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                                                                    EXHIBIT 10.2

                                                                  EXECUTION COPY

                                SUPPLY AGREEMENT

                                 by and between

                       NASTECH PHARMACEUTICAL COMPANY INC.

                                       and

                                MERCK & CO., INC.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF
THIS DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED
WITH AN ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]

                                SUPPLY AGREEMENT

      This Supply Agreement (this "AGREEMENT"), is effective as of the 24th day
of September, 2004 (the "EFFECTIVE DATE"), by and between Nastech Pharmaceutical
Company Inc., a company organized and existing under the laws of the State of
Delaware and having its principal office at 3450 Monte Villa Parkway, Bothell,
WA 98021 (hereinafter referred to as "NASTECH"), and Merck & Co., Inc., a
company organized and existing under the laws of the State of New Jersey U.S.A.
and having its principal office at One Merck Drive, Whitehouse Station, New
Jersey, 08889-0100, U.S.A. (hereinafter referred to as "MERCK");

                                   WITNESSETH:

WHEREAS, MERCK and NASTECH have entered into an EXCLUSIVE DEVELOPMENT,
COMMERCIALIZATION AND LICENSE AGREEMENT effective as of the date hereof (the
"LICENSE AGREEMENT") relating to a grant of a license from NASTECH to MERCK; and

WHEREAS, as part of the LICENSE AGREEMENT, MERCK desires to purchase, and
NASTECH desires to supply, MERCK's and its Related Parties' (as defined in the
LICENSE AGREEMENT) requirements of PRODUCT (as hereinafter defined) in the
TERRITORY (as hereinafter defined) pursuant to the terms set forth herein.

NOW, THEREFORE, in consideration of the covenants herein contained, the parties
hereto agree as follows:

1.    DEFINITIONS

      References to "Articles", "Sections" and "subsections" in this AGREEMENT
      shall be to Articles, Sections and subsections respectively, of this
      AGREEMENT unless otherwise specifically provided. Capitalized terms used
      but not defined herein shall have the meanings set forth in the LICENSE
      AGREEMENT. As used in this AGREEMENT the following terms, whether used in
      the singular or the plural, shall have the meanings set forth in this
      Article:

1.1   The term "ACTIVE PHARMACEUTICAL INGREDIENT" or "API" shall mean PYY(3-36)
      as defined in the LICENSE AGREEMENT.

1.2   The term "AFFILIATE", shall mean (i) any corporation or business entity of
      which fifty percent (50%) or more of the securities or other ownership
      interests representing the equity, the voting stock or general partnership
      interest are owned, controlled or held, directly or indirectly, by MERCK
      or NASTECH; or (ii) any corporation or business entity which, directly or
      indirectly, owns, controls or holds fifty percent (50%) (or the maximum
      ownership interest permitted by law) or more of the securities or other
      ownership interests representing the equity, the voting stock or, if
      applicable, the general partnership interest, of MERCK or NASTECH; or
      (iii) any corporation or business entity

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF
THIS DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED
WITH AN ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]

      of which fifty percent (50%) or more of the securities or other ownership
      interests representing the equity, the voting stock or general partnership
      interest are owned, controlled or held, directly or indirectly, by a
      corporation or business entity described in (i) or (ii).

1.3   The term "CALENDAR YEAR" means any period during the TERM commencing on
      January 1 and ending on December 31.

1.4   The term "cGMP" shall mean all laws and regulations, including, without
      limitation, the laws and regulations applicable in the United States,
      European Union, Canada, Australia and/or Japan, relating to the
      MANUFACTURE of PRODUCT, including but not limited to, the current Good
      Manufacturing Practices as specified in the United States Code of Federal
      Regulations, the EU Good Manufacturing Guidelines, Q7A Good Manufacturing
      Practice Guidance for Active Pharmaceutical Ingredients (also known as
      Annex 18 to EudraLex Volume 4, "European Commission Guide to Good
      Manufacturing Practice for Medicinal Products"), and any other applicable
      laws, guidelines and/or regulations.

1.5   The term "CONTINUED MANUFACTURE FAILURE" shall have the meaning set forth
      in Section 2.2(c).

1.6   The term "DELIVERY" shall have the meaning set forth in Section 4.3.

1.7   The term "DMF" shall mean a Drug Master File covering API maintained with
      the U.S. REGULATORY AUTHORITY or its equivalent maintained with other
      REGULATORY AUTHORITIES.

1.8   The term "FACILITY" shall mean, collectively, (i) NASTECH's facility
      located [***].

1.9   The term "FIRM ORDER" means a binding commitment in writing made by MERCK
      to purchase PRODUCT from NASTECH in accordance with Section 3.2.

1.10  The term "FIRST COMMERCIAL SALE" shall mean the first sale of PRODUCT for
      end use or consumption in the first country in the TERRITORY after all
      required approvals, including Marketing Authorization, have been granted
      by the REGULATORY AUTHORITY of such country, excluding, however, any sale
      or other distribution for use in a Clinical Trial.

1.11  The term [***] shall have the meaning set forth in Schedule [***] attached
      hereto.

1.12  The term "LICENSE AGREEMENT" shall have the meaning assigned in the
      recitals hereto.

1.13. The term "LONG RANGE PLAN" shall have the meaning set forth in Section
      3.3.

1.14  The term "MANUFACTURE/MANUFACTURING/MANUFACTURED" shall mean all
      operations involved in the receipt, incoming inspections, storage and
      handling of

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF
THIS DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED
WITH AN ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]

      MATERIALS and the manufacturing, formulating, PRIMARY PACKAGING, secondary
      packaging (i.e., putting PRIMARY PACKAGED PRODUCT into appropriate
      containers/cartons), labeling, warehousing, quality control testing
      (including in-process, release and stability testing), release, and
      shipping of PRODUCT; provided that in the event MERCK elects to perform
      secondary packaging and labeling pursuant to Section 2.1 of this
      Agreement, then secondary packaging and labeling shall be excluded from
      the definition of "MANUFACTURE".

1.15  The term "MATERIALS" shall mean all raw materials, including without
      limitation, ACTIVE PHARMACEUTICAL INGREDIENT, excipients, components,
      containers, labels and packaging materials necessary for the MANUFACTURE
      of PRODUCT.

1.16  The term "MONTH" shall mean a calendar month.

1.17  The term "NASAL FORMULATIONS" shall mean the PYY (3-36) nasally
      administered formulations [***].

1.18  The term "NASTECH KNOW-HOW" shall have the meaning given in the License
      Agreement.

1.19  The term "PRIMARY PACKAGED PRODUCT" shall mean a NASAL FORMULATION
      contained in a primary container, and accompanied by an actuator used to
      administer the NASAL FORMULATION, as specified in the Primary Packaging
      Specifications set forth in Schedule 1.26. For the purposes of this
      AGREEMENT, "primary container" shall include a vial or other similar
      packaging which comes into contact with the NASAL FORMULATION as specified
      in the Primary Packaging Specifications set forth in Schedule 1.26.

1.20  The term "PRIMARY PACKAGING" shall mean the process of manufacturing
      PRIMARY PACKAGING PRODUCT.

1.21  The term "PRODUCT" shall mean PRIMARY PACKAGED PRODUCT in final packaged
      and labeled form.

1.22  The term "QUARTER" shall mean the respective periods of three (3)
      consecutive calendar months ending on March 31, June 30, September 30 and
      December 31.

1.23  The term "REGISTRATIONS" shall mean the technical, medical and scientific
      licenses, registrations, authorizations and/or approvals of the PRODUCT
      (including the prerequisite manufacturing approvals or authorizations,
      marketing authorization based upon such approvals and pricing, third party
      reimbursement and labeling approvals related thereto) that are required by
      any national, supranational (e.g., the European Commission or the Council
      of the European Union), regional, state or local regulatory agency,
      department, bureau or other governmental entity in the TERRITORY, as
      amended or supplemented from time to time.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF
THIS DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED
WITH AN ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]

1.24  The term "SAFETY STOCK" shall have the meaning set forth in Section 3.4.

1.25  The term "SECONDARY MANUFACTURER" shall have the meaning set forth in
      Section 2.3.

1.26  The term "SPECIFICATIONS" shall mean the specifications for PRODUCT set
      forth in Schedule 1.26 hereto, which may be amended from time to time by
      written agreement of NASTECH and MERCK.

1.27  The term "SUPPLY PRICE" shall have the meaning set forth in Section 4.1.

1.28  The term "TERM" shall have the meaning set forth in Section 12.1.

1.29  The term "TERRITORY" shall mean all of the countries in the world, and
      their territories and possessions.

1.30  The term "UNIT" shall mean a vial of PRODUCT or PRIMARY PACKAGED PRODUCT.

2.    SUPPLY OF PRODUCT

2.1   Appointment. NASTECH agrees to supply, and MERCK agrees to purchase from
      NASTECH, all of MERCK's and its Related Parties' requirements of PRODUCT
      in the TERRITORY during the TERM (except as set forth in Sections 2.2(c)
      and 2.3 below), subject to the terms and conditions herein.
      Notwithstanding the foregoing, MERCK shall have the option to perform
      secondary packaging and labeling for its requirements of PRODUCT in all or
      part of the TERRITORY, in which case NASTECH shall supply MERCK with
      PRIMARY PACKAGED PRODUCT for such TERRITORY. For the purposes of this
      AGREEMENT, all references to MERCK's requirements for PRODUCT shall
      include the requirements of its Related Parties. MERCK's Related Parties
      may purchase PRODUCT directly from NASTECH under this AGREEMENT upon
      notification to NASTECH of their agreement to be bound by the terms and
      conditions hereof; provided that any majority owned subsidiary of MERCK
      may do so without such notification.

2.2   Shortage of Supply.

      (a)   In the event that at any time NASTECH foresees that it will be
            unable to MANUFACTURE in whole or in part an ordered or forecasted
            quantity of PRODUCT for any other reason, including Section 13.4
            (Force Majeure), NASTECH shall notify MERCK of such inability as
            soon as possible, the reasons therefor and the date such inability
            is expected to end, the quantities of PRODUCT available during such
            period and the proposed amount of the MATERIALS and/or resources
            allocated to MERCK in the event such inability is caused by a
            shortage of MATERIALS and/or resources required for the

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

            MANUFACTURE of PRODUCT. Such allocation shall be no less than
            MERCK's pro rata share of the amount of MATERIALS and/or resources
            available to NASTECH, taking into consideration the respective past
            [***] unit sales of PRODUCT to MERCK and unit sales of other
            products by NASTECH to its other customers. If the shortage shall
            occur prior to [***], then the forecasts of MERCK, NASTECH or other
            customers of NASTECH for the [***] period immediately preceding the
            shortage shall be used in determining MERCK's pro rata share. In
            making any such allocation, NASTECH shall not give any priority to
            its own requirements or those of its AFFILIATEs or other customers.

      (b)   In the event [***], NASTECH shall immediately (i) meet with MERCK to
            discuss, among other things, [***].

      (c)   In the event [***] (a "CONTINUED MANUFACTURE FAILURE"), then MERCK
            shall have the right, at MERCK's sole discretion, to immediately
            exercise the license granted to MERCK under Section 3.1.2 of the
            LICENSE AGREEMENT to MANUFACTURE all or part of its requirements for
            PRODUCT in the TERRITORY and/or terminate this AGREEMENT, in whole
            or in part, in accordance with Section 12.4.

      (d)   In the event of a CONTINUED MANUFACTURE FAILURE, NASTECH shall, at
            its own expense, (i) promptly make available to MERCK, or any third
            party selected by MERCK [***] necessary for MERCK or the third party
            selected by MERCK to assume the MANUFACTURING of PRODUCT, (ii)
            promptly assist MERCK [***] for the MANUFACTURE of PRODUCT by MERCK
            or the third party selected by MERCK, (iii) allow MERCK or the third
            party selected by MERCK to [***] enable MERCK to exercise its
            back-up manufacturing rights under this Section 2.2 (d), and (iv) at
            the request of MERCK, [***]. Merck's exercise of its rights under
            Section 2.2(c) and (d) hereunder shall not limit other remedies
            available to Merck at law or in equity, including without limitation
            due to Nastech's breach of its manufacturing obligations hereunder.

            In order to ensure that MERCK is able to exercise its right under
            Clauses (iii) and (iv) above and under Section 2.3(iii) and (iv)
            below, NASTECH shall [***].

      (e)   Notwithstanding MERCK's election to make or have made the PRODUCT
            pursuant to Section 2.2 (c) above, to the extent NASTECH is able to
            MANUFACTURE any PRODUCT, MERCK may purchase from NASTECH PRODUCT in
            accordance with the terms of this AGREEMENT until such time MERCK or
            the third party selected by MERCK is able to MANUFACTURE PRODUCT. In
            such event, MERCK shall pay the SUPPLY PRICE for the quantities of
            PRODUCT purchased from NASTECH or its AFFILIATE. In the event MERCK
            elects to make or have made the PRODUCT pursuant to Section 2.2 (c)
            above, MERCK shall not be obligated to pay to NASTECH the SUPPLY
            PRICE or other amounts on the quantities of PRODUCT so manufactured
            by MERCK or its third party manufacturer.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

2.3   Secondary Manufacturer.

      Notwithstanding anything to the contrary herein or in the LICENSE
      AGREEMENT, MERCK shall have the option to develop a secondary source of
      supply for PRODUCT, [***]. In the event MERCK exercises such option,
      NASTECH shall (i) immediately provide the SECONDARY MANUFACTURER [***],
      (ii) promptly assist the SECONDARY MANUFACTURER[***] for the MANUFACTURE
      of PRODUCT, (iii) allow the SECONDARY MANUFACTURER to [***] enable MERCK
      to exercise its rights under this Section 2.3, and (iv) at the request of
      MERCK, supply [***].

2.4   Capacity Expansion.

      (a)   Upon execution of this AGREEMENT, NASTECH shall [***]. The parties
            hereby agree that the existing capacity of the [***] is [***] UNITS
            per year. In the event a LONG RANGE PLAN indicates that MERCK's
            requirements for UNITS will require at least [***], the parties
            shall meet to discuss in good faith alternatives to increase the
            capacity of the [***], including, without limitation, the
            acquisition and installation of larger and/or more efficient
            equipment, and NASTECH shall implement any plan mutually agreed upon
            by the parties. In the event a LONG RANGE PLAN indicates that
            MERCK's requirements for UNITS will require at least [***] (the
            "CAPACITY EXPANSION TRIGGER"), NASTECH shall take the necessary
            actions to acquire a new facility for the MANUFACTURE of PRODUCT,
            including, without limitation, acquiring, constructing and/or
            renovating the facility, purchasing, installing and validating
            MANUFACTURING equipment, and ensure that the new facility is in a
            qualified and validated state appropriate for inclusion as a
            MANUFACTURING site for PRODUCT as required by the applicable
            REGULATORY AUTHORITY (the "CAPACITY EXPANSION"), subject to the
            provisions set forth below:

            (i)   MERCK will notify NASTECH at least [***] months prior to the
                  anticipated CAPACITY EXPANSION TRIGGER (the "EXPANSION
                  NOTICE") based on its LONG RANGE FORECASTS.

            (ii)  Upon receipt of the EXPANSION NOTICE, NASTECH shall, in
                  consultation with MERCK, develop plans and schedules for the
                  CAPACITY EXPANSION, at its own costs and expense (the
                  "EXPANSION PLAN"). NASTECH shall submit the EXPANSION PLAN to
                  MERCK for review and approval within [***] months after its
                  receipt of the EXPANSION NOTICE;

            (iii) MERCK shall provide NASTECH with certain financing [***]
                  subject to and documented in accordance with the terms of
                  financing stated in Section 3.7 of the LICENSE AGREEMENT.
                  NASTECH shall use [***], as contemplated and provided for in
                  the plans developed pursuant to Clause (ii) above, and shall
                  complete [***] in accordance with the timeline set forth in
                  the EXPANSION PLAN.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

            (iv)  Notwithstanding anything to the contrary herein, NASTECH
                  agrees that MERCK shall not be obligated to provide the
                  EXPANSION LOAN to NASTECH prior to [***] unless otherwise
                  agreed to by MERCK.

      (b)   Before [***], NASTECH shall not use the expanded capacity to
            manufacture [***]. After [***], NASTECH shall continue to reserve
            sufficient capacity for the MANUFACTURE of PRODUCT, and shall give
            [***] to the MANUFACTURE of PRODUCT at all times.

2.5   Subcontracting.

      NASTECH may not subcontract its obligations under this AGREEMENT to a
      third party without MERCK's prior written consent.

2.6   Procurement of Materials.

      NASTECH shall be responsible for the procurement of all MATERIALS.
      Notwithstanding the foregoing, MERCK shall have the option, with prior
      written notice to NASTECH, [***]. In the event MERCK exercises its option
      set forth above, [***].

3.    FORECASTS AND ORDERS

3.1   Monthly Forecast. In order to assist NASTECH in its production planning,
      no later than [***] months prior to date of the anticipated FIRST
      COMMERCIAL SALE, MERCK will provide NASTECH with a written rolling [***]
      month forecast of MERCK's monthly requirements for PRODUCTS for the
      following [***] MONTHS. Thereafter, on or before the fifteenth (15th)
      calendar day of each MONTH, MERCK shall submit to NASTECH its updated
      forecast for the next [***] MONTHS. It is understood and agreed that
      estimates shall not constitute commitments to purchase PRODUCT or FIRM
      ORDERS.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

3.2   Firm Orders.

      (a)   At least [***] days prior to the beginning of each MONTH during the
            TERM, MERCK shall place an order (a "FIRM ORDER") for its
            requirements of PRODUCT for such MONTH. Each FIRM ORDER shall
            specify the quantity of PRODUCT ordered, the required DELIVERY date
            and the shipping address. For the period prior to the [***]
            anniversary of the FIRST COMMERCIAL SALE, each FIRM ORDER shall not
            be less than [***], nor more than [***] of the quantity for such
            MONTH, as set forth in the most recent rolling forecast for such
            MONTH, and for the periods thereafter, each FIRM ORDER shall not be
            less than [***] nor more than [***] of the quantity for such MONTH,
            as set forth in the most recent rolling forecast for such MONTH. If
            MERCK places a FIRM ORDER in excess of the maximum amount allowed
            for such MONTH pursuant to the foregoing sentence, NASTECH shall
            [***].

      (b)   Should MERCK request NASTECH to supply PRODUCT in excess of MERCK's
            most recent estimate of its requirements, NASTECH shall [***].

      (c)   MERCK may cancel or defer any FIRM ORDER [***], provided that such
            cancellation notice is received by NASTECH at least [***] prior to
            the scheduled DELIVERY date for PRODUCT. If MERCK cancels or defers
            a FIRM ORDER with less than the aforementioned notice NASTECH shall
            [***].

      (d)   NASTECH shall satisfy each FIRM ORDER on or before [***]. The
            site(s) of MANUFACTURE shall be indicated on documents accompanying
            each shipment of PRODUCT.

      (e)   A FIRM ORDER shall be made on such form of purchase order or
            document as MERCK may specify from time to time in writing; provided
            that the terms and conditions of this AGREEMENT shall be controlling
            over any terms and conditions included in any FIRM ORDER. Any term
            or condition of such FIRM ORDER that is different from or contrary
            to the terms and conditions of this AGREEMENT shall be void.

3.3   Long Range Forecast. In addition to the rolling monthly forecast, no later
      than [***] years prior to the anticipated date of the FIRST COMMERCIAL
      SALE, and thereafter, by [***] of each CALENDAR YEAR, MERCK shall provide
      NASTECH with a long range plan containing a non-binding estimate of annual
      requirements of PRODUCT for the following [***] CALENDAR YEARS (each a
      "LONG RANGE PLAN"). If at any time, a LONG RANGE PLAN reasonably suggests
      any supply issue, particularly as it relates to production capacity, the
      parties shall discuss how to address the potential shortage.

3.4   Safety Stock.

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

      (a)   No later than [***] months prior to anticipated date of the FIRST
            COMMERCIAL SALE, NASTECH shall at its own cost and expense, at any
            time during the TERM, maintain an amount of inventory of PRODUCT
            equal to MERCK's requirements of PRODUCT for commercial sale for
            [***] months based on MERCK's most recently updated rolling forecast
            (the "SAFETY STOCK").

      (b)   The SAFETY STOCK shall be maintained for the sole benefit of MERCK
            and shall not be subject to allocation, and shall be stored at a
            secure FACILITY in compliance with cGMP, separate from the FACILITY
            where the PRODUCT is MANUFACTURED. NASTECH shall rotate the SAFETY
            STOCK on a "First Expiry-First Out" basis for routine fulfillment of
            FIRM ORDERS. MERCK shall have the right to reduce or eliminate the
            SAFETY STOCK at any time by written notice to NASTECH and MERCK's
            obligation to purchase the SAFETY STOCK under Section 12.8 (c) of
            this AGREEMENT shall be reduced or eliminated.

      (c)   In the event NASTECH is not able to MANUFACTURE any FIRM ORDERS for
            any reason, NASTECH shall draw upon the SAFETY STOCK to make up for
            any shortfall it is not able to MANUFACTURE. Within [***] days after
            the end of each QUARTER, NASTECH shall deliver a report to MERCK
            describing the quantities of the SAFETY STOCK remaining as of the
            end of such QUARTER.

4.    PRICE; PAYMENT AND TERMS OF SALE

4.1   Price. The supply price (the "SUPPLY PRICE") payable by MERCK to NASTECH
      for PRODUCT DELIVERED hereunder, shall be [***]. The SUPPLY PRICE shall be
      for the DELIVERY term set forth in Section 4.3 below.

4.2   Payment. Payment of the SUPPLY PRICE for PRODUCT DELIVERED to MERCK shall
      be made by MERCK in United States dollars, free and clear of any
      reduction, charges, fees or withholding of any nature unless acknowledged
      by NASTECH in writing, [***] after the date of bill of lading and shall be
      paid by bank wire transfer to a bank account designated in writing by
      NASTECH from time to time.

4.3   DELIVERY. NASTECH shall DELIVER PRODUCT purchased by MERCK FCA (INCOTERMS
      2000), site of MANUFACTURE (each a "DELIVERY").

4.4   Title and Risk of Loss. Title to the PRODUCT sold hereunder shall pass to
      MERCK, and NASTECH's liability as to DELIVERY thereof shall cease upon
      DELIVERY, whereupon MERCK shall assume all risk of loss or damage.

4.5   Terms of Sale. The terms and conditions of this AGREEMENT shall be
      controlling over any inconsistent terms or conditions included in any FIRM
      ORDER or any other sales acknowledgment or document. No provision of
      MERCK's purchase order forms which

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

      may impose different conditions than those herein referenced upon NASTECH,
      MERCK or their respective Affiliates shall be of any force or effect
      unless expressly agreed to in writing by NASTECH.

4.6   Dating. All PRODUCT shall have no less than [***] shelf life remaining on
      the date of its DELIVERY to MERCK in accordance with SECTION 4.4.

5.    WARRANTY AND LIMITATIONS

5.1   Nastech Warranty. NASTECH represents and warrants that all PRODUCT shall,
      at the time of DELIVERY, be MANUFACTURED (i) to meet the SPECIFICATIONS,
      (ii) in accordance with cGMPs, and (iii) in accordance with all applicable
      laws and regulations and REGULATORY AUTHORITY requirements in effect on
      the day of DELIVERY. Without limiting the warranty in Section 5.1, NASTECH
      guarantees that no PRODUCT shall, at the time of DELIVERY, be (a)
      adulterated or misbranded within the meaning of the U.S. Federal Food,
      Drug and Cosmetic Act (the "Act"), or any similar law of any other
      jurisdiction, or (b) an article which may not, under the provisions of the
      Act, or any similar law of any other jurisdiction, be introduced into
      interstate commerce.

5.2   Warranty Claims.

      (a)   If MERCK claims that any shipment of PRODUCT did not, at the time of
            DELIVERY, meet the warranty specified in Section 5.1(i), MERCK shall
            promptly notify NASTECH. If MERCK and NASTECH are unable to agree as
            to whether such PRODUCT met such warranties, the parties shall
            cooperate to have the PRODUCT in dispute analyzed by an independent
            testing laboratory of recognized repute selected by MERCK and
            approved by NASTECH, which approval shall not be unreasonably
            withheld. The results of such laboratory testing shall be final and
            binding on the parties on the issue of compliance of the PRODUCT
            with such warranty. If the PRODUCT is determined to meet such
            warranty, then MERCK shall bear the cost of the independent
            laboratory testing and pay for the PRODUCT in accordance with this
            AGREEMENT. If the PRODUCT is determined not to have met such
            warranty, then NASTECH shall bear the cost of laboratory testing,
            and NASTECH shall, at MERCK's election, either replace the rejected
            PRODUCT within [***] days of the date of such determination, at no
            cost to MERCK, or refund to MERCK the price paid for such PRODUCT,
            plus any applicable delivery charge.

      (b)   If MERCK claims that any shipment of PRODUCT did not meet the
            warranties specified in Section 5.1(ii) or (iii), MERCK shall notify
            NASTECH, and if MERCK and NASTECH are unable to agree as to whether
            or not such PRODUCT met such warranties, the dispute shall be
            settled in accordance with the arbitration provisions set forth in
            Section 11.1. If the PRODUCT is determined not to have met any such
            warranty, then NASTECH shall, at MERCK's election, either replace
            the rejected PRODUCT within [***] days of

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            the date of such determination, at no cost to MERCK, or refund to
            MERCK the price paid for such PRODUCT, plus any applicable delivery
            charge.

5.3   Disposition of Non-conforming Product. Any PRODUCT which fails to meet the
      warranties under Section 5.1 and which is in MERCK's control shall, at
      NASTECH's option, either be returned to NASTECH at NASTECH's expense, or
      shall be destroyed pursuant to NASTECH's instructions and with MERCK's
      approval, which approval shall not be unreasonably withheld, at NASTECH's
      expense.

6.    QUALITY

6.1   General Obligations. NASTECH shall MANUFACTURE and supply PRODUCT in
      accordance with the SPECIFICATIONS, in accordance with applicable laws,
      regulations and REGULATORY AUTHORITY requirements, including, but not
      limited to, all applicable drug listing regulatory requirements,
      consistent with cGMPs. PRODUCT supplied hereunder shall be labeled in
      compliance with the drug listing, and NASTECH shall notify MERCK and the
      appropriate REGULATORY AUTHORITY of any change to the labeling that would
      affect the drug listing.

6.2   Change Control. Notwithstanding anything herein to the contrary, NASTECH
      shall not amend, change or supplement any of the following without MERCK's
      prior written consent (which consent may not be unreasonably withheld or
      delayed with respect to clauses (C), (E), or (G)), except as may be
      required to comply with applicable laws and regulations and REGULATORY
      AUTHORITY requirements: (A) the SPECIFICATIONS; (B) the MATERIALS; (C) the
      source of MATERIALS; (D) the specifications for MATERIALS; (E) the
      equipment used in the MANUFACTURE; (F) the test methods used in connection
      with the MANUFACTURING of PRODUCT and MATERIALS; and (G) the process for
      MANUFACTURING PRODUCT or MATERIALS. Any change in any of the foregoing
      shall, in each case, comply with cGMPs and all applicable laws,
      regulations and REGULATORY AUTHORITY requirements and should be made in
      accordance with the CHANGE CONTROL PROCEDURE (as defined below). In the
      event that NASTECH needs to change any of the foregoing, NASTECH shall (i)
      immediately notify MERCK of such change, (ii) be responsible, at its
      expense, for ensuring that all ACTIVE PHARMACEUTICAL INGREDIENT and
      PRODUCT MANUFACTURED following such change meets the SPECIFICATIONS and
      (iii) provide MERCK with all information needed to amend the REGISTRATIONS
      and any other regulatory filings maintained with respect to PRODUCT.
      NASTECH shall continue to supply MERCK with PRODUCT approved under
      NASTECH's DMF, MERCK's then existing REGISTRATIONS and other regulatory
      filings for PRODUCT until such time as the ACTIVE PHARMACEUTICAL
      INGREDIENT or PRODUCT MANUFACTURED following such change is permitted
      under the REGISTRATIONS and other regulatory filings for ACTIVE
      PHARMACEUTICAL INGREDIENT and PRODUCT. If NASTECH or its supplier is
      responsible for regulatory filings and obtaining REGULATORY AUTHORITY

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COMMISSION.]

      approvals, NASTECH must immediately notify MERCK whether such changes have
      been approved or rejected.

6.3   Facility. NASTECH shall, at its own cost and expense, ensure that the
      FACILITIES in [***] are in a qualified and validated state appropriate for
      inclusion as manufacturing sites for PRODUCT as required by the applicable
      REGULATORY AUTHORITY at the time the first NDA is submitted by MERCK.
      NASTECH shall provide MERCK with access to such FACILITIES for verifying
      their compliance with cGMP and MERCK'S quality standards, and shall, at
      its own cost and expense, take any corrective action to rectify any
      deficiencies identified by MERCK. NASTECH shall, at its own cost and
      expense, maintain the qualification and validation status of the
      FACILITIES during the TERM.

      NASTECH shall MANUFACTURE all PRODUCT supplied hereunder at the FACILITY.
      MANUFACTURING of PRODUCT may not be relocated without MERCK's prior
      written consent. Any such relocation of the MANUFACTURING of PRODUCT shall
      comply with cGMPs and all applicable laws, regulations and REGULATORY
      AUTHORITY requirements and shall be made in accordance with the CHANGE
      CONTROL PROCEDURE. NASTECH shall permit one or more qualified technical
      specialists from MERCK, upon reasonable prior notice and during normal
      business hours, to conduct audits (including, but not limited to, quality,
      safety and environmental) of the FACILITIES or any other facility which is
      proposed to be used to MANUFACTURE PRODUCT. Observations and conclusions
      of MERCK's audits will be issued to, and promptly discussed with, NASTECH
      and corrective action shall be implemented by NASTECH, at NASTECH's
      expense, prior to filling new or outstanding FIRM ORDERS; provided,
      however, that MERCK may, in its sole discretion, accept PRODUCT from
      NASTECH prior to NASTECH's completion of the corrective action. MERCK
      shall have the right to review all relevant documentation pertinent to the
      corrective actions implemented by NASTECH.

6.4   Maintenance; Validation. NASTECH agrees, at its expense, to operate and
      maintain the FACILITY and all equipment used, directly or indirectly, to
      MANUFACTURE PRODUCT in accordance with cGMPs and all applicable laws and
      regulations and REGULATORY AUTHORITY requirements and to maintain said
      FACILITY and equipment in an acceptable state of repair and operating
      efficiency so as to meet the SPECIFICATIONS and comply with the NASTECH
      KNOW-HOW. NASTECH shall be responsible for validating the equipment
      (including without limitation conducting installation, operational and
      performance qualification), production, cleaning, packaging, process and
      any other appropriate steps performed at the FACILITY in accordance with
      the NASTECH KNOW-HOW. Validation procedures presently used by NASTECH may
      be used; provided, such procedures (i) are found acceptable to MERCK, (ii)
      meet applicable regulatory requirements, and (iii) are found acceptable by
      REGULATORY AUTHORITY inspectors, if applicable. If MERCK or any REGULATORY
      AUTHORITY finds NASTECH's validation procedures to be unacceptable, then
      all

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COMMISSION.]

      validation must be repeated to meet all applicable regulatory requirements
      and guidelines and to receive all REGULATORY AUTHORITY approvals.

6.5   Costs of Compliance. Any costs or expenses related to bringing the
      FACILITY or any equipment needed to MANUFACTURE PRODUCT into compliance
      with any applicable regulatory requirements at any time shall be borne
      exclusively by NASTECH.

6.6   Certificate of Analysis. NASTECH shall provide MERCK with certificates of
      analysis related to PRODUCT for each batch released for DELIVERY
      hereunder. These certificates will document that each batch received by
      MERCK conforms to the SPECIFICATIONS. These certificates shall include the
      date of MANUFACTURE and either a retest date or expiry date for PRODUCT,
      as appropriate. A copy of each certificate shall be included with each
      batch delivered to MERCK, and one copy shall be faxed at the same time to
      the MERCK representative specified in the QUALITY AGREEMENT. NASTECH shall
      also provide MERCK with REGULATORY AUTHORITY certification, for those
      countries in which the applicable REGULATORY AUTHORITY is in the practice
      of requiring any such certifications.

6.7   Quality Control Testing. NASTECH shall perform, at its quality control
      laboratories, such quality control tests as are indicated in the
      SPECIFICATIONS, in accordance with the test methods and procedures.
      NASTECH shall make the results of its quality control tests available to
      MERCK on or before the date of DELIVERY of the corresponding batches of
      PRODUCT. No Production batch of PRODUCT shall be released for DELIVERY
      unless NASTECH's tests show the PRODUCT to meet the standards set forth in
      the SPECIFICATIONS. Should any production batch fail to meet the standards
      set forth in the SPECIFICATIONS, MERCK may, at its option, investigate the
      cause of such failure or require NASTECH to do so and to provide MERCK
      with a written report summarizing the results of NASTECH's investigations.
      MERCK shall perform such confirmatory testing of PRODUCT released for
      DELIVERY to MERCK as MERCK may deem appropriate, which may include, but is
      not limited to, the recommended procedures set forth in the
      SPECIFICATIONS. MERCK shall advise NASTECH of any failure of such PRODUCT
      to meet the standards set forth in the SPECIFICATIONS without undue delay.

6.8   PRODUCT Release. MERCK is responsible for final release of each lot of
      PRODUCT for sale within the TERRITORY in accordance with MERCK's standard
      practices. NASTECH is responsible for providing a copy of those
      MANUFACTURING records, as specified in the QUALITY AGREEMENT, for each lot
      of PRODUCT MANUFACTURED in support of MERCK's responsibility for final
      release decision.

6.9   Reference Samples. NASTECH shall supply MERCK, upon request, with
      reasonable quantities of reference standards relating to PRODUCT, at the
      [***] of NASTECH, in order to facilitate MERCK's confirmatory testing.

6.10  Retention of Samples. NASTECH, at its own expense, is responsible for
      retaining representative samples of each lot of PRODUCT MANUFACTURED. The
      quantity of retention samples shall be [***] the amount of PRODUCT
      required to perform quality

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COMMISSION.]

      control release testing. Such amounts shall be stored and retained for
      [***] following completion of MANUFACTURE. Retained samples of PRODUCT
      shall be visually examined at least annually. NASTECH shall promptly
      notify MERCK of any observed abnormality.

6.11  Stability Testing. NASTECH shall, at its own expense, perform an on-going
      program of annual stability testing, in accordance with a protocol
      approved by MERCK, on samples from [***] for each packaging type. Such
      stability testing shall be stability indicating. In the event that NASTECH
      detects any instability and/or degradant in excess of [***] in connection
      with such testing, NASTECH shall notify MERCK. NASTECH shall specifically
      incorporate such additional testing and controls (e.g., storage condition
      changes) as MERCK may specify with respect to such instability and/or
      degradant. In addition, NASTECH shall place one batch of PRODUCT on
      stability following the implementation of any change described in Section
      6.2. Furthermore, any batch MANUFACTURED with one or more significant
      deviations should be assessed for possible inclusion in stability studies.

6.12  Annual Review. NASTECH agrees to implement and perform, at its own
      expense, an Annual Review Program for PRODUCT including, but not limited
      to, a review of production related and quality control testing related
      atypical investigations.

6.13  Cross Contamination. NASTECH hereby declares that as of the date of
      execution of this AGREEMENT it is not producing, packaging, labeling,
      warehousing, quality control testing (including in-process, release and
      stability testing), releasing or shipping any chemical entity classified
      as penicillins or other beta-lactam antibiotics such as cephalosporins or
      carbapenems, steroids, hormones, alkaloids, controlled substances, LIVE
      AGENTS, cytotoxic drug substances, pesticides, herbicides, fungicides, or
      other toxic non-drug substances in the FACILITY. The term "LIVE AGENT"
      means a product containing a living organism that causes infectious
      disease, including, but not limited to, viruses, bacteria, rickettsia,
      fungi, and protozoa. In the event that NASTECH intends, during the course
      of this AGREEMENT, to produce, package, label, warehouse, quality control
      test (including in-process, release and stability testing), release or
      ship any chemical entity belonging to the classes of products listed
      above, NASTECH shall promptly notify MERCK in writing of its intention to
      do so in order to allow MERCK to consider any potential questions of
      cross-contamination or regulatory requirements. In the event MERCK
      identifies a potential problem of cross-contamination or regulatory
      requirements that would prohibit the activity, the parties will meet to
      resolve the problem. Notwithstanding the foregoing, NASTECH shall not
      manufacture, formulate or package products in the FACILITY that MERCK
      considers to present cross-contamination problems for PRODUCT.

6.14  Quality Agreement. As soon as practicable after the EFFECTIVE DATE but in
      no event more than [***] thereafter, the Parties shall negotiate and
      execute a supplemental Quality Agreement (the "QUALITY AGREEMENT"),
      consistent with the terms of this AGREEMENT, which shall provide for each
      Party's respective compliance responsibilities associated with the
      MANUFACTURE of PRODUCT, including but not

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      limited to a mutually agreeable change control request and approval
      procedure (the "CHANGE CONTROL PROCEDURE").

7.    RECORDS RETENTION

7.1   All MANUFACTURING records shall be retained by NASTECH for a period of not
      less than [***] from the date of MANUFACTURE of each batch of PRODUCT to
      which said records pertain. NASTECH shall provide MERCK with complete and
      accurate copies of the appropriate documents for each production batch,
      upon MERCK's request. NASTECH shall retain all records related to the
      MANUFACTURING of validation batches for [***] past the effective date of
      termination of this AGREEMENT. Thereafter, NASTECH shall notify MERCK of
      any intention to destroy such records and shall afford MERCK the
      opportunity to obtain such records.

8.    REGULATORY MATTERS

8.1   Recalls.

      (a)   In the event that PRODUCT is recalled or withdrawn, NASTECH shall
            fully cooperate with MERCK in connection with such recall or
            withdrawal. If such recall or withdrawal is caused by breach of any
            of the warranties set forth in Section 5.1, NASTECH shall reimburse
            MERCK for [***].

      (b)   NASTECH agrees to abide by all decisions of MERCK to recall or
            withdraw PRODUCT.

8.2   NASTECH shall [***] notify MERCK of any information of which it is aware
      concerning PRODUCT supplied to MERCK which may affect the safety or
      efficacy claims or the continued marketing of the PRODUCT. Any such
      notification will include all related information in detail. Upon receipt
      of any such information, NASTECH shall consult with MERCK in an effort to
      arrive at a mutually acceptable procedure for taking appropriate action;
      provided, however, that nothing contained herein shall be construed as
      restricting the right of either party to make a timely report of such
      matter to any REGULATORY AUTHORITY or take other action that it deems to
      be appropriate or required by applicable law or regulation. Each party
      will notify the other immediately of any health hazards with respect to
      PRODUCT which may impact employees involved in the MANUFACTURE of PRODUCT.

8.3   Regulatory Authority Inspection. NASTECH hereby agrees to advise MERCK
      [***] of any proposed or unannounced visit or inspection by any
      governmental authority, including, without limitation, any REGULATORY
      AUTHORITY or any environmental regulatory authority and agrees to inform
      Merck if such visit or inspection is related to the PRODUCT or its
      MANUFACTURE. NASTECH agrees, if such visit or inspection is related to the
      PRODUCT or its MANUFACTURE, to permit one or more qualified

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COMMISSION.]

      representative(s) of MERCK to be present if requested by MERCK. If MERCK
      is not present during such a visit or inspection, and such visit or
      inspection is related to the PRODUCT or its MANUFACTURE, NASTECH shall
      promptly provide a summary report of the results of the inspection to
      MERCK in English. NASTECH shall [***] furnish MERCK English summaries of
      all reports, documents or correspondence with respect to any REGULATORY
      AUTHORITY requests or inspections of the FACILITY if such reports,
      documents or correspondence are related to the PRODUCT or its MANUFACTURE,
      as well as a copy of each such report, document or correspondence in
      English. The Parties will cooperate in the development and review of
      responses that are required by any REGULATORY AGENCY and relating to the
      MANUFACTURE of PRODUCT prior to submission to the regulatory agency.
      Nothing contained within this article shall restrict the right of either
      Party to make a timely report of such matter to any REGULATORY AGENCY or
      take other action that it deems to be appropriate or required by
      APPLICABLE LAW. NASTECH shall without delay notify MERCK of any REGULATORY
      AGENCY request for samples of PRODUCT or PRODUCT MANUFACTURING batch
      records and will not provide such material until such notification is made
      to MERCK.

8.4   Complaints and Adverse Events. NASTECH hereby agrees to advise MERCK [***]
      of any information it receives relating to the safety, efficacy or potency
      of the PRODUCT. NASTECH will assist MERCK in investigating and resolving
      all complaints and adverse events related to the MANUFACTURING of the
      PRODUCT. MERCK will be responsible for communicating to any REGULATORY
      AGENCIES regarding PRODUCT complaints or adverse events. NASTECH will take
      any corrective actions agreed to by the parties to avoid future
      occurrences of PRODUCT complaints or adverse events.

9.    INDEMNITY

9.1   Indemnification by Nastech. NASTECH shall defend, indemnify and hold
      MERCK, its AFFILIATES and their respective directors, officers, employees
      and agents, and their respective successors and permitted assigns,
      harmless from any and all claims, actions, causes of action, liabilities,
      losses, damages, costs or expenses, including reasonable attorney's fees,
      which arise out of or relate to (i) the failure of PRODUCT provided by
      NASTECH hereunder to meet the warranties set forth in Section 5.1; (ii) a
      breach by NASTECH of any of its representations, warranties, covenants,
      agreements or obligations under this AGREEMENT; or (iii) the negligence,
      recklessness or willful misconduct of NASTECH in supply of PRODUCT
      hereunder or in the performance of its other obligations under this
      AGREEMENT.

9.2   Indemnification by Merck. MERCK shall defend, indemnify and hold NASTECH,
      its AFFILIATES, and their respective directors, officers, employees and
      agents, and their respective successors and permitted assigns, harmless
      from any and all claims, actions, causes of action, liabilities, losses,
      damages, costs or expenses, including reasonable attorneys' fees, which
      arise out of or relate to (i) a breach by MERCK of any of its
      representations, warranties, covenants, agreements or obligations under
      this

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COMMISSION.]

      AGREEMENT; or (ii) the negligence, recklessness or willful misconduct of
      MERCK in the performance of its obligations under this AGREEMENT.

9.3   Notification of Claims. Each party agrees to give the other (i) prompt
      written notice of any claims made for which the other might be liable
      under the foregoing indemnification and (ii) the opportunity to defend,
      negotiate, and settle such claims. The party seeking indemnification under
      this AGREEMENT shall provide the other party with all information in its
      possession, all authority, and all assistance reasonably necessary to
      enable the indemnifying party to carry on the defense of such suit;
      provided, however, that each party shall have the right to retain counsel
      to defend itself in such suit. Neither party shall be responsible or bound
      by any settlement made without its prior written consent.

10.   CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

10.1  Nondisclosure Obligation. All Information disclosed by one Party to the
      other Party hereunder shall be maintained in confidence by the receiving
      Party and shall not be disclosed to non-Party or used for any purpose
      except as set forth herein without the prior written consent of the
      disclosing Party, except to the extent that such Information:

      (a)   is known by receiving Party at the time of its receipt, and not
            through a prior disclosure by the disclosing Party, as documented by
            the receiving Party's business records;

      (b)   is in the public domain by use and/or publication before its receipt
            from the disclosing Party, or thereafter enters the public domain
            through no fault of the receiving Party;

      (c)   is subsequently disclosed to the receiving Party by a Third Party
            who may lawfully do so and is not under an obligation of
            confidentiality to the disclosing Party;

      (d)   is developed by the receiving Party independently of Information
            received from the disclosing Party, as documented by the receiving
            Party's business records;

      (e)   is disclosed to governmental or other regulatory agencies in order
            to obtain patents or to gain or maintain approval to conduct
            clinical trials or to market Product, but such disclosure may be
            only to the extent reasonably necessary to obtain patents or
            authorizations; or

      (f)   is deemed necessary by Merck to be disclosed to Related Parties,
            agents, consultants, and/or other Third Parties for any and all
            purposes Merck and its Affiliates deem necessary or advisable in the
            ordinary course of business in accordance with this Agreement on the
            condition that such Third Parties agree to be bound by
            confidentiality and non-use obligations that are substantially no
            less

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            stringent than those confidentiality and non-uses provisions
            contained in this Agreement; provided the term of confidentiality
            for such Third Parties shall be no less than [***] years.

      Any combination of features or disclosures shall not be deemed to fall
      within the foregoing exclusions merely because individual features are
      published or available to the general public or in the rightful possession
      of the receiving Party unless the combination itself and principle of
      operation are published or available to the general public or in the
      rightful possession of the receiving Party.

      If a Party is required by judicial or administrative process to disclose
      Information that is subject to the non-disclosure provisions of this
      Section 10.1, such Party shall promptly inform the other Party of the
      disclosure that is being sought in order to provide the other Party an
      opportunity to challenge or limit the disclosure obligations. Information
      that is disclosed by judicial or administrative process shall remain
      otherwise subject to the confidentiality and non-use provisions of this
      Section 10.1 and Section 10.1, and the Party disclosing Information
      pursuant to law or court order shall take all steps reasonably necessary,
      including without limitation obtaining an order of confidentiality, to
      ensure the continued confidential treatment of such Information.

10.2  Publicity/Use of Names. No disclosure of the existence of, or the terms
      of, this AGREEMENT may be made by either Party, and no party shall use the
      name, trademark, trade name or logo of the other Party or its employees in
      any publicity, news release or disclosure relating to this AGREEMENT or
      its subject matter, without the prior express written permission of the
      other Party, except as may be required by law. The parties acknowledge and
      agree that, upon and following the Effective Date, one or both of the
      Parties intends to issue a press release announcing the execution of this
      Agreement. The Parties agree to consult with each other reasonably and in
      good faith with respect to the text and timing of such press releases
      prior to the issuance thereof; provided, however, that neither Party shall
      issue any such press releases without the other Party's consent, which may
      not be unreasonably withheld. Either Party may issue such press releases
      or otherwise make such public statements or disclosures (such as in annual
      reports to stockholders or filings with the Securities and Exchange
      Commission) as it determines, based on advice of counsel, are reasonably
      necessary to comply with applicable laws and regulations; provided,
      however, that a Party shall not issue any such press releases or make such
      statements or disclosures without the other Party's prior review and
      comment. In addition, following any initial press release(s) announcing
      this Agreement or other public disclosure approved by both Parties, either
      Party shall be free to disclose, without the other Party's prior written
      consent, the existence of this Agreement, the identity of the other Party
      and those terms of the Agreement which have already been publicly
      disclosed in accordance herewith.

11.   ARBITRATION/GOVERNING LAW

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COMMISSION.]

11.1  Governing Law; Disputes. This AGREEMENT shall be interpreted by and
      construed according to the substantive laws of the State of New Jersey,
      USA, without reference to any rules of conflict of laws or renvoi. The
      U.N. Convention on International Sales of Goods shall not apply. In the
      event of any controversy or claim arising out of or relating to this
      AGREEMENT or breach thereof, the dispute resolution and arbitration
      provisions of Section 9.7 of the LICENSE AGREEMENT shall apply.

11.2  Remedies Cumulative. No remedy referred to in this AGREEMENT is intended
      to be exclusive, but each shall be cumulative and in addition to any other
      remedy referred to in this AGREEMENT or otherwise available at law or in
      equity.

12    TERM AND TERMINATION

12.1  Term. This AGREEMENT shall be effective as of the EFFECTIVE DATE and shall
      continue in effect, unless earlier terminated as provided in this Article
      12 (the "TERM") until [***].

12.2  Mutual Agreement. This AGREEMENT may be terminated by written agreement of
      the parties.

12.3  Termination by Either Party. This AGREEMENT may be terminated with written
      notice by either party to the other at any time during the term of this
      AGREEMENT:

      (a)   if the other party is in breach of its material obligations
            hereunder (except by a Force Majeure cause pursuant to Section 13.4)
            and has not cured such breach within [***] after written notice
            requesting cure of the breach has been given; provided, however, in
            the event of a good faith dispute with respect to the existence of a
            material breach, the [***] cure period shall be tolled until such
            time as the dispute is resolved pursuant to Section 11.1 or,

      (b)   upon the filing or institution of bankruptcy, reorganization,
            liquidation or receivership proceedings by the other party or upon
            an assignment of a substantial portion of the assets for the benefit
            of creditors by the other party; provided, however, in the case of
            any involuntary bankruptcy proceeding such right to terminate shall
            only become effective if the party consents to the involuntary
            bankruptcy or such proceeding is not dismissed within [***] of the
            filing thereof.

12.4  Termination by MERCK. This AGREEMENT may be terminated by MERCK at its
      sole discretion, in whole or in part, upon the occurrence of the following
      events:

      (a)   MERCK exercises its rights to MANUFACTURE pursuant to Section 2.2(c)
            of this AGREEMENT upon the occurrence of a CONTINUED FAILURE TO
            MANUFACTURE;

      (b)   MERCK exercises its rights [***]; or

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COMMISSION.]

      (c)   Total [***] exceed [***] in any QUARTER, MERCK shall have the right
            to terminate this AGREEMENT and be relieved of its obligations to
            purchase its requirements for PRODUCT hereunder with respect to the
            affected market; or

      (d)   This AGREEMENT is terminated pursuant to Section 12.4 (c) above with
            respect to both the United States and European Union, in which case
            MERCK shall have the right to terminate this AGREEMENT with respect
            to the remainder of the TERRITORY.

12.5  Termination of License Agreement. This AGREEMENT shall automatically
      terminate in the event the LICENSE AGREEMENT is terminated for any reason.

12.6  Payment of Outstanding Debts. Upon expiration or termination of this
      AGREEMENT for whatever reason, either party shall settle all outstanding
      invoices or monies owed to the other party or its AFFILIATES pursuant to
      their stated terms; provided however, that in the event the termination is
      the result of a breach by a party, all amounts owed to the other party
      shall become immediately due and payable.

12.7  Return of Information. Unless otherwise permitted under this AGREEMENT or
      the LICENSE AGREEMENT, within [***] days subsequent to the expiration or
      termination of this AGREEMENT, either party shall return to the other
      party all Information received from the other party, including all copies
      thereof, and forward to the other party all documents or materials created
      from such Information; provided, however, that each party shall have the
      right to retain one copy of Information in its confidential files to the
      extent retention of such Information is required by applicable laws and
      regulations.

12.8  Disposition of Inventory, Safety Stock; Firm Orders.

      (a)   In the event this AGREEMENT expires, is terminated by MERCK pursuant
            to Section 12.3 or 12.4, is terminated by reason of the termination
            of the LICENSE AGREEMENT by MERCK in accordance with Section 8.3.1
            of the LICENSE AGREEMENT, or is terminated by mutual agreement of
            the parties pursuant to Section 12.2 above, MERCK, its AFFILIATES,
            distributors and licensees shall have the right to continue to sell
            all PRODUCT remaining in their possession at the time of expiration
            or termination, in accordance with the terms of the LICENSE
            AGREEMENT. In addition, MERCK may, in its sole discretion, cancel
            any outstanding FIRM ORDERS which have not been DELIVERED to MERCK,
            or request NASTECH to MANUFACTURE and DELIVER such FIRM ORDERS in
            accordance with the terms of this AGREEMENT.

      (b)   Upon the termination of this AGREEMENT for any other reason, NASTECH
            shall have the right but not the obligation to purchase all PRODUCT
            remaining in MERCK or its AFFILIATES' possession at the time of
            termination which NASTECH determines to be in merchantable
            condition, at the SUPPLY PRICE at

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

              which such PRODUCT was originally sold to MERCK or its AFFILIATES.
              Any PRODUCT not purchased by NASTECH shall be destroyed by MERCK.

       (c)    In the event this AGREEMENT is terminated for the reasons set
              forth in the first sentence of Section 12.8(a), MERCK shall have
              the right, but not the obligation to purchase the SAFETY STOCK. In
              the event this AGREEMENT expires or is terminated for any other
              reason, MERCK shall purchase the SAFETY STOCK remaining as of the
              date of expiration or termination of this AGREEMENT at the SUPPLY
              PRICE.

12.9   License of Nastech Know-How.

       (a)    In the event the TERM of this AGREEMENT expires and is not
              extended by MERCK pursuant to Section 12.1 above, NASTECH shall
              grant to MERCK a non-exclusive, royalty-free license to utilize
              the NASTECH KNOW-HOW to the extent necessary for MERCK to make or
              have made PRODUCT, and shall provide MERCK or a third party
              contract manufacturer designated by MERCK with the necessary
              technical assistance in utilizing the NASTECH KNOW-HOW to
              MANUFACTURE PRODUCT.

       (b)    NASTECH agrees that MERCK may MANUFACTURE or have MANUFACTURED
              PRODUCT under the license granted under Section 12.9 above no
              sooner than [***] for the purpose of enabling MERCK or its
              designee to obtain the necessary REGULATORY AUTHORITY approval for
              its MANUFACTURE of PRODUCT after the expiration of this AGREEMENT.

12.10  Surviving Clause. Expiration or termination of this Agreement shall not
       relieve the Parties of any obligation accruing prior to such expiration
       or termination. Any expiration or termination of this Agreement shall be
       without prejudice to the rights of either Party against the other accrued
       or accruing under this Agreement prior to expiration or termination.
       Sections 5, 6.10, 6.11, 7, 8.1, 8.2, 8.4, 9.1 9.2, 9.3, 10.1, 10.2, 11.1,
       11.2, 12, 13 and the definitions relating to the foregoing, shall survive
       expiration or termination of this AGREEMENT; provided that Section 10.1
       (confidentiality) shall survive the expiration or termination of this
       AGREEMENT for [***] years thereafter.

13.    MISCELLANEOUS PROVISIONS

13.1   Binding Effect; Assignment. This AGREEMENT shall inure to the benefit of
       and be binding upon each of the parties hereto and their respective
       successors and permitted assigns. Neither party may assign, transfer or
       otherwise dispose of this AGREEMENT or any obligation with respect
       thereto, to any party without the prior written consent of the other
       party, except that MERCK may assign or transfer this AGREEMENT or any
       part thereof to an AFFILIATE without such consent.

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

13.2  Cooperation. Each party agrees to execute such further papers, agreements,
      documents, instruments and the like as may be necessary or desirable to
      effect the purpose of this AGREEMENT and to carry out its provisions.

13.3  Entire Agreement. This AGREEMENT, together with the LICENSE AGREEMENT
      contain the entire agreement between the parties with respect of the
      subject matter hereof and supersedes and cancels all previous agreements,
      negotiations, commitments and writings in respect of the subject matter
      hereof and may not be changed or modified in any manner, or released,
      discharged, abandoned, or otherwise terminated unless in writing and
      signed by the duly authorized officers and representatives of the parties.

13.4  Force Majeure.

      (a)   Neither party shall be liable for the failure or delay in performing
            any obligation under this AGREEMENT (except for the payment of
            money) affecting MERCK, NASTECH, its AFFILIATE or any THIRD PARTY
            MANUFACTURER nor shall any party have the right to terminate this
            AGREEMENT if and to the extent such failure or delay is due to any
            of the following causes beyond the reasonable control of the other
            party (a) acts of God; (b) unusually severe weather, fire or
            explosion; (c) war, invasion, riot or other civil unrest; (d)
            governmental laws, orders, restrictions, actions, embargoes or
            blockades; (e) action by any REGULATORY AUTHORITY (unrelated to
            NASTECH's performance hereunder); (f) national or regional
            emergency; (g) strikes, lockouts, labor trouble or other industrial
            disturbances; (h) shortage of adequate fuel, power, MATERIALS or
            transportation facilities; or (i) any other event which is beyond
            the reasonable control of the affected party; provided that the
            party affected shall promptly notify the other of the Force Majeure
            condition and shall exert all reasonable efforts to eliminate, cure
            or overcome any such causes and to resume performance of its
            obligations as soon as reasonably possible.

      (b)   During the duration of any Force Majeure, NASTECH shall allocate
            MATERIALS and/or resources required for the MANUFACTURE of PRODUCT
            in the manner set forth in Section 2.2(b).

      (c)   The requirements that all reasonable efforts be made to eliminate,
            cure or overcome a Force Majeure condition shall not require the
            settlement of strikes or labor controversies by acceding to the
            demands of the opposing party or parties.

13.5  Insurance.

      NASTECH agrees to maintain, during the TERM and for [***] thereafter, at
      its own expense, commercial general liability insurance, including blanket
      contractual liability, products liability and products completed
      operations coverages, with a minimum limitation of U.S.$ [***] per
      occurrence and U.S.$ [***] annual aggregate upon execution of this
      AGREEMENT. NASTECH shall submit to MERCK, from an insurer with an A.M.
      Best rating of A- or better or otherwise acceptable to MERCK, a
      certificate

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

      of insurance evidencing that the required insurance is in force and
      effect. Such certificate shall provide that not less than thirty (30)
      days' advance notice, in writing, shall be given to MERCK of any
      cancellation, termination or material alteration of such insurance
      coverages. Such insurance shall name MERCK as an additional insured.

13.6  Patents Indemnity. NASTECH represents and warrants that neither the
      PRODUCT nor its method of MANUFACTURE infringes any letters patent, and
      agrees to indemnify MERCK against any costs, expenses, fees or damages
      (including reasonable attorney's fees) incurred by MERCK in connection
      with any claim against MERCK alleging such infringement.

13.7  Headings. The Article and Section headings in this AGREEMENT are solely
      for the convenience and reference of the parties hereto and are not
      intended to be descriptive of the entire contents of, or to affect, any of
      the terms or provisions hereof or their interpretation.

13.8  No Agency. Nothing contained herein shall be deemed to establish or
      otherwise create a relationship of principal and agent between NASTECH and
      MERCK, or MERCK and NASTECH, it being understood that each of NASTECH and
      MERCK is an independent contractor who cannot and shall not be deemed an
      agent of the other or its AFFILIATES for any purpose whatsoever. Neither
      NASTECH nor any of its agents or employees shall have any right or
      authority to assume or create any obligation of any kind, whether express
      or implied, on behalf of MERCK or its AFFILIATES or have any authority to
      bind MERCK or its AFFILIATES in any way without the prior written approval
      of MERCK. Neither MERCK nor any of its agents or employees shall have any
      right or authority to assume or create any obligation of any kind, whether
      express or implied, on behalf of NASTECH or its AFFILIATES or have any
      authority to bind NASTECH or its AFFILIATES in any way without the prior
      written approval of NASTECH.

13.9  Notice. Any notice or request required or permitted to be given in
      connection with this AGREEMENT shall be deemed to have been sufficiently
      given if personally delivered, sent by pre-paid registered or certified
      airmail, or by facsimile with electromechanical confirmation of delivery,
      to the intended recipient at its address set forth above or to such other
      business address as may have been furnished in writing by the intended
      recipient to the sender. The date of mailing, facsimile transmission, or
      personal delivery shall be deemed to be the date on which such notice has
      been given. Any required notice shall be given in English.

      Notice to NASTECH shall be addressed to:

      Nastech Pharmaceutical Company Inc.
      3450 Monte Villa Parkway
      Bothell, WA 98021
      Attention:  Office of the Chief Executive Officer and President
      Facsimile No.: [***]

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

       With a copy to:

       Nastech Pharmaceutical Company Inc.
       3450 Monte Villa Parkway
       Bothell, WA 98021
       Attention:  Office of Operations
       Facsimile No.: (425) 908-3650

       Notice to MERCK shall be addressed to:

       Merck & Co., Inc.
       Two Merck Drive
       Whitehouse Station, New Jersey 08889-0100 U.S.A.
       Attention: [***]
       Facsimile: [***]

       with a copy to:

       Merck & Co., Inc.
       One Merck Drive
       Whitehouse Station, New Jersey 08889-0100 U.S.A.
       Attention: [***]
       Facsimile: [***]

       Either party may change its address by giving written notice to the
       other party.

13.10  Prevailing Language. The AGREEMENT shall be prepared and executed in
       English and if translated into a language other than English for any
       purpose, the English version shall in all events prevail and be paramount
       in the event of any differences, questions or disputes concerning the
       meaning, form, validity, or interpretation of this AGREEMENT.

13.11  Severability. In the event any one or more of the provisions contained in
       this AGREEMENT should be held invalid, illegal or unenforceable in any
       respect, the validity, legality and enforceability of the remaining
       provisions contained herein shall not in any way be affected or impaired
       thereby, unless the absence of the invalidated provision(s) adversely
       affect the substantive rights of the parties. The parties shall in such
       an instance use their best efforts to replace the invalid, illegal or
       unenforceable provision(s) with valid, legal and enforceable provision(s)
       which, insofar as practical, implement the purposes of this AGREEMENT.

13.12  Modification and Waiver. No amendment, modification or alteration of the
       terms of this AGREEMENT shall be binding unless the same shall be in
       writing and duly executed by the parties hereto, except that any of the
       terms or provisions of this AGREEMENT may be waived in writing at any
       time by the party which is entitled to the benefits of such waived terms
       or provisions. No waiver of any of the provisions of this AGREEMENT shall
       be deemed to or shall constitute a waiver of any other provision hereof
       (whether or

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

       not similar). No delay on the part of any party exercising any right,
       power or privilege hereunder shall operate as a waiver thereof.

13.13  Counterparts. This AGREEMENT may be executed in one or more counterparts,
       each of which shall for all purposes be deemed an original and all of
       which shall constitute one and the same agreement.

13.14  Waiver of Rule of Construction. Each party has had the opportunity to
       consult with counsel in connection with the review, drafting and
       negotiation of this AGREEMENT. Accordingly, the rule of construction that
       any ambiguity in this AGREEMENT shall be construed against the drafting
       party shall not apply.

13.15  Successors and Assigns. The terms and conditions of this AGREEMENT shall
       be binding upon, and shall inure to the benefit of, the parties hereto
       and their respective successors and permitted assigns.

13.16  Audit Rights. NASTECH's records, which shall include, but not be limited
       to, accounting records, time sheets, written policies and procedures,
       test results, reports, correspondence, memoranda and any other
       documentation relating to the performance of this AGREEMENT, shall be
       open to inspection and subject to audit and/or reproduction, during
       normal working hours, by MERCK or its authorized representative to the
       extent necessary to adequately evaluate claims submitted by NASTECH
       (including NASTECH's calculation of the SUPPLY PRICE), required by
       governmental authorities or desirable for any other valid business
       purpose. NASTECH shall preserve such records for a period of [***] after
       the end of the TERM or for such longer period as may be required by law.
       For the purpose of such audits, inspections, examinations and
       evaluations, MERCK or its authorized representative shall have access to
       such records beginning on the EFFECTIVE DATE and continuing until [***].
       In addition, NASTECH shall provide adequate and appropriate workspace for
       MERCK or its authorized representatives to conduct such audit. MERCK or
       its authorized representative shall give NASTECH reasonable advanced
       notice of an intent to audit.

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed by
their duly authorized representatives as of the date first above written.

NASTECH PHARMACEUTICAL COMPANY INC.           MERCK & CO., INC.

By:    /s/ Steven C. Quay                     By:    /s/ Raymond V. Gilmartin
       -------------------------------------         --------------------------
Name:  Steven C. Quay                         Name:  Raymond V. Gilmartin
Title: Chief Executive Officer and President  Title: Chairman, President and CEO

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                  SCHEDULE 1.11

                                      [***]

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]


                                 SCHEDULE 1.26

                                 SPECIFICATIONS

                                      [***]
[***]

II.   PRIMARY PACKAGING

To be mutually agreed upon by the parties and attached hereto as soon as it is
available.

III.  SECONDARY PACKAGING AND LABELING

   To be provided by MERCK as soon as it is available.