. With respect to the
period following such termination of the Collaboration and License Agreement,
the CRO shall in no event be deemed an agent or subcontractor of Pharmacia.

            (c) Notwithstanding the rights of Pharmacia described in Section
3.2(b), Nastech shall have the right to participate in all meetings and
significant discussions with the CRO.

            (d) Pharmacia and Nastech shall keep each other fully informed as to
the progress and activity of the CRO and shall promptly respond to all
reasonable inquiries by the other in such respect.

            (e) Immediately and automatically upon the Closing, (i) Nastech
shall succeed to and assume, solely and exclusively, all rights and obligations
of Pharmacia under the CRO Agreement, including the right to supervise the CRO,
(ii) the rights and obligations of Pharmacia pursuant to the CRO Agreement
shall, terminate, and (iii) Pharmacia shall be released from all liabilities and
obligations under or in connection with such agreement regarding (x) all
payments due under the CRO Agreement, whether accruing prior to or following the
Closing, and (y) of any type arising after the Closing, in each case without any
action by any Person.

            (f) In the event that this Agreement is terminated pursuant to
Section 10.1, the rights and obligations of Nastech pursuant to the CRO
Agreement shall, without any action by any Person, terminate immediately.

            3.3 Transition Planning. Prior to the Execution Date,
representatives of Pharmacia and Nastech have met to outline the major
activities that are necessary to transition responsibility for Development of
the Current Collaboration Product from Pharmacia to Nastech following the
Closing. Such activities, and the approximate timelines associated therewith,
are outlined in Schedule 3.3.


                                       12


<PAGE>

                                    ARTICLE 4

                                CERTAIN PAYMENTS

      4.1 Divestiture Payment. Within three (3) Business Days following the
execution and delivery of this Agreement, Pharmacia shall pay to Nastech the
amount of $6,000,000 by wire transfer of immediately available funds (the
"Divestiture Payment") to the account set forth in Schedule 4.1. The Divestiture
Payment includes the $1,000,000 payment due to Nastech as a result of its
achievement of the first Milestone Event listed in section 8.3(b) of the
Collaboration and License Agreement, and Pharmacia shall have no further
liability or obligation to make any milestone payment to Nastech for the
achievement of such first Milestone Event.

      4.2 Milestone Payments. As of the Execution Date, Pharmacia's obligation
to make payments in respect of Milestone Events pursuant to section 8.3 of the
Collaboration and License Agreement is suspended, and Pharmacia shall have no
obligation to make any such payments unless and until this Agreement is
terminated pursuant to Section 10.1, in which case Pharmacia's obligation to
make such payments shall immediately resume and Nastech shall be entitled to
retain from the Special Account (as defined in Section 4.4(a)) the amount
described in Section 10.2(a). In the event that the Closing occurs, Pharmacia
shall have no obligation to make any further payments to Nastech in respect of
Milestone Events, including any obligation to make any payment that was
suspended pursuant to this Section 4.2.

      4.3 Nastech Transaction Costs. Within three (3) Business Days following
the execution and delivery of this Agreement, Pharmacia shall pay to Nastech the
amount of $500,000 by wire transfer of immediately available funds to the
account set forth in Schedule 4.1 to reimburse Nastech for reasonable fees and
expenses of economists, consultants and antitrust and transaction counsel
incurred in connection with Nastech's discussions with the FTC regarding the
Licensed Product and the negotiation of this Agreement.

      4.4 Special Account.

            (a) Funding of Special Account. Within three (3) Business Days
following the execution and delivery of this Agreement, Pharmacia shall advance
to Nastech the amount of $7,000,000 by wire transfer of immediately available
funds to the account set forth in Schedule 4.1, which Nastech shall immediately
deposit into a segregated, interest-bearing account (the "Special Account")
designated by Nastech.

            (b) Withdrawal and Release from Special Account. Nastech may not
withdraw or release from the Special Account all or any portion of the funds
contained therein except as set forth in this Section 4.4(b). Upon the review
and written approval by Pharmacia of the applicable CRO or Nastech invoices, a
applicable, with such approval not to be unreasonably withheld or delayed,
Nastech may withdraw or release funds from the Special Account in order to pay
or reimburse the CRO or Nastech for:


                                       13
<PAGE>
                  (i) the fees and expenses of the CRO under the CRO Agreement;

                 (ii) the reasonable out-of-pocket expenses of Nastech incurred
in exercising the rights under the CRO Agreement described in Section 3.2(c)
(which the Parties expect will approximate the cost of fifty percent (50%) of
the time of one Nastech employee);

                (iii) payments due to Nastech for clinical materials (including
placebo) ordered by Pharmacia on or after the Execution Date pursuant to the
Supply Agreement; and

                 (iv) payments that accrue or are to be made by Pharmacia to
Nastech pursuant to section 4.6 of the Collaboration and License Agreement with
respect to Nastech Development Activities performed following the Execution
Date.

            (c) No Duplication of Payments. The payments described in Sections
4.4(b)(iii) and (iv) shall be without duplication, such that Pharmacia shall
have no obligation under either the Supply Agreement or the Collaboration and
License Agreement with respect to any such payments that are made to Nastech in
accordance with such Sections. For the purpose of clarity, the Parties hereto
acknowledge and agree that until the termination of the Collaboration and
License Agreement Nastech shall continue to be reimbursed by Pharmacia for (a)
patent prosecution activities related to the Nastech Patents in accordance with
section 10.6 of the Collaboration and License Agreement, (b) Nastech Development
Activities performed prior to the Execution Date pursuant to section 4.6 of the
Collaboration and License Agreement and (c) for clinical supplies (including
placebo) ordered by Pharmacia prior to the Execution Date pursuant to the Supply
Agreement.

      4.5 Interest on Late Payments. If either Party fails to pay in full on or
before the date the amount is due any fee or other amount that such Party is
required to pay under this Agreement, such Party shall pay to the other Party
(or its designee), on demand, interest at a per annum rate equal to the Prime
Rate plus 5.0% as announced from time to time by Citibank, N.A. to be assessed
from the first day after payment of the amount in question first became due and
thereafter calculated and payable monthly on the last day of each month, not in
advance.

                                   ARTICLE 5

                                NASTECH LICENSES



                                       14
<PAGE>

      5.1 License Grant. Effective upon the Closing, Pharmacia grants to Nastech
an exclusive (even as to Pharmacia and its Affiliates), fully paid-up,
royalty-free, worldwide, irrevocable license (including the right to sublicense)
(a) under the Pharmacia Technology existing as of the time immediately prior to
the Closing to Develop, make, have made, use, import, export, offer for sale and
sell in the Field the Current Collaboration Product (but not any other Licensed
Product), and (b) under any Pharmacia Patent claiming Program Inventions, if
any, to research, Develop, make, have made, use, import, export, offer for sale
and sell Licensed Products in the Field (collectively, the "Nastech Licenses").
For clarity, the Pharmacia Technology that exists as of the time immediately
prior to the Closing shall not include any Patent Rights or Know-How owned or
licensed immediately prior to the Closing by Pfizer or any of its Affiliates (as
such Affiliates existed immediately prior to the Closing). As reflected in
Section 2.2(a), as of the Execution Date, there are no Pharmacia Patents subject
to the Nastech Licenses. If Pharmacia believes at any time following the Closing
that there are any Pharmacia Patents that would be infringed by the manufacture,
use, importation, offer for sale or sale of the Current Collaboration Product in
the Field, Pharmacia shall notify Nastech in writing and the Parties shall amend
this Agreement to include as a schedule hereto a list of such Pharmacia Patents.

      5.2 Term. The term of the Nastech Licenses shall be for the life of the
last-to-expire of the Pharmacia Patents and perpetual with respect to the
Pharmacia Know-How. As set forth in Section 2.2(a), there are no Pharmacia
Patents that would be infringed by the use, importation, offer for sale or sale
of the Current Collaboration Product in the Field or the manufacture of the
Current Collaboration Product in the manner in which such products are currently
being manufactured. The Parties acknowledge that (x) it is possible that there
will never be any Pharmacia Patents that will be subject to the Nastech
Licenses, and (y) in the event that there are no Pharmacia Patents that are
subject to the Nastech Licenses, such fact shall in no way affect the validity
of the Nastech Licenses.

      5.3 Right to Sue. Effective as of the Closing, the following provisions
shall be applicable with respect to the Pharmacia Technology:

            (a) Nastech shall have the continuing right, but not the obligation,
(i) to sue, at its expense, for any past, present or future infringement or
misappropriation of the Pharmacia Technology that is in violation of Nastech's
exclusive rights under the Nastech Licenses and, (ii) if Pharmacia or its
Affiliates shall fail to undertake such defense within sixty (60) days after
Pharmacia's receipt of written notice thereof (or such shorter period as may be
required to avoid material prejudice to Nastech), to defend against any
challenge to any of the Pharmacia Patents or the validity thereof (including any
interference or opposition proceeding, or other challenge before any patent
office) that is likely to have an adverse effect upon Nastech's rights under the
Nastech Licenses. To the extent necessary to allow Nastech to maintain any such
action or defense, Pharmacia and its Affiliates shall consent to be joined, or
cause their transferees under any assignment of Pharmacia Technology to agree to
consent to be joined (as a term of and precondition to such assignment
enforceable by Nastech as a named third party beneficiary thereof), as parties
to such action or defense or provide Nastech with appropriate power or powers of
attorney required to enable Nastech to sue


                                       15
<PAGE>
or defend in their respective names and on their respective behalves, all at the
sole cost and expense of Nastech.

            (b) Each Party shall promptly notify the other Party in writing of
any such alleged or threatened infringement, misappropriation or challenge and
each Party shall, at the request of the other Party, cooperate, and endeavor to
cause its and its Affiliates' and licensees' employees to cooperate, with the
other Party in all reasonable respects, including giving testimony and producing
documents lawfully requested, and using its Commercially Reasonable and Diligent
Efforts to make available to the other Party, at no cost to the other Party
(other than reimbursement of actually incurred, reasonable out-of-pocket
expenses), such employees who may be helpful, with respect to such suit,
investigation, claim or other proceeding pursuant to this Section 5.3.

            (c) Pharmacia shall have the right to participate in any such
action, investigation, claim or proceeding with counsel of its own choosing and
its sole cost and expense. Nastech shall not compromise or settle any such
action, investigation, claim or proceeding or make any admission or take any
other action that could reasonably be expected to adversely affect any
intellectual property rights of Pharmacia, without the prior written consent of
Pharmacia, which shall not be unreasonably delayed or withheld.

            (d) The foregoing provisions of this Section 5.3 define all of the
obligations of the Parties hereto with respect to Third Party infringements and
misappropriations of and challenges to Nastech's exclusive rights under the
Nastech Licenses or Third Party challenges to any of the Pharmacia Patents or
the validity thereof.

      5.4 Pharmacia Covenant Not to Sue.

            (a) Pharmacia, on behalf of itself and its Affiliates, hereby
covenants that, effective as of the Closing: neither Pharmacia nor any of its
Affiliates shall, directly or indirectly, alone or in participation with any
other Person, seek to enjoin, or file, prosecute or maintain any suit, legal or
other action or proceeding for damages or any legal, equitable or other relief
against, the Nastech Releasees, or any of them, for infringement of

                  (i) any Patent Rights owned or licensed by Pharmacia or its
Affiliates at any time following the Closing; provided, however, that the
covenant not to sue reflected in this Section 5.4(a)(i) shall apply solely with
respect to activities of the Nastech Releasees in connection with the research,
Development, manufacture, use, sale, offer for sale, or importing of the Current
Collaboration Product (but not any other Licensed Product) in the Field; and

                  (ii) any claims of any Pharmacia Patents which claim either
(x) the use in the Field of Apomorphine delivered Intranasally (whether used by
itself or in combination with any other active ingredient), or (y) a method of
treating sexual dysfunction utilizing an agonist for the human Dopamine 2
receptor; provided, however, that the covenants not to sue reflected in this
Section 5.4(a)(ii) shall apply solely with respect to activities of the Nastech
Releasees in connection with the research,


                                       16
<PAGE>
Development, manufacture, use, sale, offer for sale, or importing of Licensed
Product in the Field.

            (b) In the event that Pharmacia or any of its Affiliates grant,
license, assign or transfer to any Third Party exclusive rights to any Patent
Rights (x) owned or licensed by Pharmacia or its Affiliates at any time
following the Closing that would be infringed by the manufacture, use,
importation, sale or offer for sale of the Current Collaboration Product in the
Field, or (y) that are subject to the covenant set forth in Section 5.4(a)(ii),
such grant, license, assignment or transfer of rights shall be only upon the
condition that the Third Party executes a written agreement (i) containing
covenants not to sue the Nastech Releasees that are no less protective of the
Nastech Releasees than the covenants set forth in Section 5.4(a), and (ii)
stating that each of the Nastech Releasees shall be a third party beneficiary
with respect to such covenants.

            (c) For purposes of this Section 5.4, Pharmacia's "Affiliates" shall
be limited to Pharmacia's Affiliates as they exist immediately prior to the
Closing. For clarity, it is understood that the covenants not to sue reflected
in Section 5.4(a)(ii) do not apply to (x) any Patent Rights claiming inventions
conceived following the Closing by one or more employees, consultants or agents
of Pharmacia or any of its Affiliates, or (y) any claims of any Patent Rights
owned or licensed by Pharmacia or its Affiliates other than those claims that
are expressly described in such Section.

            (d) With respect to any Third Party Patent Rights that are included
in the Patent Rights that are subject to the covenants not to sue reflected in
Section 5.4(a), it is understood that the provisions of Section 5.4 shall not
apply with respect to any suit, legal or other action or proceeding initiated by
a Third Party for infringement of such Third Party Patent Right to the extent
that Pharmacia or its Affiliates do not have the right to control the
prosecution of such suit, legal or other action or proceeding; provided,
however, that Pharmacia and its Affiliates shall not actively induce any Third
Party to seek, or enter into a collusive agreement, to enjoin, or file,
prosecute or maintain any suit, legal or other action or proceeding for damages
or any legal, equitable or other relief against, the Nastech Releasees, or any
of them, for infringement of any such Third Party Patent Right; and provided
further that Pharmacia and its Affiliates will not assist or participate in any
such suit, legal or other action or proceeding except to the extent required by
law or the terms of any contract or other agreement related to such Third Party
Patent Rights.

      5.5 Pfizer Covenant Not to Sue. Pharmacia shall provide to Nastech a
covenant not to sue from Pfizer substantively in the form of Schedule 5.5.

      5.6 Improvements. Nastech shall have and enjoy all right, title and
interest in and to all improvements made by or on behalf of Nastech (either
alone or by or in conjunction with Persons other than Pharmacia or its
Affiliates), to any discoveries, inventions or other subject matter included in
or comprised by the Pharmacia Technology licensed to Nastech pursuant to Section
5.1, including all Patent Rights claiming such improvements.


                                       17
<PAGE>
      5.7 No Implied Rights. Except as otherwise expressly provided in this
Agreement, under no circumstances shall a Party hereto, as a result of this
Agreement, obtain any ownership interest or other right, title or interest in or
to the Patent Rights or other intellectual property or Confidential Information
of the other Party hereto or its Affiliates (which term shall in the case of
Pharmacia include, following the Closing, Pfizer), including items Controlled or
developed by such other Party or such Affiliates, or delivered by such other
Party to such Party, at any time pursuant to this Agreement.

      5.8 Indemnification.

      (a)   Nastech shall indemnify, defend and hold harmless Pharmacia, its
            Affiliates and each of their respective officers, directors,
            employees and shareholders from and against any and all claims,
            demands, suits, causes of action, losses, damages, judgments and
            costs and expenses (including reasonable attorneys' fees) arising
            out of (i) the research, Development, manufacture, use, sale,
            importation or exportation of Licensed Product by or on behalf of
            Nastech or any of its Affiliates, licensees or sublicensees
            following the Closing, or (ii) the use by Nastech, its Affiliates,
            licensees or sublicenses of any information or materials that
            Pharmacia had the right to and did, in fact, provide to Nastech
            pursuant to this Agreement.

      (b)   Pharmacia shall defend the Nastech Releasees, and each of them, from
            and against any and all Third Party claims, suits, or causes of
            action to the extent that any of them allege that the exercise of
            rights under the Nastech Licenses in accordance with Section 5.1
            violates or misappropriates rights of such Third Party to practice
            in the Field the Pharmacia Technology subject to such Nastech
            Licenses which had been granted by Pharmacia or its Affiliates to
            such Third Party, and Pharmacia shall indemnify and hold harmless
            the Nastech Releasees, and each of them, against any losses,
            damages, judgments and costs and expenses (including reasonable
            attorneys' fees) to the extent arising out of any such claims,
            suits, or causes of action.

      5.9 Third Party Royalties. Nastech shall be solely responsible for paying
any royalties, fees or other consideration that Pharmacia or its Affiliates may
be obligated to pay to a Third Party in respect of the Nastech Licenses or the
covenants not to sue that are granted (or may be granted) to Nastech pursuant to
Sections 5.4 and 5.5 of this Agreement. Such royalties will be paid to Pharmacia
not later than 45 days following the end of each calendar quarter after the
First Commercial Sale (as such term is defined in the Collaboration and License
Agreement), and each such payment shall be accompanied by a written report
showing the period to which such payment applies, the amount billed to Third
Parties for Licensed Products during such calendar quarter, the total net sales
from the period and the royalties due on such net sales, or such other
information as may be required by the applicable Third Party licensor. In the
event that there are any Third Party Patent Rights that fall within the scope of
the Nastech Licenses, the Parties shall endeavor to obtain the consent of
Pharmacia's licensor to assign to Nastech (or its designee) Pharmacia's rights
under the applicable license solely as they relate to Licensed


                                       18
<PAGE>
Products. In the event that the Parties do not obtain such an assignment,
Pharmacia shall take appropriate steps to ensure that employees of Pfizer or its
Affiliates who are involved in the marketing, promotion or sale of competitive
products in the Field shall not have access to any data or other information
provided to Pharmacia by Nastech or its licensee with respect to the sale of
Licensed Products in the Field.

      5.10 Records; Audits.

            (a) Nastech and its Affiliates shall keep and maintain complete and
accurate records and books of account documenting all revenues, expenses and all
other data necessary for the calculation of royalties, including any additional
data required by a Third Party licensor that is due royalties in respect of the
Nastech Licenses. Nastech and its Affiliates shall permit nationally recognized
independent accountants retained by Pharmacia, to whom Nastech shall have no
reasonable objection, upon reasonable prior written notice, to have access to
its and its Affiliates' records and books and premises for the sole purpose of
determining the appropriateness of calculation of royalties due under this
Agreement for any calendar year ending no more than three years prior to the
date of such request. Such examination shall be conducted during regular
business hours and no more than once in each calendar year during the term of
this Agreement.

            (b) Such audit shall be at Pharmacia's cost and expense; provided
that, in the event any such audit reveals that Nastech has underpaid Pharmacia
by an amount greater than 5% of the amounts due to Pharmacia in the period being
audited, Nastech shall also reimburse Pharmacia for the reasonable out-of-pocket
cost and expense of conducting the audit. If any audit reveals an overpayment by
Nastech, Pharmacia shall credit the amount of such overpayment to Nastech
against the payment of royalties due for the next calendar quarter, with any
amount of such overpayment in excess of such royalties carried over as a credit
against the payment of royalties due for the succeeding calendar quarter until
full credit of such overpayment is given.

      5.11 Disclosure of Pharmacia Know-How. Notwithstanding the licenses
granted to Nastech under Section 5.1, it is understood that Pharmacia shall have
no obligation to disclose to Nastech or its Affiliates or licensees any
Pharmacia Know-How except to the extent expressly required by the provisions of
Sections 7.1 or 7.3, and Nastech shall have no right to obtain any Pharmacia
Know-How other than that which is expressly required to be disclosed by the
provisions of Sections 7.1 or 7.3.

      5.12 Program Inventions. In addition to any other obligations a Party may
have under this Agreement or under any provisions of the License Agreement that
will survive termination of such agreement in accordance with the provisions of
Section 9.1(a) of this Agreement, each Party shall promptly notify the other in
writing of the filing of any patent applications that claim Program Inventions,
as well of the issuance of any patents that claim Program Inventions.


                                       19
<PAGE>
                                   ARTICLE 6

                                 CONFIDENTIALITY

      6.1 Discussions with Third Parties. Pharmacia has previously agreed to
permit Nastech to contact and disclose to Third Parties Confidential Information
of Nastech and certain Confidential Information of Pharmacia for purposes of
exploring a potential acquisition, alliance, collaboration, co-development or
licensing arrangement to ensure the continued development and prompt
commercialization of the Licensed Product in the Field. Following the Execution
Date, Nastech shall continue to have the right to contact Third Parties to
discuss such a potential acquisition, alliance, collaboration, co-development or
licensing arrangement; provided, however, that Nastech shall not execute any
agreement in respect of any such arrangement unless the effectiveness of such
agreement is expressly conditioned upon the occurrence of the Closing and the
termination of the Collaboration and License Agreement pursuant to Section
9.1(a). Nastech may in such discussions disclose to such Third Parties
Confidential Information of Nastech, and Confidential Information of Pharmacia
relating to the Licensed Product, in each case to the extent Nastech reasonably
concludes that such disclosure is necessary to enable such Third Parties to make
a sufficient preliminary technical and commercial assessment of the Licensed
Product; provided, however, that prior to any such disclosure, such Third Party
must enter into with Nastech an agreement (a) imposing upon such Third Party
obligations of confidentiality and non-use with respect to such Confidential
Information that are substantially the same as those undertaken by Pharmacia and
Nastech under the Collaboration and License Agreement and (b) providing that
Pharmacia is a third-party beneficiary of such agreement until the Closing
occurs, and if the Closing does not occur, indefinitely.

      6.2 Obligations Following the Closing. Upon the Closing, (a) Pharmacia
shall promptly collect and return to Nastech or, at Nastech's request, destroy,
all documents provided by Nastech that contain Nastech Confidential Information
(provided that one copy of such documents may be retained in Pharmacia's
confidential legal files for the sole purpose of determining its continuing
obligations under Section 11 of the Collaboration and License Agreement), (b)
Pharmacia and its Affiliates (which, for clarity, shall include Pfizer and its
Affiliates throughout this Section 6.2) shall immediately cease all further use
of the Nastech Confidential Information and take all reasonable steps to ensure
that none of their employees, agents or Affiliates retain or use Nastech
Confidential Information, and (c) Pharmacia shall create a "firewall" to ensure
that, for a period of one year following the Closing, those employees or agents
of Pharmacia or its Affiliates identified on Schedule 6.2 are not assigned to or
otherwise directly involved in any ongoing activities by Pharmacia, its
Affiliates, or any of their respective successors or assigns, including Pfizer,
in the Development or Commercialization of products (i) in the Field that are
directly competitive with the Current Collaboration Product, or (ii) that are
comprised or make use of any Licensed Product.

      6.3 Exceptions. The restrictions hereunder not to use or disclose
Confidential Information shall not apply to any Confidential Information or part
thereof that:


                                       20
<PAGE>
            (a) is or becomes published or otherwise becomes publicly known
other than by acts of the Party obligated not to disclose such Confidential
Information or its licensees, consultants, contractors or clinical investigators
in breach of this Agreement;

            (b) was disclosed to the receiving Party or its Affiliates or
licensees by a Third Party, provided that such Confidential Information was not
obtained by such Third Party from the disclosing Party under an obligation of
confidentiality;

            (c) prior to disclosure under this Agreement, was already in the
possession of the receiving Party or its Affiliates or licensees, provided that
such Confidential Information was not obtained from the disclosing Party under
an obligation of confidentiality;

            (d) can be shown by written documents to have been independently
developed by the receiving Party or its Affiliates or licensees without breach
of any of the provisions of this Agreement or access to any Confidential
Information provided by the disclosing Party; or

            (e) is required to be disclosed by the receiving Party to comply
with applicable laws, or with a court or administrative order or the rules of
any relevant stock exchange, provided, however, that this Section 6.3(e) shall
not permit a Party to disclose the other Party's confidential know-how for the
purpose of obtaining Patents Rights.

In the case of a disclosure permitted by Section 6.3(e), the receiving Party
shall, if practicable, notify the disclosing Party in writing prior to any such
disclosure and use Commercially Reasonable and Diligent Efforts to secure
confidential treatment thereof prior to its disclosure (whether by protective
order or otherwise).

      6.4 Terms of Agreement. Notwithstanding anything to the contrary in this
Agreement, each Party shall be entitled to disclose the terms of this Agreement
to its advisors and potential investors or other financing sources, without the
consent of the other Party, on the condition that such Persons agree to keep
such terms confidential for the same time periods and to the same extent as such
Party is required to keep such terms confidential. Each Party shall give the
other Party a reasonable opportunity to review all filings with the United
States Securities and Exchange Commission or any Stock Exchange describing the
terms of this Agreement prior to submission of such filings, and shall give due
consideration to any reasonable comments by the non-filing Party relating to
such filing, including without limitation the provisions of this Agreement for
which confidential treatment should be sought.

                                   ARTICLE 7

                             COOPERATION; EMPLOYEES

      7.1 Pharmacia Commercial Development Group. Prior to the Execution Date,
Nastech has met with representatives from Pharmacia's Commercial Development
group


                                       21
<PAGE>
to discuss Pharmacia's views regarding the potential commercial strategy for
Licensed Product in the Field, including Pharmacia's views regarding the
potential positioning of the Licensed Product vis-a-vis existing products in the
Field. In advance of such meeting, Pharmacia has provided to Nastech a copy of
the Market Research Report (as defined in Section 7.3(d)). Promptly, but in no
event more than three Business Days, after the Execution Date, Pharmacia shall
provide to Nastech the due diligence report that Pharmacia completed prior to
entering into the Collaboration and License Agreement (the "Due Diligence
Report"). Nastech and its licensees shall have the right to use all such
documents and information provided pursuant to this Section 7.1 or Section 7.3
in connection with the Development and Commercialization of Licensed Product.

      7.2 New Partner for the Current Collaboration Product. For a period
commencing on the Execution Date and ending on the earlier of (a) six months
following the date that the IND for the Current Collaboration Product is
transferred from Pharmacia to Nastech pursuant to Section 9.1(g), and (b) the
date that this Agreement is terminated pursuant to Section 10.1, Pharmacia
shall, at Nastech's request, provide reasonable cooperation and assistance to
enable Nastech (or its nominee) to assume, with as little disruption as
reasonably possible, the Development of the Current Collaboration Product,
including reasonable assistance to Nastech in finding a new partner for the
Current Collaboration Product. All such cooperation and assistance shall be
provided in a timely manner, with regard to the nature of the cooperation or
assistance requested, and shall include identifying potential licensees to
Nastech (to the extent not already provided), facilitating appropriate
introductions of such potential licensees, making Pharmacia employees reasonably
available to make presentations, gather relevant data or otherwise respond to
due diligence questions raised by potential licensees, and assisting Nastech and
its new licensee-collaboration partner with such reasonable technical advice and
assistance related to the Development activities undertaken by Pharmacia to date
as either may request. Pharmacia shall be responsible for all of its
out-of-pocket expenses in rendering such cooperation and assistance, up to a
total amount of $15,000, and all out-of-pocket expenses reasonably incurred by
Pharmacia in excess of such amount shall be reimbursed by Nastech to Pharmacia,
subject to Nastech's prior approval of the expenditure. Except as expressly
provided in this Section 7.2, Pharmacia's obligations reflected in this Section
shall not require it to incur any unreimbursed out-of-pocket expenses or require
it to undertake any additional activities related to the Development of the
Licensed Product.

      7.3 Transfer of Information. Promptly following the Closing, Pharmacia
shall transfer to Nastech a copy of all information in its, or any of its
Affiliates' (which for clarity shall not include Pfizer or any of its Affiliates
as they exist immediately prior to the Closing), possession or control
immediately prior to the Closing that has not previously been delivered to
Nastech and that relates to the Current Collaboration Product and is reasonably
necessary or desirable for the continued Development or Commercialization of
such Current Collaboration Product, including all such internally- or
externally-generated information:

            (a) described in Schedule 7.3;


                                       22
<PAGE>
            (b) contained in Pharmacia's regulatory or safety databases;

            (c) comprising or relating to the Global Development Plan or
Commercialization projections, plan, plans or strategies for the Current
Collaboration Product, including sales forecasts, selling strategies, marketing
plans (including sales force strategy), publication strategies and proposed
consultant panel;

            (d) comprising Pharmacia's Due Diligence Report; and

            (e) comprising or relating to marketing research which it conducted
(or caused to be conducted) relating to the Current Collaboration Product (the
"Market Research Report"); provided, however, that in the case of the Due
Diligence Report and the Market Research Report Pharmacia shall be entitled to
redact any information contained therein which relates to proprietary Pharmacia
products or to a Third Party's products that was obtained by Pharmacia subject
to confidentiality obligations to such Third Party.

Commencing on the Execution Date and for a period of three (3) months following
the Closing, Pharmacia shall, at Nastech's request, continue to make available
any of its then current employees who had been engaged in the development or
Commercialization of the Current Collaboration Product for interview by Nastech
with respect to the information and materials to be provided pursuant to Section
7.1 or this Section 7.3. Pharmacia shall bear the costs incurred in fulfilling
the foregoing requirement, save for reasonable out of pocket expenses (such as
for travel and lodging), which shall be reimbursed to Pharmacia by Nastech. For
clarity, it is understood that, except as set forth in Section 7.1, Pharmacia is
only obligated to transfer to Nastech information that is specific to Licensed
Products, and is not obligated to transfer to Nastech any information related to
the Field generally or to other products in the Field. It is also understood
that Pharmacia is only required to transfer to Nastech data and information that
has been generated during the course of its research and Development of the
Current Collaboration Product. All information and materials to be provided to
Nastech pursuant to this Section 7.3 shall be provided in the format currently
maintained by Pharmacia. Pharmacia represents and warrants to Nastech that it
has the right to provide such information and materials to Nastech, and Nastech
acknowledges that such information and materials are being provided to Nastech
"as is" and subject to the provisions of Section 2.3

      7.4 Solicitation of Employees; Confidentiality. Upon and following the
Execution Date, Nastech shall have the right to solicit for employment those
employees of Pharmacia and its Affiliates involved in the Development or
Commercialization of Collaboration Product; provided, however, that Nastech
shall not, without the prior written consent of Pharmacia, hire or commit to
hire any such employee unless and until the Closing occurs. In the event that
the Closing occurs, Pharmacia shall release any such employees hired by Nastech,
its Affiliates, or their respective Collaboration Partners (as herein defined)
from all confidentiality and non-compete obligations owed to Pharmacia that
would otherwise restrict such employees from using, in the course of their
employment with Nastech, its Affiliates, or their respective partners in any
acquisition, alliance, collaboration, co-development or licensing arrangement
for the research,


                                       23
<PAGE>
Development and Commercialization of Licensed Product in the Field
("Collaboration Partners"), Pharmacia Confidential Information relating to the
Licensed Product or their general knowledge and experience in the Field;
provided, however, that such release shall not apply to any Pharmacia
Confidential Information relating to Pharmacia products (other than the Licensed
Products) or Third Party products in the Field. Pharmacia shall not sue Nastech
or its Affiliates or any of their respective Collaboration Partners for any
disclosure or use of Pharmacia Confidential Information by such employees that
is permitted as a result of the release set forth in this Section 7.4.

      7.5 Nastech's Right to Disclose Certain Pharmacia Confidential
Information. In addition to the provisions of Section 6.1 Nastech shall have the
right to disclose Pharmacia Confidential Information relating to the Licensed
Product

      (a)   to its Affiliates, Collaboration Partners, and any of Nastech's, its
            Affiliates' or Collaboration Partners' licensees, sublicensees,
            consultants, outside contractors or clinical investigators, for
            purposes of use in the research, Development and Commercialization
            of Licensed Product in the Field; and


      (b)   to Regulatory Authorities and other Third Parties to the extent that
            such disclosure is reasonably necessary to obtain authorizations to
            conduct clinical trials or to file and maintain Regulatory Approvals
            or Commercialize Licensed Product.

      7.6 Third Party Review. The Parties agree to retain a mutually acceptable,
independent Third Party who shall be responsible for reviewing Pharmacia's lab
notebooks and other relevant records that are likely to contain data and other
information that is required to be disclosed to Nastech pursuant to Sections 7.1
or 7.3. The sole purpose of such review shall be to ensure Pharmacia's
compliance with such Sections. As a condition to initiating its review, the
Third Party shall be required to sign a confidentiality and non-use agreement
with Pharmacia with respect to any data or other information learned or
discovered by it during the course of its review, as well as agree that it shall
not disclose to Nastech any such data or information except to the extent
necessary to ensure Pharmacia's compliance with the provisions of Sections 7.1
and 7.3 of this Agreement. The costs and expenses related to such Third Party
review shall be borne by Pharmacia.

                                   ARTICLE 8

                                CERTAIN COVENANTS

      8.1 Certain Waivers. From the Execution Date until the termination of this
Agreement pursuant to Section 10.1:


                                       24
<PAGE>
            (a) In connection with the Merger (but not any other merger,
consolidation or other corporate transaction involving Pharmacia or its
Affiliates), Pharmacia waives its right to assign the Collaboration and License
Agreement to a Third Party pursuant to section 17.6 thereof;

            (b) in furtherance and not in limitation of Nastech's waiver set
forth in Section 8.1(c), Nastech waives its right to terminate the Collaboration
and License Agreement pursuant to section 17.7 thereof as a result of the Merger
(but not any other merger, consolidation or other corporate transaction
involving Pharmacia or its Affiliates),; and

            (c) each of Pharmacia and Nastech waives its right to terminate the
Collaboration and License Agreement or the Supply Agreement or both, except as
otherwise provided pursuant to Section 9.1.

      8.2 Maintenance of Rights.

            (a) From the Execution Date until the transfer of the INDs pursuant
to Section 9.1(g) or the termination of this Agreement pursuant to Section 10.1,
Pharmacia and its Affiliates, at their own cost, shall retain, free of any lien
or encumbrance, all of their right, title and interest in and to all Pharmacia
Patents to the extent licensed to Nastech pursuant to Section 5.1, and all INDs
and regulatory filings and rights related to Collaboration Product. Following
the Execution Date, Pharmacia and its Affiliates (which, for the purpose of
clarity, shall following the Closing include Pfizer and its Affiliates) shall
(i) maintain or cause their successors, assignees and other transferees to
maintain, at their own cost, all of their right, title and interest in and to
all Pharmacia Patents, if any, licensed under the Nastech Licenses, free of any
liens or encumbrances and subject to the rights and licenses granted under the
Nastech Licenses, and (ii) use Commercially Reasonable and Diligent Efforts to
prosecute and maintain or cause their successors, assignees and other
transferees to maintain, at their own cost, all Patent Rights, if any, licensed
under the Nastech Licenses which cover the Current Collaboration Product and for
which patent applications have been filed as of the Closing; provided, however,
that Pharmacia's obligations pursuant to clauses (i) and (ii) of this Section
8.2(a) shall only apply to the extent of Nastech's exclusive rights under the
Nastech Licenses.

            (b) Pharmacia shall keep Nastech reasonably informed with regard to
the status of Pharmacia Patents that cover the Current Collaboration Product,
shall promptly deliver or have delivered to Nastech copies of all patent
applications, amendments, related correspondence, and documents concerning such
Pharmacia Patents, and shall notify Nastech of the issuance of each patent
included within such Pharmacia Patents, giving the date of issue and patent
number for each such patent.

            (c) If Pharmacia elects not to pursue the initial filing of a
potential patent application that claims a Program Invention or support the
continued prosecution or international protection of a patent application which
claims a Program Invention, Pharmacia shall notify Nastech promptly in writing
and, for patent


                                       25
<PAGE>
applications scheduled for international filing, prior to sixty (60) days before
the date required for the convention year filing of such patent application or
any other deadline date by which an action must be taken to establish or
preserve a right with respect to such patent application. Nastech shall then
have the right, but not the obligation, to pursue the filing or support the
continued prosecution or protection in any country of such patent application,
at its sole cost and expense. If Nastech elects to pursue such filing or
continue such support, then it shall notify Pharmacia of such election, and
Pharmacia shall promptly assign to Nastech, without consideration, all of its
right, title and interest in such patent application. It is understood that
Nastech's rights under this Section 8.2(c) shall be in addition to any rights it
may have under Section 10.5(d) of the License Agreement.

      8.3 Certificate of Compliance. No later than 15 days following the end of
the period expiring six months following the Closing, Pharmacia shall, upon the
request of Nastech, provide Nastech with a certificate of a duly authorized
executive officer certifying that Pharmacia is in compliance with the provisions
of this Agreement.

      8.4 Disposal of Shares. Effective as of the Closing, Pharmacia shall use
its commercially reasonable efforts to dispose of, in one transaction or in
series of transactions, all of the shares of capital stock of Nastech owned by
Pharmacia to a Third Party that does not have any officers or directors in
common with Pharmacia, prior to the later of (a) the fourth anniversary of the
date on which the Closing occurs and (b) the date that the FDA approves the
marketing of the first Licensed Product in the Field in the United States. Such
disposition shall be made in accordance with the following provisions:

            (a) In the event that Pharmacia wishes to sell any of its shares of
Nastech capital stock on the open market without registration under the
Securities Act of 1933, as amended (the "Act"), Pharmacia shall ensure that its
sales of such stock shall be consistent with the volume limitations of Rule
144(e)(i), notwithstanding the termination of such volume limitations pursuant
to the provisions of Rule 144(k) under the Act. It is understood that the
restriction set forth in this Section 8.4(a) shall continue to apply so long as
Pharmacia or its Affiliates continues to hold any Nastech stock.

            (b) The Registration Rights Agreement between Pharmacia and Nastech
dated February 1, 2002 (the "Registration Rights Agreement") shall be amended to
provide that if Pharmacia desires to sell any of its Nastech shares held as of
the Execution Date pursuant to a "Demand Registration" (as defined in Section
2(a) of the Registration Rights Agreement), it shall give Nastech written notice
of such proposed sale with an option to purchase all (but not less than all) of
the shares to be sold, or to arrange for them to be purchased by a Third Party,
during the five (5) Business Days after giving of such notice (the "Option
Period"). The notice shall include the information specified in Section 2(a) of
the Registration Rights Agreement. The exercise price of the option ("Exercise
Price") shall be at a six percent (6%) discount to the average market price
(mean between closing high bid and low ask quoted on the Nasdaq National Market
or such other market on which shares of Nastech common stock are then regularly
traded) for the ten trading days preceding the date of giving the notice. If
prior to the expiration


                                       26
<PAGE>
of the Option Period Nastech has not notified Pharmacia in writing of its
election to purchase all (but not less than all) of the shares being offered at
the Exercise Price or has not provided Pharmacia with a written, unconditional
undertaking by a Third Party to purchase all (but not less than all) of the
shares being offered at the Exercise Price, Pharmacia shall be free to sell the
shares. The expiration of the Option Period shall be deemed the date of
Pharmacia's request for registration under said Section 2(a) of the Registration
Rights Agreement, and the registration process shall proceed in accordance with
the provisions of the Registration Rights Agreement. If the option specified in
this Section 8.4(b) is timely exercised, the purchase price shall be paid and
the shares shall be delivered not later than five Business Days after the date
of exercise. For clarity, nothing contained herein shall preclude Nastech from
offering to purchase, or arranging for a Third Party to offer to purchase, less
than all of the shares Pharmacia desires to sell, but Pharmacia shall not be
obligated to sell any of such shares unless the option is exercised as to all
the shares.

      8.5 Non-Compete. In the event that the Closing occurs, neither Pharmacia
nor its Affiliates shall, for a period of one year immediately following the
Closing, Develop or Commercialize a Licensed Product in the Field, either alone
or with one or more Third Parties.

      8.6 Limitations on Actions as a Shareholder. Following the Closing,
Pharmacia and its Affiliates shall not, directly or indirectly:

            (a) exercise dominion or control over, or otherwise seek to
influence, the management, direction or supervision of the business of Nastech,
including, but not limited to, any participation in the formulation,
determination or direction of any business decisions of Nastech;

            (b) propose corporate action requiring the approval of Nastech
shareholders;

            (c) nominate candidates for, or in any other way seek to obtain or
obtain representation on, the Board of Directors of Nastech;

            (d) have any of their directors, officers or employees serve
simultaneously as an officer or director of Nastech;

            (e) exercise any voting rights attached to any shares of Nastech
capital stock held by it; provided, however, that in any matter to be voted on
by the shareholders of Nastech, Pharmacia shall be deemed to have cast the votes
related to their shares in an amount and manner proportional to the vote of all
other votes cast by other Nastech shareholders entitled to vote on such matter;

            (f) seek access to any confidential, proprietary, or other
non-public information of Nastech relating to the research or development of
Licensed Product and not otherwise necessary to comply with its obligations or
exercise its rights under this Agreement or the License Agreement; provided,
however, that this shall not be construed to (x) apply to any such information
in the possession of Pharmacia or its Affiliates as of


                                       27
<PAGE>
the Closing, or (y) prohibit Pharmacia or its Affiliates from seeking or
obtaining discovery in any litigation or other proceeding to resolve a claim
between Pharmacia or its Affiliates and Nastech in accordance with the
procedures of the forum before which the dispute is pending. With respect to any
such discovery, Pharmacia shall enter into a protective order to prevent any
information from being used for any purpose other than providing legal
representation or evidence as to the particular dispute and to prevent any
information from being disclosed to any person(s) not necessary to the
resolution of such dispute; or

            (g) take any action or omit to take any action in a manner that
would be incompatible with the status of Pharmacia as passive investors in
Nastech.

The requirements of this Section 8.6 shall continue and remain in effect so long
as Pharmacia or its Affiliates continue to own any shares of Nastech capital
stock.

                                   ARTICLE 9

                                   THE CLOSING

      9.1 Effects of the Closing. Effective immediately upon the Closing, and
without limitation of Nastech's hereby acknowledged right to retain the entire
amount of all license fees, milestone fees and other amounts paid to it pursuant
to the Collaboration and License Agreement or Supply Agreement:

            (a) Collaboration and License and Supply Agreements. (i) The
Collaboration and License Agreement and the Supply Agreement shall each
terminate without any action on the part of either Party hereto and each shall
be deemed to have been terminated by the mutual agreement of the parties
thereto, (ii) except for their rights and obligations under Sections 9.5;
10.2(a); 10.2(b) and 10.2(c); 10.4 [only with respect to Pharmacia's obligations
and Nastech's obligations regarding Program Inventions conceived jointly by
Pharmacia and Nastech employees]; 10.5 [except that any decision required to be
made pursuant to such section shall be made by the mutual agreement of the
Parties and not by the Development Oversight Committee (as such term is defined
in the Collaboration and License Agreement]; 10.9; 11.1; 11.3; 11.4; 11.5and
11.6 [in each of 11.5 and 11.6 only with respect to Pharmacia's obligations];
11.7; 11.8; 15.1(a)(iii) (but only with respect to injuries which occur prior to
Closing), 15.1(b)(iii) (but only with respect to injuries which occur prior to
Closing); 15.2; 17.1; 17.10; 17.11; 17:12 (first two sentences only); 17.13;
17.14; 17.15; and 17.17 of the Collaboration and License Agreement and Articles
9 and 10 (but in the case of Article 10, only with respect to claims, events and
other matters occurring or accruing prior to Closing); and Sections 4.5; 4.6;
[7.1 and 7.2 (only for purposes of indemnification pursuant to Article 10);]
12.1; 12.3; 12.7 (first two sentences only); 12.8; 12.9 and 12.10 of the Supply
Agreement, each of which provisions of the Collaboration and License Agreement
or Supply Agreement shall survive such termination except to the extent
inconsistent or in conflict with the provisions hereof (in which event, the
provisions of this Agreement shall govern), the Parties shall have no future
rights or obligations under the Collaboration and


                                       28
<PAGE>
License Agreement and the Supply Agreement, notwithstanding anything to the
contrary contained therein, and (iii) the Parties shall, except for Third-Party
indemnification obligations which shall survive termination pursuant to Section
9.1(a)(ii), be released from all liabilities under such agreements pursuant to
Section 9.1(ii). For purposes of illustration and not limitation, the provisions
of Section 11.1 of the Collaboration and License Agreement and Article 9 of the
Supply Agreement shall not survive the termination of those agreements pursuant
this Section to the extent that they are inconsistent or in conflict with
Section 6.1, 6.2, 7.1, 7.3, 7.4 or any other provision hereof. For clarity,
unless and until the Collaboration and License Agreement or the Supply Agreement
are terminated in accordance with the provisions of this Section 9.1(a), the
provisions of such agreements shall remain in full force and effect except as
expressly modified by the terms of this Agreement.

            (b) Licenses. In furtherance and not limitation of Section 9.1(a),
all rights and licenses of Pharmacia and its Affiliates granted Pharmacia
pursuant to sections 2.1 and 2.2 of the Collaboration and License Agreement
shall terminate, and all of Pharmacia's and its Affiliates' right, title and
interest in and to the Nastech Technology shall revert to Nastech, without any
action on the part of either Party hereto.

            (c) CRO Agreement. All of Pharmacia's rights and obligations under
the CRO Agreement shall terminate without any action on the part of either Party
hereto or the CRO, and Nastech shall succeed to and assume all of Pharmacia's
rights under the CRO Agreement, as well as all its liabilities and obligations
for (i) payments due under the CRO Agreement, whether accruing prior to or
following the Closing, and (ii) costs and expenses that accrue after the Closing
and relate to the Development of Licensed Products in the Field by or on behalf
of Nastech.

            (d) Special Account. Nastech shall be entitled to retain the entire
amount of any funds then remaining in the Special Account, together with any
interest accrued thereon, and Pharmacia shall, without any action on the part of
either Party, unconditionally and irrevocably release and surrender all of its
rights respecting the Special Account, including its supervisory right set forth
in Section 3.2(b).

            (e) Divestiture Payment. Nastech shall be entitled to retain the
entire amount of the Divestiture Payment, together with any interest accrued
thereon, and Pharmacia shall have no entitlement to any credit with respect
thereto.

            (f) Nastech Licenses. The Nastech Licenses granted pursuant to
Article 5 shall become effective without any action on the part of either Party.

            (g) Regulatory Filings and Approvals. The Parties hereto shall
promptly file with the FDA and all other relevant Regulatory Authorities all
information required in order to transfer to Nastech all foreign and domestic
regulatory filings and Regulatory Approvals, including all INDs, if any, that
relate to Collaboration Product. Pharmacia shall file the information required
of a former owner, and Nastech shall file the information required of a new
owner, in each case at such Party's own expense.


                                       29
<PAGE>
            (h) No Other Effects. For the purpose of clarity, the Parties hereto
acknowledge and agree that, as between Pharmacia and Nastech, the Closing shall
have no effects other than those specified in this Agreement. Without limiting
the generality of the immediately preceding sentence, that certain Registration
Rights Agreement shall remain in full force and effect in accordance with its
terms.

            (i) Releases. Each Party shall promptly execute and deliver to the
other Party a release in the form hereto annexed as Schedule 9.1(i)(A) or
9.1(i)(B), as appropriate, each of which shall be dated as of, and apply to
claims, events and other matters occurring or accruing prior to, the Closing, in
accordance with its terms.

                                   ARTICLE 10

                                   TERMINATION

      10.1 Termination of Agreement. This Agreement shall, without any action on
the part of either Party hereto, immediately terminate in the event that
Pharmacia or Pfizer publicly announce that the Merger Agreement has been
terminated or the Merger has been otherwise abandoned.

      10.2 Effects of Termination. In the event that this Agreement is
terminated pursuant to Section 10.1:

            (a) Special Account. Nastech shall promptly, and in any event within
three (3)Business Days following such termination, return to Pharmacia all
amounts remaining in the Special Account, together with all interest accrued
thereon, less the amount of any payments in respect of Milestone Events that
have become due since the Execution Date pursuant to section 8.3 of the
Collaboration and License Agreement but which have not been paid to Nastech as a
result of the suspension of Pharmacia's payment obligations pursuant to Section
4.2 (other than the payment in respect of the first Milestone Event listed in
section 8.3(b) of the Collaboration and License Agreement, which payment is
included in the Divestiture Payment).

            (b) Divestiture Payment. Nastech shall be entitled to retain the
Divestiture Payment, together with all interest accrued thereon, and Pharmacia
shall be entitled to credit $5,000,000 of the Divestiture Payment against any
payments in respect of Milestone Events due to Nastech pursuant to the
Collaboration and License Agreement following the termination of this Agreement;
provided, however, that such credit shall in no event cause any payment in
respect of any given Milestone Event to be reduced to less than 50% of the
amount that would otherwise be payable to Nastech pursuant to the Collaboration
and License Agreement; and provided, further, that any portion of such
$5,000,000 that is not credited to any payment due to the immediately preceding
proviso may be credited to subsequent payments in respect of Milestone Events
that may become due pursuant to the Collaboration and License Agreement.


                                       30
<PAGE>
            (c) Impact on Nastech Licenses. Neither the Nastech Licenses nor any
of the other rights granted to Nastech under Article 5 hereof shall become
effective.

            (d) Termination of Discussion Rights. Nastech's rights under Section
6.1 shall automatically terminate.

                                   ARTICLE 11

                                  MISCELLANEOUS

      11.1 Press Release and Public Announcement. Neither Party hereto may issue
any press release or make any public announcement in respect of this Agreement
except to the extent required by law or stock exchange or self-regulatory
organization regulation or rule or as provided in this Section 11.1. Each Party
hereto may issue a press release describing the key terms of this Agreement,
including the key financial terms, the role of the Merger and the Consent Decree
as catalysts for this Agreement, Pharmacia's assistance to Nastech in finding a
new collaboration partner, and such other terms that are necessary to convey to
Third Parties that, but for the Merger, product development would be progressing
forthwith. Upon the request of Nastech, Pharmacia shall provide a quote from one
of its senior management employees to the effect that the divestiture is not
being made because of any scientific or efficacy issues with respect to the
Collaboration Products, but rather because of requirements imposed by the FTC in
the course of its review of the proposed Merger and Nastech's ability and
willingness to rapidly take on the Development and Commercialization of Licensed
Products. Nastech may use such quote in its press release. The content of each
Party's press release shall be reasonably acceptable to the other Party hereto
and acceptable to the FTC. The timing of such releases shall be mutually agreed
by the Parties.

      11.2 Further Assurances. From time to time after the Execution Date, each
Party hereto shall, without further consideration, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, all such further
documents and instruments as may be reasonably requested by the other Party
hereto in connection with this Agreement and take such action as may be
reasonably necessary or desirable to effect the provisions of this Agreement,
including the regulatory transfers and filings contemplated by Section 9.1(g),
in the most expeditious manner practicable.

      11.3 Notices. Any consent or notice required or permitted to be given or
made under this Agreement, the Collaboration and License Agreement or Supply
Agreement by one of the Parties hereto to the other shall be in writing,
delivered personally or by facsimile (and promptly confirmed by personal
delivery or courier), by a next Business Day delivery service of a nationally
recognized overnight courier service or by courier, postage prepaid (where
applicable), addressed to such other Party at its address or facsimile number
indicated below, or to such other address or facsimile number as the


                                       31
<PAGE>
addressee shall have last furnished in writing to the addressor in accordance
with this Section 11.3, and shall be effective upon receipt by the addressee.

         If to Nastech:

                  Nastech Pharmaceutical Company, Inc.
                  3450 Monte Villa Parkway
                  Bothell, Washington 98021
                  Attention:  Office of the President
                  Facsimile No.:  425-908-3650

         If to Pharmacia:

                  Pharmacia & Upjohn Company
                  100 Route 206 North
                  Peapack, New Jersey 07977
                  Attention:  Vice President and Associate General Counsel
                  Facsimile No.: 908-901-1863

         with a copy to:

                  Pharmacia & Upjohn Company
                  100 Route 206 North
                  Peapack, New Jersey  07977
                  Attention:  Senior Vice President - Global Licensing
                  Facsimile:  908-901-1813

      11.4 Governing Law. This Agreement, the Collaboration and License
Agreement and Supply Agreement shall be governed and interpreted in all respects
under the laws of the State of New York, without regard to principles of
conflict of laws, except matters of intellectual property law, which shall be
determined in accordance with the intellectual property laws relevant to the
intellectual property in question. The provisions of the United Nations
Convention on Contracts for the International Sale of Goods shall not apply to
this Agreement, the Collaboration and License Agreement and Supply Agreement, or
any subject matter of any of them. Except as expressly provided in this Section
11.4 with respect to interim equitable relief, any action or proceeding arising
out of or relating to this Agreement, the surviving terms of the Collaboration
and License Agreement and Supply Agreement, or any of the transactions
contemplated by any of them, shall be brought exclusively in the courts of the
State of New York, or the United States District Court for the Southern District
of New York, located in the Borough of Manhattan, City of New York, and the
respective appellate courts with respect thereto, and the Parties hereto hereby
irrevocably consent to the personal jurisdiction and venue of the foregoing
courts with respect to all such actions and proceedings and waive all defenses
to the extent that they are inconsistent with the terms of this Section 11.4.
Each Party hereto hereby further irrevocably waives, to the fullest extent
permitted by applicable law, all rights to trial by jury in any such action or
proceeding, whether based upon contract, statute, tort or otherwise. The Parties
hereto hereby acknowledge that a


                                       32
<PAGE>
breach of its obligations hereunder or of any surviving obligations under the
Collaboration and License Agreement or Supply Agreement may cause irreparable
harm and that damages as a remedy for any such breach may be inadequate. The
Parties hereto hereby agree that, in the event of any such breach, in addition
to all other available remedies under this Agreement (which, except as and to
the extent otherwise expressly herein provided, shall be cumulative and not
exclusive of any rights or other remedies in equity or in law), the
non-breaching Party shall have the right to seek interim equitable relief in an
appropriate forum to enforce such obligations.

      11.5 Rights in Bankruptcy. The Nastech Licenses are, and shall otherwise
be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, 11
U.S.C. Section 101 et seq., licenses of rights to "intellectual property" as
defined under Section 101(35A) of the Bankruptcy Code and the Licensed Products
are, and shall otherwise be deemed to be, "embodiment[s]" of "intellectual
property" for purposes of same. Nastech shall retain and may fully exercise all
of their respective rights and elections under the Bankruptcy Code or equivalent
legislation in any other jurisdiction. Without limiting the generality of the
foregoing, Pharmacia acknowledges that the Nastech Licenses shall not be
affected by Pharmacia's or any of its Affiliates' rejection of this Agreement in
bankruptcy, and shall continue subject to the terms and conditions of this
Agreement. Upon the bankruptcy of Pharmacia or any of its Affiliates, Nastech
(or any such other grantee hereunder, as appropriate) shall further be entitled
to a complete duplicate of (or complete access to, as appropriate) any Pharmacia
Technology licensed under the Nastech Licenses, and such, if not already in its
possession, shall be promptly delivered to Nastech (or any such other grantee
hereunder, as appropriate) unless Pharmacia elects to continue, and continues,
to perform all of its obligations under this Agreement.

      11.6 Successors and Assigns. Neither Party hereto may assign this
Agreement, or the Collaboration and License Agreement or Supply Agreement (to
the extent that any provisions of either of them survive pursuant to Section
9.1(a) hereof), or any rights or obligations under any of the foregoing
agreements, without the prior written consent of the other Party, except that
Nastech may assign all the foregoing agreements in connection with the sale of
all or substantially all of its assets relating to Licensed Product in the Field
(including any transfer by operation of law in connection with a merger or
consolidation involving Nastech) and Pharmacia may assign all the foregoing
agreements to an Affiliate (provided that Pharmacia guarantees the performance
of such Affiliate thereunder). This Agreement shall inure to the benefit of and
be binding upon the Parties hereto and their successors and permitted assigns,
and, except as otherwise expressly stated in this Agreement, the obligations of
Pharmacia hereunder shall extend to its Affiliates (and their respective
successors and permitted assigns), for whose acts and omissions Pharmacia shall
be responsible as if committed by Pharmacia itself.

      11.7 Other Agreements. In the event of a conflict between the terms of
this Agreement and any terms of the Collaboration and License Agreement, the
Supply Agreement, the Investment Agreement or the Registration Rights Agreement,
the terms of this Agreement shall control. Except as expressly modified or
terminated by the terms of this Agreement, the terms of such agreements shall
continue (as is or, if so modified, as so modified) in full force and effect.
Without limiting the generality of the foregoing,


                                       33
<PAGE>
it is agreed that until the Collaboration and License Agreement is so
terminated, the Parties' diligence obligations under such agreement shall remain
in effect.

      11.8 Severability. If for any reason any provision of this Agreement, or
any surviving provision of the Collaboration and License Agreement or Supply
Agreement, is held to be void, invalid or unenforceable, in whole or in part, by
a court of competent jurisdiction, such provision shall not affect the other
provisions of such agreement, but shall be reformed or deemed restated to the
extent necessary to render it enforceable, preserving to the fullest extent
permissible the original contractual intent of the Parties in entering into such
agreement. Such provision, as reformed or restated, and all other provisions of
this Agreement, and all other surviving provisions of the Collaboration and
License Agreement or Supply Agreement, shall remain in full force and effect.

      11.9 Survival. Upon termination of this Agreement for any reason, except
as specifically provided herein to the contrary, all rights and obligations of
the Parties under this Agreement shall cease; provided, however, the provisions
of Sections 11.1, 11.4, 11.12, 11.13 and Article 10 shall survive termination.

      11.10 Waiver. No delay or omission by either Party in enforcing or
requiring observance of any of the provisions of this Agreement shall impair the
rights of such Party or be construed as a waiver of such provision or of any
other provision hereof. No waiver of any of the provisions hereof shall be valid
unless in writing and signed by the Party against which such waiver is sought to
be enforced. Such waiver shall be effective only in the specific instance and
for the specific purpose for which it is given and shall not affect the right of
the Party granting such waiver from thereafter requiring strict compliance with
all the terms and conditions of this Agreement.

      11.11 Independent Contractors. The Parties are and shall remain
independent contractors with respect to all performance rendered pursuant to
this Agreement. Neither Party nor any employee of either of them shall be
considered the principal, agent, employer, employee, master, servant, joint
venturer, or partner of the other for any purpose by reason of this Agreement.
Neither Party nor any of their respective employees shall have any power or
authority, express or implied, to bind or make commitments on behalf of the
other Party for any purpose and shall not hold itself or themselves out as
having such authority. Subject to the provisions of Section 5.8, each Party
shall bear full responsibility for its actions, errors and omissions that relate
to this Agreement (including any such actions, errors or omissions of such
Party's personnel or of any other Person employed or engaged by it or for whose
actions it may be liable), and shall have sole responsibility for the
supervision, direction and control, payment and benefits of its personnel and
such other Persons.

      11.12 Expenses. Except as otherwise expressly provided herein, each Party
hereto shall bear its own costs and expenses in connection with the negotiation,
execution, delivery and performance of this Agreement.

      11.13 Whole Agreement. This Agreement contains the entire agreement
between Nastech and Pharmacia with respect to the subject matter hereof and
supersedes


                                       34
<PAGE>
all prior agreements, negotiations, representations and proposals, written or
oral, relating to its subject matter. This Agreement can only be modified by
written agreement signed by authorized representatives of both Parties. Each
Party acknowledges that in entering into this Agreement it has not relied on any
representation, warranty, collateral contract or other assurance (except those
expressly set out in this Agreement) made by or on behalf of the other Party
before the first Party's signature and delivery of this Agreement. Each Party
waives all rights and remedies which, but for this Section, might otherwise be
available to it in respect of any such representation, warranty, collateral
contract or other assurance.

      11.14 FTC Approval. All terms and conditions of this Agreement shall be
subject to FTC and European Commission approval and the substitution or addition
of such modified or other terms and conditions as the FTC and the European
Commission may require. Each Party hereby agrees to accept such changes to this
Agreement as shall be required by the FTC or the European Commission and to
execute promptly an appropriate amendment to this Agreement to reflect such
required changes.

      11.15 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


                            [Signature page follows.]


                                       35
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this
Agreement as of the Execution Date.

                               PHARMACIA & UPJOHN COMPANY

                               By: /s/ Fred Hassan
                                   ---------------------------------------------
                               Name:    Fred Hassan
                               Title:   Chairman and Chief Executive Officer

                               NASTECH PHARMACEUTICAL COMPANY, INC.


                               By: /s/ Steven C. Quay
                                   ---------------------------------------------
                               Name:    Steven C. Quay, M.D., Ph.D.
                               Title:   Chairman, CEO, & President


                     Signature Page to Divestiture Agreement
<PAGE>
SCHEDULES

1.1 - Chemical Structure of Apomorpine [omitted]
1.2 - Nastech Patents [omitted]
1.2 - Description of Current Collaboration Product [omitted]
3.1 - Studies [omitted]
3.3 - Transition Activities [omitted]
4.1 - Wire Transfer Instructions [omitted]
5.5 - Covenant Not to Sue by Pfizer
6.2 - Pharmacia Employees Subject to Firewall [omitted]
7.3 - Certain Data and Information to be Provided by Pharmacia [omitted]
9.1(i)(A) - Release by Pharmacia and UpJohn Company [omitted]
9.1(i)(B) - Release by Nastech Pharmaceutical Company [omitted]

The registrant agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request. The registrant reserves the right to request
confidential treatment of all or any part of any schedules so requested.
<PAGE>
                                  SCHEDULE 5.5
                          COVENANT NOT TO SUE BY PFIZER


January 30, 2003


Via Facsimile - 425-908-3650

Nastech Pharmaceutical Company, Inc.
3450 Monte Villa Parkway
Bothell, Washington 98021
Attention:  Office of the President

Ladies and Gentlemen:

This letter is being provided by Pfizer Inc. ("Pfizer") to Nastech
Pharmaceutical Company, Inc. ("Nastech") pursuant to Section 5.5 of that certain
Divestiture Agreement, dated as of January XX, 2003, by and between Pharmacia &
Upjohn Company and Nastech (the "Divestiture Agreement"). Capitalized terms used
but not defined herein shall have the meaning provided such terms in the
Divestiture Agreement; provided, however, that for purposes of this letter
Pfizer's "Affiliates" shall not include Pharmacia or any of its Affiliates (as
Pharmacia and such Pharmacia Affiliates exist immediately prior to the Closing).

As an inducement for Nastech to enter into the Divestiture Agreement, Pfizer
hereby agrees as follows:

1.    Pfizer, on behalf of itself and its Affiliates, hereby covenants that,
      effective as of the Closing, neither Pfizer nor any of its Affiliates
      shall, directly or indirectly, alone or in participation with any other
      Person, seek to enjoin, or file, prosecute or maintain any suit, legal or
      other action or proceeding for damages or any legal, equitable or other
      relief against, the Nastech Releasees, or any of them, for infringement of

      (a)   any Patent Rights owned or licensed by Pfizer or its Affiliates at
            any time following the Closing; provided, however, that the covenant
            not to sue reflected in this Paragraph 1(a) shall apply solely with
            respect to activities of the Nastech Releasees in connection with
            the research, Development,


                                      -i-
<PAGE>
            manufacture, use, sale, offer for sale, or importing of the Current
            Collaboration Product (but not any other Licensed Product) in the
            Field; and

      (b)   any claims of any Patent Rights owned or licensed by Pfizer or its
            Affiliates as of the time immediately prior to the Closing which
            claim either (x) the use in the Field of Apomorphine delivered
            Intranasally (whether used by itself or in combination with any
            other active ingredient), or (y) a method of treating sexual
            dysfunction utilizing an agonist for the human Dopamine 2 receptor;
            provided, however, that the covenants not to sue reflected in this
            Paragraph 1(b) shall apply solely with respect to activities of the
            Nastech Releasees in connection with the research, Development,
            manufacture, use, sale, offer for sale, or importing of Licensed
            Product in the Field.

2.    In the event that Pfizer or any of its Affiliates grant, license, assign
      or transfer to any Third Party exclusive rights to any Patent Rights (x)
      owned or licensed by Pfizer or its Affiliates at any time following the
      Closing that would be infringed by the manufacture, use, importation, sale
      or offer for sale of the Current Collaboration Product in the Field, or
      (y) that are subject to the covenant not to sue set forth in Paragraph
      1(b), such grant, license, assignment or transfer of rights shall be only
      upon the condition that the Third Party executes a written agreement (i)
      containing a covenant not to sue the Nastech Releasees that is no less
      protective of the Nastech Releasees than the covenants set forth in
      Paragraph 1(b), and (ii) stating that each of the Nastech Releasees shall
      be a third party beneficiary with respect to such covenants.

3     For clarity, it is understood that the covenants not to sue reflected in
      Paragraph 1(b) do not apply to (x) any Patent Rights claiming inventions
      conceived following the Closing by one or more employees, consultants or
      agents of Pfizer or any of its Affiliates, or (y) any claims of any Patent
      Rights owned or licensed by Pfizer or its Affiliates other than those
      claims that are expressly described in such Paragraph.

4.    With respect to any Third Party Patent Rights that are included in the
      Patent Rights that are subject to the covenants not to sue reflected in
      Paragraph 1, it is understood that the provisions of Paragraph 1 shall not
      apply with respect to any suit, legal or other action or proceeding
      initiated by a Third Party for infringement of such Third Party Patent
      Right to the extent that Pfizer or its Affiliates do not have the right to
      control the prosecution of such suit, legal or other action or proceeding;
      provided, however, that Pfizer and its Affiliates shall not actively
      induce any Third Party to seek, or to enter into a collusive agreement, to
      enjoin, or file, prosecute or maintain any suit, legal or other action or
      proceeding for damages or any legal, equitable or other relief against,
      the Nastech Releasees, or any of them, for infringement of any such Third
      Party Patent Right; and provided further that Pfizer and its Affiliates
      will not assist or participate in any such suit, legal or other action or
      proceeding except to the extent required by law or the terms of any
      contract or other agreement related to such Third Party Patent Rights.


                                      -ii-
<PAGE>
5.    It is understood that the undertakings set forth in this letter (including
      without limitation the covenants not to sue reflected in Paragraph 1)
      shall not be effective unless and until the Closing occurs. In the event
      of any termination of the Divestiture Agreement, the undertakings set
      forth in this letter shall be null and void.

6.    The undertakings set forth in this letter shall be governed by and
      interpreted in all respects under the laws of the State of New York,
      without regard to its principles of conflicts of laws.

7.    The undertakings set forth in this letter represent the entire set of
      undertakings, obligations and commitments of Pfizer and its Affiliates
      with respect to the Nastech Releasees regarding the subject matter hereof,
      and supersedes all prior agreements, negotiations, representations and
      proposals, written or oral, relating to its subject matter. The
      undertakings set forth in this letter shall be binding upon Pfizer and its
      successors and permitted assigns.

                                           Sincerely,

                                           Pfizer Inc.



                                           By:  /s/ Hank McKinnell
                                                --------------------------
                                                    Hank McKinnell
                                                    Chairman and Chief Executive
                                                    Officer