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                                                                    EXHIBIT 10.2

                       NASTECH PHARMACEUTICAL COMPANY INC.
                            2004 STOCK INCENTIVE PLAN

                     INCENTIVE STOCK OPTION GRANT AGREEMENT

      This Grant Agreement (the "Agreement") is entered into this 20th day of
July 2005 by and between Nastech Pharmaceutical Company Inc. (the
"Corporation"), a Delaware Corporation, and Dr. Steven C. Quay, M.D., Ph.D.
("Grantee").

                                    ARTICLE 1
                                 GRANT OF OPTION

      Section 1.1 Grant of Options. Subject to the provisions of the Agreement,
and pursuant to the provisions of the Nastech Pharmaceutical Company Inc. 2004
Stock Incentive Plan (the "Plan"), Corporation hereby grants to Grantee, as of
the Grant Date specified in Attachment A, an Incentive Stock Option (the
"Option") to purchase all or any part of the number and class of shares of
Common Stock set forth on Attachment A at the exercise price per share ("Option
Price") set forth on Attachment A. It is intended that the entire Option qualify
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and to the extent that all or any portion of the
Option does not so qualify, the Option shall be treated as a non-qualified stock
option.

      Section 1.2 Term of Options. Unless the Option granted pursuant to Section
1.1 terminates earlier pursuant to other provisions of the Agreement, including
the expiration date specified in Attachment A, the Option shall expire on the
expiration date set forth on Attachment A hereto, but in no event later than the
tenth (10th) anniversary of its Grant Date.

                                    ARTICLE 2
                                     VESTING

      Section 2.1 Vesting Schedule. Unless the Option has earlier terminated
pursuant to the provisions of the Agreement, Grantee shall become vested on the
dates specified on Attachment A in a portion of the Option with respect to a
percentage or number of the underlying shares in accordance with the vesting
schedule specified on Attachment A; provided that Grantee shall have been in the
continuous employ of the Corporation from the Grant Date through any such date.

                                    ARTICLE 3
                               EXERCISE OF OPTION

      Section 3.1 Exercisability of Option. No portion of the Option granted to
Grantee shall be exercisable by Grantee prior to the time such portion of the
Option has vested.

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      Section 3.2 Manner of Exercise. The Option may be exercised, in whole or
in part, by delivering written notice to the Committee or any designee of the
Committee. Such notice shall specify the number of shares of Common Stock
subject to the Option as to which the Option is being exercised, and shall be
accompanied by full payment of the Option Price of the shares of Common Stock as
to which the Option is being exercised. Payment of the Option Price shall be
made in cash (or cash equivalents acceptable to the Committee in the Committee's
discretion). In the Committee's sole and absolute discretion, the Committee may
authorize payment of the Option Price to be made, in whole or in part, by such
other means as the Committee may prescribe. The Committee hereby approves the
other means of payment set forth in section 6.(g) of Grantee's Employment
Agreement dated as of June 3, 2005 (the "Employment Agreement"). The Option may
be exercised only in multiples of whole shares and no partial shares shall be
issued. Notwithstanding anything to the contrary herein, the minimum number of
shares that may be purchased upon an exercise of the Option is the lesser of 100
shares or the number of shares subject to the vested portion of the Option.

      Section 3.3 Issuance of Shares and Payment of Cash upon Exercise. Upon
exercise of the Option, in whole or in part, in accordance with the terms of the
Agreement and upon payment of the Option Price for the shares of Common Stock as
to which the Option is exercised, the Corporation shall issue to Grantee or, in
the event of Grantee's death, to Grantee's executor, personal representative or
the person to whom the Option shall have been transferred by will or the laws of
descent and distribution, as the case may be, the number of shares of Common
Stock so paid for, in the form of fully paid and nonassessable Common Stock. The
stock certificates for any shares of Common Stock issued hereunder shall, unless
such shares are registered or an exemption from registration is available under
applicable federal and state law, bear a legend restricting transferability of
such shares.

                                    ARTICLE 4
                            TERMINATION OF EMPLOYMENT

      Section 4.1 Unvested Portion. Unless the Option has earlier terminated
pursuant to the provisions of this Agreement, the unvested portion of the Option
shall terminate upon termination of Grantee's employment with the Corporation
and all of the Corporation's subsidiaries for any reason.

      Section 4.2 Termination of Employment for Good Reason, Involuntarily by
the Corporation, For Cause by the Corporation or Voluntarily by Grantee Other
Than Termination of Employment by Death or Disability. Unless the Option has
earlier terminated pursuant to the provisions of this Agreement, the vested
portion of the Option granted to Grantee shall terminate in its entirety,
regardless of whether the Option is vested in whole or in part at the end of the
stated term of the Option. Grantee may exercise all or any part of the Option
that was vested as of the date of termination and after the date of termination
but no later than the earlier of ninety (90) days following such date of
termination (the "Ninety Day Period") or the end of the stated term of the
Option. Failure to exercise the Option within the Ninety Day Period shall render
the Option a non-qualified stock option.

                                       2

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      Section 4.3 Upon Grantee's Death. Unless the Option has earlier terminated
pursuant to the provisions of the Agreement, upon Grantee's death, Grantee's
executor, personal representative or the person to whom the Option shall have
been transferred by will or the laws of descent and distribution, as the case
may be, may exercise all or any part of the Option that was vested as of the
date of death no later than the earlier of twelve (12) months following such
date of termination (the "Twelve Month Period") or the end of the stated term of
the Option. Failure to exercise the Option within the Twelve Month Period shall
render the Option a non-qualified stock option.

      Section 4.4 Termination of Employment by Reason of Disability. Unless the
Option has earlier terminated pursuant to the provisions of the Agreement, in
the event that Grantee ceases, by reason of Disability, to be an employee of the
Corporation, all or any part of the Option that was vested as of the date of
termination of employment may be exercised in whole or in part at any time until
the earlier of the end of the Twelve Month Period or the end of the stated term
of the Option. For purposes of this Agreement, Disability shall be as defined in
Code Section 22(e)(3) and shall be determined by the Committee, with its
determination on the matter being final and binding. Failure to exercise the
Option within the Twelve Month Period shall render the Option a non-qualified
stock option.

                                    ARTICLE 5
                                  MISCELLANEOUS

      Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or the
Agreement shall be construed as a contract of employment between the Corporation
and Grantee, or as a contractual right of Grantee to continue in the employ of
the Corporation, or as a limitation of the right of the Corporation to discharge
Grantee at any time.

      Section 5.2 No Rights of Stockholder. Grantee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock that may be
issued upon the exercise of the Option until such shares of Common Stock have
been issued to him upon the due exercise of the Option.

      Section 5.3 Withholding of Taxes. The Corporation shall have the right to
deduct from any compensation or any other payment of any kind (including
withholding the issuance of shares of Common Stock) due Grantee the amount of
any federal, state or local taxes required by law to be withheld as the result
of the exercise of the Option; provided, however, that the value of the shares
of Common Stock withheld may not exceed the statutory minimum withholding amount
required by law. In lieu of such deduction, the Committee may require Grantee to
make a cash payment to the Corporation or an affiliate equal to the amount
required to be withheld. If Grantee does not make such payment when requested,
the Corporation may refuse to issue any Common Stock certificate under the Plan
until arrangements satisfactory to the Committee for such payment have been
made.

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      Section 5.4 Nontransferability of Option. Except as set forth in section
6.(g) of Grantee's Employment Agreement and other than by will or the laws of
descent and distribution, the Option shall be nontransferable. During any period
Grantee is under a legal disability, Grantee's guardian or legal representative
may exercise all or any portion of the vested Option on behalf of Grantee.

      Section 5.5 Notice of Disqualifying Disposition. Grantee agrees to notify
the Committee in writing within ten (10) business days after making a
Disqualifying Disposition (as defined below) of any Common Stock acquired
pursuant to the exercise of the Option granted hereunder. A Disqualifying
Disposition is any disposition (including any sale) of the Common Stock acquired
upon the exercise of the Option before the later of (i) two (2) years after the
date Grantee was granted the Option hereunder or (ii) one year after the date
Grantee acquired the Common Stock by exercising the Option granted hereunder. If
Grantee dies before such Common Stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.

      Section 5.6 Agreement Subject to Grantee's Employment Agreement and the
Corporation's Charter and Bylaws. This Agreement is subject to Grantee's
Employment Agreement and the Charter and Bylaws of the Corporation, and any
applicable Federal or state laws, rules or regulations, including without
limitation, the laws, rules, and regulations of the State of Delaware.

      Section 5.7 Gender. As used herein, the masculine shall include the
feminine as the circumstances may require.

      Section 5.8 Headings. The headings in the Agreement are for reference
purposes only and shall not affect the meaning or interpretation of the
Agreement.

      Section 5.9 Notices. All notices and other communications made or given
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to Grantee at the
address contained in the records of the Corporation, or addressed to the
Committee, care of the Corporation for the attention of its Secretary at its
principal office or, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may
be available to the parties.

      Section 5.10 Entire Agreement; Modification. The Agreement and Grantee's
Employment Agreement contain the entire agreement between the parties with
respect to the subject matter contained herein and may not be modified, except
as provided in the Plan, Grantee's Employment Agreement or in a written document
signed by each of the parties hereto.

      Section 5.11 Conformity with Plan and Grantee's Employment Agreement. This
Agreement is intended to conform in all respects with, and is subject to all
applicable provisions of, the Plan, which is incorporated herein by reference
and Grantee's Employment Agreement. Unless stated otherwise herein, capitalized
terms in this Agreement shall have the same meaning as defined in the Plan.
Inconsistencies

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between this Agreement and the Plan or Grantee's Employment Agreement shall be
resolved in accordance with the terms of the Plan and Grantee's Employment
Agreement provided however that the Option granted pursuant to this Agreement is
not transferable by Grantee other than by will or the laws of descent and
distribution, and the Option is exercisable during Grantee's lifetime only by
Grantee notwithstanding any provision of the Plan or Grantee's Employment
Agreement to the contrary. In the event of any ambiguity in the Agreement which
is not clarified in Grantee's Employment Agreement or any matters as to which
the Agreement is silent, the Plan shall govern including, without limitation,
the provisions thereof pursuant to which the Committee has the power, among
others, to (i) interpret the Plan and Grant Agreements related thereto, (ii)
prescribe, amend and rescind rules and regulations relating to the Plan, and
(iii) make all other determinations deemed necessary or advisable for the
administration of the Plan. Grantee acknowledges by signing this Agreement that
he has received and reviewed a copy of the Plan.

      IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first above written.

                                 NASTECH PHARMACEUTICAL COMPANY INC.

                                 By: /s/ Gregory L. Weaver
                                     -------------------------------
                                     Name:  Gregory L. Weaver
                                     Title: CFO

                                 GRANTEE

                                     /s/ Steven C. Quay
                                     -------------------------------
                                     Dr. Steven C. Quay
                                     President and Chief Executive Officer

                                       5

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                                  ATTACHMENT A

      Grant Date:          July 20, 2005

      Number of Options:   27,172

      Exercise Price:      $14.72 per share

      The exercise price equals the fair market value of the Common Stock on
      date of grant.

      Vesting Schedule:

<TABLE>
<CAPTION>
Percentage of Total Shares                           Vesting Date
--------------------------                           ------------
<S>                                           <C>
          25%                                 1st anniversary of Grant Date

          25%                                 2nd anniversary of Grant Date

          25%                                 3rd anniversary of Grant Date

          25%                                 4th anniversary of Grant Date

Expiration Date:                              July 20, 2015
</TABLE>