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                                                                    EXHIBIT 10.1

                                                                  EXECUTION COPY

                             EXCLUSIVE DEVELOPMENT,
                     COMMERCIALIZATION AND LICENSE AGREEMENT

                                 BY AND BETWEEN

                                MERCK & CO., INC.

                                       AND

                       NASTECH PHARMACEUTICAL COMPANY INC.

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         EXCLUSIVE DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT

This Exclusive Development, Commercialization and License Agreement (this
"AGREEMENT") is effective as of September 24, 2004 (the "EFFECTIVE DATE"), and
is entered into by and between MERCK & CO., INC., a corporation organized and
existing under the laws of New Jersey ("MERCK"), and NASTECH PHARMACEUTICAL
COMPANY INC., a corporation organized and existing under the laws of Delaware
("NASTECH").

                                    RECITALS:

WHEREAS, Nastech has developed Nastech Know-How (as hereinafter defined) and has
rights to Nastech Patent Rights (as hereinafter defined) with respect to the
nasal formulation and administration of PYY (3-36) (as hereinafter defined);

WHEREAS, Merck and Nastech desire to enter into a collaboration to develop Nasal
Formulations (as hereinafter defined) and Product (as hereinafter defined) upon
the terms and conditions set forth herein;

WHEREAS, Merck desires to obtain from Nastech, and Nastech desires to grant to
Merck, an exclusive license under the Nastech Patent Rights and Nastech Know-How
with respect to Nasal Formulations and Product, upon the terms and conditions
set forth herein;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the receipt and sufficiency which are hereby
acknowledged, the Parties hereby agree as follows:

ARTICLE 1 DEFINITIONS.

Unless specifically set forth to the contrary herein, the following terms,
whether used in the singular or plural, shall have the respective meanings set
forth below.

1.1   "ACT" shall mean, as applicable, the United States Federal Food, Drug and
      Cosmetic Act, 21 U.S.C. Sections 301 et seq., and/or the Public Health
      Service Act, 42 U.S.C. Sections 262 et seq., as such may be amended from
      time to time.

1.2   "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 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).

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1.3   "ALLIANCE MANAGER" shall have the meaning given such term in Section
      3.4.4.

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

1.5   "CALENDAR YEAR" shall mean each successive period of twelve (12) months
      commencing on January 1 and ending on December 31.

1.6   "CHANGE OF CONTROL" shall mean with respect to a Party: (1) the sale of
      all or substantially all of such Party's assets or business relating to
      this Agreement; (2) a merger, reorganization or consolidation involving
      such Party in which the voting securities of such Party outstanding
      immediately prior thereto cease to represent at least [***] of the
      combined voting power of the surviving entity immediately after such
      merger, reorganization or consolidation; or (3) a person or entity, or
      group of persons or entities, acting in concert acquire more than [***] of
      the voting equity securities or management control of such Party.

1.7   "CLINICAL SUPPLIES" shall have the meaning given such term in Section
      3.6.1.

1.8   "CLINICAL TRIAL" shall mean a Phase I Clinical Trial, Phase II Clinical
      Trial, Phase III Clinical Trial, and/or post-approval clinical trial.

1.9   "COMBINATION PRODUCT" shall mean a Product which includes one or more
      active ingredients other than PYY (3-36) in combination with PYY (3-36).

1.10  "COMPETING PHARMA" shall have the meaning given such term in Section 1.11.

1.11  "COMPETING PHARMA CHANGE OF CONTROL" shall mean a Change of Control in
      which a company or group of companies acting in concert (collectively a
      "COMPETING PHARMA") (a) for whom collective worldwide sales of ethical
      pharmaceutical products in the Calendar Year that preceded the Change of
      Control were [***], or (b) have a research, development or
      commercialization program for a [***], is the acquirer (by asset purchase,
      merger, consolidation, reorganization or otherwise) as part of such Change
      of Control.

1.12  "COMPETITIVE PRODUCT" shall mean a product for nasal administration
      containing PYY (3-36) [***], in each case other than Product.

1.13  "CONTINUED MANUFACTURING FAILURE" shall have the meaning given such term
      in the Supply Agreement.

1.14  "CONTROL", "CONTROLS" OR "CONTROLLED BY" shall mean with respect to any
      item of or right under Nastech Patent Rights or Nastech Know-How, the
      possession of (whether by ownership or license, other than pursuant to
      this Agreement) or the ability of a Party to grant access to, or a license
      or sublicense of, such items or right as provided for herein without
      violating the terms of any agreement or other arrangement with any Third
      Party existing at the time such Party would be required hereunder to grant
      the other Party such access or license or sublicense.

1.15  "CO-PROMOTION AGREEMENT" shall have the meaning given such term in Section
      3.4.3.

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COMMISSION.]

1.16  "DEVELOPMENT PLAN" shall have the meaning given such term in Section 2.1.

1.17  "DEVELOPMENT PROGRAM" shall mean the development activities undertaken by
      the Parties hereto as set forth in Article 2.

1.18  "EMEA" shall mean the European Medicines Evaluation Agency and the
      Committee for Proprietary Medicinal Product and any successor governmental
      authority having substantially the same authority.

1.19  "EU MARKET" shall mean any one of the following countries: the [***].

1.20  "FIRST COMMERCIAL SALE" shall mean, with respect to any Product, the first
      sale for end use or consumption of such Product in a country 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.

1.21  [***] shall have the meaning given such term in the Supply Agreement.

1.22  "IMPROVEMENT" shall mean any enhancement, whether or not patentable, in
      the manufacture, formulation, ingredients, preparation, presentation,
      means of delivery, dosage or packaging of Nasal Formulations or Product.

1.23  "IND" shall mean an Investigational New Drug application, Clinical Study
      Application, Clinical Trial Exemption, or similar application or
      submission for approval to conduct human clinical investigations filed
      with or submitted to a Regulatory Authority in conformance with the
      requirements of such Regulatory Authority.

1.24  "INFORMATION" shall mean any and all information and data, including
      without limitation all Merck Know-How, all Nastech Know-How, and all other
      scientific, pre-clinical, clinical, regulatory, manufacturing, marketing,
      financial and commercial information or data, whether communicated in
      writing or orally or by any other method, which is provided by one Party
      to the other Party in connection with this Agreement.

1.25  "INVENTION" means any process, method, composition of matter, article of
      manufacture, discovery or finding that is conceived and/or reduced to
      practice in the course of and arising from the Development Program.

1.26  "JOINT INFORMATION AND INVENTIONS" shall mean all discoveries,
      Improvements, processes, methods, protocols, formulas, data, Inventions,
      know-how and trade secrets, patentable or otherwise, arising from the
      Development Program developed or invented jointly by employees of Merck
      and Nastech or others acting on behalf of Merck and Nastech.

1.27  "JOINT INVENTIONS PATENT RIGHTS" shall mean any and all patents and patent
      applications in the Territory (which for the purposes of this Agreement
      shall be deemed to include certificates of invention and applications for
      certificates of invention) which during the term of this Agreement are
      Controlled by Merck which claim or cover Joint Information and Inventions;
      or are divisions, continuations, continuations-in-part, reissues,
      renewals, extensions, supplementary protection

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      certificates, and the like of any such patents and patent applications and
      foreign equivalents thereof.

1.28  "MARKETING AUTHORIZATION" shall mean all approvals necessary to market and
      sell a Product in any country (including without limitation all applicable
      pricing and governmental reimbursement approvals even if not legally
      required to sell Product in a country).

1.29  "MERCK INFORMATION AND INVENTIONS" shall mean all discoveries,
      Improvements, processes, methods, protocols, formulas, data, Inventions,
      know-how and trade secrets, patentable or otherwise, arising from the
      Development Program developed or invented solely by employees of Merck or
      other persons not employed by Nastech acting on behalf of Merck.

1.30  "MERCK KNOW-HOW" shall mean any information and materials, including but
      not limited to, discoveries, Improvements, processes, methods, protocols,
      formulas, data, inventions (including without limitation Merck's
      Information and Inventions and Merck's rights in Joint Information and
      Inventions), know-how and trade secrets, patentable or otherwise, which
      during the term of this Agreement, (i) are in Merck's possession or
      control, (ii) are not generally known and (iii) are in Merck's opinion
      necessary to Nastech in the performance of its obligations under the
      Development Program.

1.31  "[***]" shall have the meaning given such term in Section [***].

1.32  "[***]" shall have the meaning given such term in Section [***].

1.33  "NASAL FORMULATIONS" shall mean the PYY (3-36) nasally administrated
      formulations [***].

1.34  "NASTECH INFORMATION AND INVENTIONS" shall mean all discoveries,
      Improvements, processes, methods, protocols, formulas, data, Inventions,
      know-how and trade secrets, patentable or otherwise, arising from the
      Development Program developed or invented solely by employees of Nastech
      or other persons not employed by Merck acting on behalf of Nastech.

1.35  "NASTECH KNOW-HOW" shall mean all information and materials, including but
      not limited to, discoveries, Improvements, processes, methods, protocols,
      formulas, data, inventions (including without limitation Nastech
      Information and Inventions and Nastech's rights in Joint Information and
      Inventions), know-how and trade secrets, patentable or otherwise, which
      during the term of this Agreement (i) are in the possession or control of
      Nastech or its Affiliates, (ii) are not generally known and (iii) are
      necessary or useful to Merck in connection with the Development Program
      and the research, development, manufacture, marketing, use or sale of
      Nasal Formulations or Products for any and all purposes in the Territory.

1.36  "[***]" shall mean [***].

1.37  "NASTECH PATENT RIGHTS" shall mean any and all patents and patent
      applications in the Territory (which for the purposes of this Agreement
      shall be deemed to include certificates of invention and applications for
      certificates of invention) which during the term of this Agreement are
      Controlled by Nastech, including but not limited to those listed on
      Schedule 1.37 (i) one or more claims of which would be infringed by, but
      for the license granted herein, the development, use, making, offering to
      sell, sale or import of a Nasal Formulations and/or Product, including
      without

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      limitation, Improvements; or (ii) which claim or cover Nastech Information
      and Inventions; or (iii) are divisions, continuations,
      continuations-in-part, reissues, renewals, extensions, supplementary
      protection certificates, and the like of any such patents and patent
      applications, and United States and foreign equivalents thereof.

1.38  "NDA" shall mean a New Drug Application, Biologics License Application,
      Worldwide Marketing Application, Marketing Application Authorization,
      filing pursuant to Section 510(k) the Act or similar application or
      submission for Marketing Authorization of a Product filed with a
      Regulatory Authority to obtain marketing approval for a biological,
      pharmaceutical or diagnostic product in that country or in that group of
      countries.

1.39  "NET SALES" shall mean the gross invoice price of Product sold by Merck or
      its Related Parties to the first Third Party after deducting, if not
      previously deducted, from the amount invoiced or received:

      1.39.1 trade and quantity discounts other than early pay cash discounts;

      1.39.2 returns, rebates, chargebacks and other allowances;

      1.39.3 retroactive price reductions that are actually allowed or granted;

      1.39.4 sales commissions paid to Third Party distributors and/or selling
             agents (which shall not include contract sales organizations);

      1.39.5 a fixed amount equal to [***] of the amount invoiced to cover bad
             debt, sales or excise taxes, early payment cash discounts,
             transportation and insurance, custom duties, and other governmental
             charges; and

      1.39.6 [***].

             With respect to sales of Combination Products, Net Sales shall be
             calculated [***]. In the event that Product is sold only as a
             Combination Product, Net Sales shall be calculated [***] shall be
             determined in accordance with Merck's regular accounting methods,
             consistently applied. The deductions set forth in subsections
             1.39.1 through 1.39.6 above will be applied using the same
             proportional allocation stated above in calculating Net Sales for a
             Combination Product. In the event that Product is sold only as a
             Combination Product and either Party reasonably believes that the
             calculation set forth in this paragraph does not fairly reflect the
             value of the Product relative to the other active ingredients in
             the Combination Product, the Parties shall negotiate, in good
             faith, other means of calculating Net Sales with respect to
             Combination Products.

1.40  "[***]" shall have the meaning given such term in Section [***].

1.41  "[***]" shall have the meaning given such term in Section [***].

1.42  "PARTY" shall mean Merck or Nastech, and "PARTIES" shall mean Merck and
      Nastech.

1.43  "PATENT RIGHTS" shall mean Nastech Patent Rights and Joint Inventions
      Patent Rights.

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COMMISSION.]

1.44  "PHASE I CLINICAL TRIAL" shall mean a human clinical trial in any country
      that is intended to initially evaluate the safety and/or pharmacological
      or antigenic effect of a Product in human subjects or that would otherwise
      satisfy the requirements of 21 CFR 312.21(a) and shall also include the
      [***].

1.45  "PHASE II CLINICAL TRIAL" shall mean a human clinical trial in any country
      that is intended to initially evaluate the effectiveness of a Product for
      a particular indication or indications in human subjects with the disease
      or indication under study or that would otherwise satisfy the requirements
      of 21 CFR 312.21(b). Notwithstanding anything else to the contrary in this
      Agreement, "Phase II Clinical Trial" shall not include the [***].

1.46  "PHASE III CLINICAL TRIAL" shall mean a pivotal human clinical trial in
      any country the results of which could be used to establish safety and
      efficacy of a Product as a basis for a Marketing Application or that would
      otherwise satisfy the requirements of 21 CFR 312.21(c). Notwithstanding
      anything else to the contrary in this Agreement, "Phase III Clinical
      Trial" shall not include the [***].

1.47  [***].

1.48  "PRODUCT" shall mean any pharmaceutical preparation in final form
      containing a Nasal Formulation (i) for sale by prescription,
      over-the-counter or any other method, or (ii) for administration to human
      patients in a Clinical Trial, for any and all purposes.

1.49  "PRODUCT DEVELOPMENT TEAM" or "PDT" shall have the meaning given such term
      in Section 2.2.

1.50  "PYY (3-36)" shall mean [***]

1.51  "REGULATORY AUTHORITY" shall mean any applicable government regulatory
      authority involved in granting approvals for the manufacturing, marketing,
      reimbursement and/or pricing of a Product in the Territory, including, in
      the United States, the United States Food and Drug Administration and any
      successor governmental authority having substantially the same function
      and, in the EU Markets, without limitation the EMEA as permitted under
      applicable law.

1.52  "RELATED PARTY" shall mean each of Merck, its Affiliates, and permitted
      sublicensees (which term does not include distributors). Nastech shall be
      a "Related Party" for purposes of calculating royalties owing on net sales
      under Section 5.4 only to the extent that Nastech co-promotes Product in
      the US in accordance with Section 3.4.3.

1.53  "REVERTED PRODUCTS" shall have the meaning given such term in Section 8.2.

1.54  "SUPPLY AGREEMENT" shall mean that certain Supply Agreement by and between
      Merck and Nastech dated as of the Effective Date, as amended from time to
      time in accordance with its terms.

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

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COMMISSION.]

1.56  "THIRD PARTY" shall mean an entity other than Merck and its Related
      Parties, and Nastech and its Affiliates.

1.57  [***].

1.58  "UNITED STATES" or "US" shall mean the fifty states of the United States
      of America and the District of Columbia, and shall exclude all other
      territories, protectorates and possessions of the United States of America
      (other than the District of Columbia).

1.59  "VALID PATENT CLAIM" shall mean a claim of an issued and unexpired patent
      included within the Patent Rights which has not been revoked or held
      unenforceable or invalid by a decision of a court or other governmental
      agency of competent jurisdiction, and which is not appealable or has not
      been appealed within the time allowed for appeal, and which has not been
      disclaimed, denied or admitted to be invalid or unenforceable through
      reissue, re-examination or disclaimer or otherwise.

ARTICLE 2 DEVELOPMENT PROGRAM

2.1   GENERAL. Merck shall have responsibility for the development of Nasal
      Formulations and Products in the Territory within the scope of the rights
      granted to it hereunder and upon the terms and conditions set forth in
      this Agreement, and subject to Nastech's performance of its development
      obligations as set forth in this Article 2 and other obligations set forth
      in this Agreement. Development Program activities shall be conducted in
      accordance with a development plan which shall be established, and amended
      or otherwise modified from time to time, by the PDT in accordance with
      Section 2.2 (the "DEVELOPMENT PLAN"). Without limiting the foregoing, the
      Development Plan, may outline the major activities, goals and timelines
      for Product development which may include, without limitation, [***].

2.2   PRODUCT DEVELOPMENT TEAM. The working group responsible for the
      Development Program activities for the Product shall be Merck's Product
      Development Team (referred to herein as the "PRODUCT DEVELOPMENT TEAM" or
      "PDT") or its equivalent successor working group.

      2.2.1 Conduct. The PDT will operate in accordance with Merck procedures as
            they would apply to an internal Merck program at an equivalent stage
            of development having a similar commercial value. The PDT for the
            Product will be chartered by Merck through its usual process, within
            [***] days following the Effective Date. The functional composition
            of the PDT shall change from time to time as appropriate to the
            stage of development in conformance with Merck's established
            standards.

      2.2.2 Nastech Representation on PDT. Nastech may designate [***] (or such
            other reasonable number of Nastech employees as requested by Merck
            based upon the expertise then required for development activities)
            to participate on the PDT, which members shall have the appropriate
            expertise necessary to fulfill the then required PDT
            responsibilities. Nastech's designated members shall be incorporated
            to the team no later than [***] days following its charter or within
            [***] days of being designated, whichever is later.

      2.2.3 Responsibilities. The PDT is responsible for the design and
            implementation of all aspects of development activities for the
            Product and the Development Plan. The PDT shall also

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            be responsible for establishing and forecasting requirements for
            Clinical Supplies. The Development Plan, including the establishment
            of the development budget, shall be subject to ongoing revision
            through the normal activity of the PDT, all in accordance with Merck
            procedures as they would apply to an internal Merck program at an
            equivalent stage of development.

      2.2.4 Meetings of PDT. Merck shall be responsible for scheduling PDT
            meetings, preparing agendas and sending out notices of PDT meetings
            and agendas therefor. The PDT meetings may be held telephonically,
            by video-conference or in person at the appropriate Merck facility
            or such other location established by the PDT or agreed to by the
            Parties. Nastech shall receive regular updates on development
            activities through its direct participation of its members of the
            PDT and circulation of PDT meeting minutes.

      2.2.5 Strategic Oversight of PDT. All strategic and operational activities
            of the PDT, including without limitation, approval of the
            Development Plan and development budget, shall be subject to
            oversight and approval of Merck's existing product lifecycle
            committees applicable to an internal Merck program at an equivalent
            stage of development. The final decision on all strategic matters
            determined through Merck's product lifecycle committees shall reside
            with Merck.

2.3   CONDUCT OF DEVELOPMENT. Nastech and Merck shall each conduct its
      responsibilities under the Development Program in good scientific manner,
      and in compliance in all material respects with all requirements of
      applicable laws, rules and regulations and all applicable good laboratory
      practices to attempt to achieve their objectives efficiently and
      expeditiously. Nastech and Merck each shall proceed diligently with the
      work set out in the Development Plan by using their respective good faith
      efforts to allocate sufficient time, effort, equipment and facilities to
      the Development Program and to use personnel with sufficient skills and
      experience as are required to accomplish the Development Program in
      accordance with the terms of this Agreement and this Article 2. In
      addition, if animals are used in research hereunder, each of the Parties
      will comply with the Animal Welfare Act or any other applicable local,
      state, national and international laws or regulations relating to the care
      and use of laboratory animals. Merck encourages Nastech to use the highest
      standards, such as those set forth in the Guide for the Care and Use of
      Laboratory Animals (NRC, 1996), for the humane handling, care and
      treatment of such research animals. Any animals which are used in the
      course of the Research, or products derived from those animals, such as
      eggs or milk, will not be used for food purposes, nor will these animals
      be used for commercial breeding purposes. Nastech shall notify Merck in
      writing of any deviations from applicable regulatory or legal
      requirements. Nastech hereby certifies that it will not and has not
      employed or otherwise used in any capacity the services of any person
      debarred under Section 21 USC 335a in performing any services hereunder.

      Merck shall be entitled to, and only with Merck's prior written consent
      Nastech may, utilize the services of Third Parties to perform their
      respective Development Program activities. Notwithstanding any such
      consent, both Parties shall remain at all times fully liable for its
      respective responsibilities under the Development Program. Without
      limiting the foregoing, Nastech shall ensure that its PDT representatives,
      its Alliance Managers, and any other Nastech employees or agents working
      on the Development Program on Nastech's behalf shall be subject to a
      written agreement to comply with the requirements of Section 2.8 and
      Section 4.1.

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2.4   DEVELOPMENT BUDGET. The development budget for Product shall be set forth
      in the Development Plan. [***].

2.5   NASTECH DEVELOPMENT PROGRAM RESPONSIBILITIES; MERCK FUNDING FOR NASTECH
      DEVELOPMENT ACTIVITIES.

      2.5.1 Responsibilities. Nastech shall provide Merck with reasonable
            assistance in the Development Program and Nastech shall, at the
            request of the PDT or Merck, perform activities under the
            Development Program in accordance with the Development Plan and the
            terms and conditions of this Agreement. At a minimum and without
            limiting the foregoing, Nastech shall, to the extent requested by
            Merck or the PDT: [***].

      2.5.2 Funding of Development.

            (a)   Merck shall fund the costs of the Development Program as
                  specified in the development budget under Section 2.4. Nastech
                  shall apply any development funding it receives from Merck
                  under this Agreement solely to carry out its development
                  activities in accordance with the Development Plan, the
                  development budget and the terms and conditions of this
                  Agreement. Merck shall have no obligation to reimburse Nastech
                  for any development activities conducted by Nastech prior to
                  the Effective Date. Notwithstanding anything to the contrary
                  in the foregoing, Nastech shall be compensated for its
                  responsibilities and obligations under Section 3.6 and the
                  Supply Agreement in accordance with the terms and conditions
                  of such Section 3.6 and the Supply Agreement and not under
                  this Section 2.5.

            (b)   To assist the PDT and Merck in establishing and revising the
                  development budget, upon the request of the PDT from time to
                  time, Nastech shall provide estimates of costs Nastech expects
                  to incur, and proposed work plans, for activities assigned to
                  Nastech under the Development Program for the subsequent
                  Calendar Year, or as otherwise requested by Merck.

            (c)   [***].

            (d)   No later than [***] days following the conclusion of each
                  Calendar Quarter, in which Nastech has performed work under
                  the Development Plan, Nastech shall provide Merck with a
                  report showing satisfactory performance of Nastech's
                  obligations under the Development Program for such Calendar
                  Quarter, and a reconciliation of the amounts actually incurred
                  by Nastech for such work and the Development Cost Advance for
                  such Calendar Quarter. [***].

2.6   EXCHANGE OF INFORMATION. Upon execution of this Agreement, and on an
      ongoing basis during the term of the Development Program, Nastech shall
      disclose to Merck in English and in writing all Nastech Know-How not
      previously disclosed. Merck shall promptly disclose to Nastech during the
      term of the Development Program all Merck Know-How.

2.7   RECORDS AND REPORTS.

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      2.7.1 RECORDS. Each of Merck and Nastech shall maintain records, in
            sufficient detail and in good scientific manner appropriate for
            patent and regulatory purposes, which shall fully and properly
            reflect all work done and results achieved in the performance of the
            Development Program by such Party.

      2.7.2 COPIES AND INSPECTION OF RECORDS. Merck shall have the right, during
            normal business hours and upon reasonable notice, to inspect and
            copy all such records of Nastech referred to in subsection 2.7.1.
            Merck shall maintain such records and the information disclosed
            therein in confidence in accordance with Section 4.1. Merck shall
            have the right to arrange for its employees and/or consultants
            involved in the activities contemplated hereunder to visit the
            offices and laboratories of Nastech and any of its Third Party
            contractors of Nastech as permitted under Section 2.3 during normal
            business hours and upon reasonable notice, and to discuss the
            Development Program work and its results in detail with the
            technical personnel and consultants of Nastech. Upon request,
            Nastech shall provide copies of the records described in subsection
            2.7.1 above.

2.8   RESEARCH INFORMATION AND INVENTIONS. The entire right, title and interest
      in:

      2.8.1 Nastech Information and Inventions shall be owned solely by Nastech;

      2.8.2 Merck Information and Inventions shall be owned solely by Merck; and

      2.8.3 Joint Information and Inventions shall be owned solely by Merck.
            Nastech hereby assigns to Merck all right, title and interest it may
            have in any Joint Information and Inventions.

            Nastech shall promptly disclose to Merck the development, making
            conception or reduction to practice of Nastech Information and
            Inventions and Joint Information and Inventions.

2.9   MATERIALS. In order to facilitate the Development Program, each Party
      shall provide the other Party with sufficient quantities of material as
      set forth in the Development Plan ("MATERIALS"). Each Party shall use the
      Materials supplied by the other Party solely for the purposes of carrying
      out its respective activities under the Development Program in accordance
      with the terms of this Agreement and, consistent with the licenses granted
      to either party in this Agreement. Neither Party shall transfer, deliver
      or disclose any such Materials of the other Party, or any derivatives,
      analogs, modifications or components thereof, to any Third Party without
      the prior written approval of the providing Party, except that Merck may
      transfer Materials provided by Nastech without Nastech's prior written
      consent to Merck's Related Parties, agents and subcontractors for the
      purpose of carrying out the development and commercialization of Nasal
      Formulations and Products. The Materials are not to be used in humans,
      except as contemplated by this Agreement or the Development Plan and
      permitted by applicable law. Any unused Materials supplied by Merck to
      Nastech shall be, at Merck's option, either returned to Merck, or
      destroyed in accordance with instructions by Merck. Notwithstanding
      anything else to the contrary in this Section 2.9, Nastech's supply of
      Nasal Formulations or Product for Clinical Supplies or commercial supply
      shall be subject to Section 3.6.1, in the case of Clinical Supplies and
      Section 3.6.2 and the Supply Agreement in the case of commercial supply.

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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.]

2.10  NASTECH EXCLUSIVE PYY (3-36) EFFORTS. During the [***] Nastech will not
      [***] (a) any product containing [***]; or (b) any product that [***]. If
      Nastech develops a product described in the foregoing that is not a Nasal
      Formulation or Product or otherwise covered by the license grants set
      forth in Section 3.1, then, at Merck's option, Merck and Nastech shall
      [***]. In the event that (1) Merck and/or its Affiliates develop, other
      than in the course of the Development Program, any product [***] (a
      "NON-DEVELOPMENT PROGRAM PRODUCT") and (2) the making, having made, use,
      offer for sale, sale or import of such Non-Development Program Compound by
      Merck, its Affiliate or their respective licensees, would infringe during
      the term of this Agreement a claim of issued letters patent which Nastech
      owns or has the rights to license and which patents are not covered by the
      grant in Section 3.1, upon Merck's option, Nastech agrees to, [***].

2.11  USE OF HUMAN MATERIALS. If any human cell lines, tissue, human clinical
      isolates or similar human-derived materials ("HUMAN MATERIALS") have been
      or are to be collected and/or used in the Development Program, Nastech
      represents and warrants (i) that it has complied, or shall comply, with
      all applicable laws, guidelines and regulations relating to the collection
      and/or use of the Human Materials and (ii) that it has obtained, or shall
      obtain, all necessary approvals and appropriate informed consents, in
      writing, for the collection and/or use of such Human Materials. Nastech
      shall provide documentation of such approvals and consents upon Merck's
      request. Nastech further represents and warrants that such Human Materials
      may be used as contemplated in this Agreement without any obligations to
      the individuals or entities ("PROVIDERS") who contributed the Human
      Materials, including, without limitation, any obligations of compensation
      to such Providers or any other Third Party for the intellectual property
      associated with, or commercial use of, the Human Materials for any
      purposes.

ARTICLE 3 LICENSE; EXCHANGE OF INFORMATION; DEVELOPMENT AND COMMERCIALIZATION.

3.1   LICENSE GRANT.

      3.1.1 Development and Commercialization. Subject to the terms and
            conditions of this Agreement, Nastech hereby grants to Merck an
            exclusive license (even as to Nastech) in the Territory, with a
            right to sublicense, under Nastech Patent Rights, Nastech
            Information and Inventions and Nastech Know-How to develop, use,
            offer to sell, sell or import Nasal Formulations and Products for
            any and all purposes.

      3.1.2 Manufacturing. Subject to the terms and conditions of this
            Agreement, Nastech hereby grants to Merck (a) a non-exclusive
            license in the Territory, with a right to sublicense, under Nastech
            Patent Rights, Nastech Information and Inventions and Nastech
            Know-How, to make and have made Nasal Formulations and Products
            solely for the purpose of [***]; and (b) automatically effective
            upon Merck's exercise of its right to manufacture Product upon the
            occurrence of a Continued Manufacturing Failure, [***], an exclusive
            license (even as to Nastech) in the Territory, with a right to
            sublicense, under Nastech Patent Rights, Nastech Information and
            Inventions and Nastech Know-How, to make and have made Nasal
            Formulations and Products for any and all purposes; provided that,
            [***].

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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.]

      3.1.3 Grant to Nastech. Subject to the terms and conditions of this
            Agreement, Merck hereby grants to Nastech a non-exclusive,
            royalty-free license, without the right to sublicense, under Merck
            Information and Inventions, Merck Know-How, Joint Inventions Patent
            Rights and Joint Information and Inventions solely to perform (a)
            Nastech's obligations under the Development Program in accordance
            with Article 2, (b) Nastech's co-promotion obligations in the United
            States in accordance with Section 3.4.3; and (c) Nastech's
            obligations to manufacture and supply Nasal Formulations and Product
            in accordance with Section 3.6.

      3.1.4 Nastech Retained Rights. Subject to the terms and conditions of this
            Agreement, (a) Nastech shall retain the rights under Nastech Patent
            Rights, Nastech Information and Inventions and Nastech Know-How as
            necessary with respect to Nasal Formulation and Products solely to
            perform (i) Nastech's obligations under the Development Program in
            accordance with Article 2, and (ii) Nastech's co-promotions
            obligations in the United States in accordance with Section 3.4.3;
            and (b) for the purposes of clarity, the Parties acknowledge that
            Nastech is not granting under Sections 3.1.1 or 3.1.2, and that
            Nastech retains the right to itself practice, Nastech Patent Rights,
            Nastech Information and Inventions and Nastech Know-How, for
            purposes other than with respect to Nasal Formulations or Product.
            Nastech covenants that it shall not use or permit its Affiliates or
            Third Parties to use (directly or indirectly whether through a
            license or otherwise) any of its retained rights to develop, use,
            make, have made, offer to sell, sell or import Nasal Formulations or
            Products other than with Merck under this Agreement.

      3.1.5 Grant to Nastech in Joint Information and Inventions. Subject to the
            terms and conditions of this Agreement, Merck hereby grants to
            Nastech a non-exclusive, royalty free, perpetual license in the
            Territory under Joint Inventions Patent Rights and Joint Information
            and Inventions for any and all purposes other than with respect to
            Nasal Formulations and Products. Nastech covenants that it shall not
            use or permit its Affiliates or Third Parties to use (directly or
            indirectly whether through a license or otherwise) Joint Inventions
            Patent Rights or Joint Information and Inventions to develop, use,
            make, have made, offer to sell, sell or import Nasal Formulations or
            Products other than in accordance with Section 3.1.3 under this
            Agreement.

      3.1.6 Merck Rights in Development Program Intellectual Property for Other
            Purposes. Subject to the terms and conditions of this Agreement,
            Nastech hereby grants to Merck a royalty free, perpetual
            non-exclusive license in the Territory under Nastech Information and
            Inventions, with a right to sublicense, for any and all uses,
            including but not limited to, to develop, make, have made, use,
            offer to sell, sell or import any compound or product other than a
            Nasal Formulation or Product.

3.2   NON-EXCLUSIVE LICENSE GRANT. In the event the making, having made, use,
      offer for sale, sale or import by Merck, or Merck's Related Parties of
      Nasal Formulations or Product(s) would infringe during the term of this
      Agreement a claim of issued letters patent which Nastech owns or has the
      rights to license and which patents are not covered by the grant in
      Section 3.1, Nastech hereby grants to Merck, to the extent Nastech is
      legally able to do so, a non-exclusive, sublicensable, royalty-free
      license in the Territory under such issued letters patent solely for Merck
      to develop, make, have made, use, sell, offer for sale or import Nasal
      Formulations and Products in the Territory.

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COMMISSION.]

3.3   NO IMPLIED LICENSE. Except as specifically set forth in this Agreement,
      neither Party shall acquire any license or other intellectual property
      interest, by implication or otherwise, in any Information disclosed to it
      under this Agreement or under any patents or patent applications owned or
      controlled by the other Party or its Affiliates.

3.4   DEVELOPMENT AND COMMERCIALIZATION.

      3.4.1 Merck Diligence Obligations. Merck shall use reasonable efforts,
            consistent with the usual practice followed by Merck in pursuing the
            commercialization and marketing of its other pharmaceutical products
            of a similar commercial value, at its own expense, to develop and
            commercialize a Product on a commercially reasonable basis in such
            countries in the Territory where in Merck's opinion it is
            commercially viable to do so.

      3.4.2 Development and Commercialization Responsibilities.

            (a)   Generally. Subject to the terms and conditions of this
                  Agreement, Merck shall have responsibility for development,
                  regulatory filings (subject to Section 3.4.2(b)), marketing
                  and commercialization of Product in the Territory, subject to
                  Nastech obligations under the Development Program in
                  accordance with Article 2 and Nastech's rights and obligations
                  to co-promote Product in the United States in accordance with
                  Section 3.4.3).

            (b)   Regulatory. Within [***], or an appropriate time later than
                  such time as reasonably determined by Merck, Nastech shall
                  [***], provide Merck with a [***], and/or take such other
                  steps with respect to [***] Merck may reasonably determine
                  necessary. Merck shall be solely responsible (subject to
                  Nastech's fulfillment of its obligations as set forth in this
                  Section 3.4.2(b) and Article 2) for all regulatory filings and
                  regulatory compliance activities, and shall maintain the NDA
                  and the IND [***] all regulatory filings will be held in the
                  name of Merck, and Merck shall own all submissions in
                  connection therewith. Merck shall have sole discretion as to
                  the regulatory strategy and regulatory decision making for any
                  Nasal Formulation or Product.

      3.4.3 Nastech Co-Promotion Right in United States. Nastech shall have the
            option to participate in the co-promotion of Product with Merck
            [***] in the United States only as described in, and subject to the
            terms and conditions set forth in Schedule 3.4; provided that
            Nastech notifies Merck of its intent to exercise its option to
            co-promote in accordance with this Section 3.4.3 no less than [***]
            months prior to [***] in the United States. If the foregoing
            conditions are satisfied, Nastech and Merck shall negotiate and
            enter into a mutually acceptable definitive written agreement (a
            "CO-PROMOTION AGREEMENT") regarding Nastech's Detailing (as
            described in Schedule 3.4) no later than [***] months prior to [***]
            in the United States which, unless otherwise mutually agreed, shall
            be subject to and include the terms and conditions specified in
            Schedule 3.4.

      3.4.4 Nastech Right to Appoint Alliance Manager. In the event that Nastech
            exercises its option to co-promote Product in the United States in
            accordance with Section 3.4.3, Nastech may nominate a Nastech
            employee (the "ALLIANCE MANAGER") who may attend

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COMMISSION.]

            and represent Nastech during Merck's [***] with respect to the
            marketing of Products in the United States to be held in accordance
            with the [***] of Merck. The Alliance Manager may offer advice at
            such [***] and may engage in ongoing discussions with Merck's
            designated marketing representative leading up to such [***]. The
            Alliance Manager shall be responsible for communicating [***]
            subject of [***] to Nastech sales representatives. Notwithstanding
            anything to the contrary in the foregoing, the Parties acknowledge
            and agree that Merck shall have sole control over all marketing and
            commercialization of Product in the Territory.

3.5   EXCUSED PERFORMANCE. In addition to the provisions of Article 6, the
      obligations of Merck with respect to any Product under Section 3.4 are
      expressly conditioned upon the continuing absence of any adverse condition
      or event relating to the safety or efficacy of the Product, and the
      obligation of Merck to develop or market any such Product shall be delayed
      or suspended so long as in Merck's opinion any such condition or event
      exists.

3.6   SUPPLY OF PRODUCT AND NASAL FORMULATION; MANUFACTURING TECHNOLOGY
      TRANSFER.

      3.6.1 Clinical Supply.

            (a)   Nastech agrees to manufacture and supply Merck and its Related
                  Parties requirements for clinical quantities of Nasal
                  Formulation and Products in the Territory for use in Clinical
                  Trials and the Development Program by Merck, its Related
                  Parties and Nastech, as the case may be ("CLINICAL SUPPLIES").
                  Merck will reimburse Nastech [***]. The PDT shall provide
                  Nastech with a forecast of such requirements via the
                  Development Plan or as may otherwise be communicated to
                  Nastech. For the purposes of this Section 3.6.1,
                  "manufacturing" shall include all operations involved in the
                  receipt, incoming inspections, storage and handling of
                  materials and the manufacturing (including formulation and
                  filling), packaging, labeling, warehousing, quality control
                  testing (including in-process, release and stability testing),
                  releasing, and shipping of Nasal Formulations and Product.

            (b)   Nastech represents, warrants and covenants that Clinical
                  Supplies supplied hereunder shall (i) meet the specifications
                  established by the PDT for such Nasal Formulations and/or
                  Product; and (ii) be manufactured in accordance with all
                  applicable laws, rules and regulations, including, without
                  limitation, all current governmental regulatory requirements
                  concerning cGMP (including, without limitation, the
                  requirements of 21 CFR Parts 210 and 211 and cGMP requirements
                  concerning documentation, reports and record keeping) and the
                  Animal Welfare Act (as applicable).

            (c)   Nastech shall notify Merck in writing of any deviations from
                  applicable regulatory or legal requirements relating to
                  Clinical Supplies. Nastech hereby represents, warrants and
                  covenants that that it will not, and has not, employed or
                  otherwise used in any capacity the services of any person
                  debarred under Section 21 USC 335a in performing any portion
                  of the manufacture of Clinical Supplies.

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COMMISSION.]

            (d)   Nastech shall maintain complete and accurate records of all
                  relevant data and information relating to the performance by
                  Nastech of its obligations under this Section 3.6.1. At
                  Merck's request, Nastech shall provide to Merck copies of all
                  documentation and data relating to the manufacture of Clinical
                  Supplies or shall permit Merck to inspect and copy such
                  documentation and data. Nastech shall maintain original batch
                  records for [***] years and, at such time thereafter as
                  Nastech intends to dispose of such batch records, Nastech
                  shall notify Merck in advance, and will permit Merck, at its
                  discretion, to take possession of such batch records.

      3.6.2 Commercial Supply. Nastech agrees to manufacture and supply Merck
            and its Related Parties requirements for commercial quantities of
            Product in the Territory for sale by Merck and its Related Parties
            (including Nastech in the United States to the extent Nastech
            co-promotes Product in accordance with Section 3.4.3). Merck will
            reimburse Nastech for such supply as set forth in the Supply
            Agreement. Notwithstanding anything to the contrary herein, such
            supply obligations shall be subject to the terms and conditions of
            the Supply Agreement. Upon completion of the validation of the
            manufacturing process for Nasal Formulations and Products, Nastech
            shall, [***], deliver to Merck a complete technical package
            containing the Nastech Know-How necessary or useful for the
            manufacture of the Nasal Formulations and Products. [***].

3.7   TERMS OF LOAN TO NASTECH FOR MANUFACTURING [***]. Upon the occurrence of
      [***] and Merck delivery of the Expansion Notice (as defined in the Supply
      Agreement) to Nastech, all in accordance with Section 2.4 of the Supply
      Agreement, Merck agrees to loan Nastech up to [***] (the "MAXIMUM LOAN
      AMOUNT") which shall be subject to the following terms and conditions:

      3.7.1 [***];

      3.7.2 [***];

      3.7.3 [***];

      3.7.4 [***];

      3.7.5 [***];

      3.7.6 [***];

      3.7.7 Merck shall be entitled to fully set off and credit any amounts past
            due from Nastech under the loan against any amounts payable by Merck
            to Nastech; and

      3.7.8 The Parties shall in good faith negotiate appropriate agreements and
            other documentation to reflect the foregoing terms (which may
            include but shall not be limited to, appropriate and customary
            promissory note(s), security agreement(s), UCC-1 and/or mortgages)
            to include other appropriate and customary terms for similar loan
            transactions.

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COMMISSION.]

ARTICLE 4 CONFIDENTIALITY AND PUBLICATION.

4.1   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:

      4.1.1 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;

      4.1.2 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;

      4.1.3 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;

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

      4.1.5 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;

      4.1.6 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 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 [***].

      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 4.1 or Section 4.2, 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 4.1 and Section 4.2, 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.

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COMMISSION.]

4.2   NASTECH KNOW-HOW. Nastech agrees to keep all Nastech Know-How confidential
      subject to those exceptions stated in Section 4.1 above; provided that
      Nastech shall be permitted to disclose Nastech Know-How as necessary to
      exercise rights Nastech has retained in the Nastech Know-How other than
      for Nasal Formulations or Product in accordance with Sections 3.1.1 and
      3.1.4.

4.3   PUBLICATION. Nastech shall have no right to publish results of the
      Development Program. Merck shall have the right to publish results of the
      Development Program. For any Merck publication relating to Nasal
      Formulations and Product Merck shall conform to standard academic
      practices regarding authorship of scientific publications and recognition
      of contributions of Nastech. Merck and Nastech also recognize the mutual
      interest in obtaining valid patent protection and in protecting business
      interests and trade secret information. Consequently, except for
      disclosures permitted pursuant to Section 4.1, Merck shall provide Nastech
      with an opportunity to review its proposed publications that disclose
      Nastech Patent Rights or Nastech Know-How at least [***] prior to
      submission for publication or presentation. Nastech shall have the right
      (a) to propose modifications to the publication or presentation for patent
      reasons or trade secret reasons or (b) to request a reasonable delay in
      publication or presentation in order to protect patentable information. If
      Nastech reasonably requests a delay for such reasons, Merck shall delay
      submission or presentation for a period of [***] to enable patent
      applications protecting each Party's rights in such information to be
      filed in accordance with Article 7. Upon expiration of such [***], Merck
      shall be free to proceed with the publication or presentation. If Nastech
      requests modifications to the publication or presentation for the
      foregoing reasons, Merck shall edit such publication to prevent disclosure
      of trade secret or proprietary business information prior to submission of
      the publication or presentation.

4.4   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.

ARTICLE 5 PAYMENTS; ROYALTIES AND REPORTS

5.1   UPFRONT CONSIDERATION FOR LICENSE. Merck shall make a one-time payment to
      Nastech equal to five million dollars ($5,000,000) within [***] of the
      Effective Date.

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COMMISSION.]

5.2   DEVELOPMENT PROGRAM FUNDING. In consideration for Nastech's performance of
      its obligations under the Development Program (which shall not include
      Nastech's obligations under the Supply Agreement or Nastech's obligations
      to supply Clinical Supplies in accordance with Section 3.6), upon the
      terms and conditions contained herein, Merck shall reimburse Nastech for
      expenses it has actually incurred in the performance of such activities
      and as previously approved by the PDT or Merck in accordance with Section
      2.5, but only to the extent such amounts are set forth in the development
      budget as determined in accordance with Section 2.4. Reimbursements by
      Merck under the foregoing shall be payable as stated in Section 2.5.2.

5.3   MILESTONE PAYMENTS. Subject to the terms and conditions of this Agreement,
      upon the achievement of each milestone event identified in the following
      table, Merck shall pay to Nastech the corresponding milestone fee
      identified in the table below [***].

                                      [***]

      Merck shall notify Nastech in writing within [***] after the achievement
      of each of the foregoing milestones, and shall make the appropriate
      milestone payment within [***] thereafter for the first Product to reach
      such milestone event. The milestone payment shall be payable only upon the
      initial achievement of such milestone and no amounts shall be due
      hereunder for subsequent or repeated achievement of such milestone.

5.4   ROYALTIES.

      5.4.1 Royalties Payable by Merck. Subject to the terms and conditions of
            this Agreement, Merck shall pay to Nastech royalties on Net Sates of
            Product on a country-by-country basis in the following amounts:

            (a)   so long as the [***] of the Product subject to such Net Sales
                  would, but for the rights granted to Merck by Nastech in this
                  Agreement, infringe a Valid Patent Claim [***]:

                                      [***]

            ; or

            (b)   for Net Sales of Product other than those covered in
                  subsection 5.4.1(a) above Merck shall pay Nastech a royalty
                  equal to [***] of such Net Sales.

            Royalties on each Product at the rate set forth above shall be
            effective as of the date of First Commercial Sale of Products in a
            country and shall continue until either (i) the expiration of the
            last Valid Patent Claim which claims such Product or the Nasal
            Formulation contained in such Product [***], but for the rights
            granted to Merck by Nastech under this Agreement, the [***] of such
            Product would infringe, in the case of sales under subsection
            5.4.1(a); or (ii) until the [***] of the First Commercial Sale in
            such country in the case of sales of Product under subsection
            5.4.1(b), subject to the following conditions:

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COMMISSION.]

            (w)   that only one royalty shall be due with respect to the same
                  unit of Product;

            (x)   that no royalties shall be due upon the sale or other transfer
            among Merck or its Related Parties, but in such cases the royalty
            shall be due and calculated upon Merck's or its Related Party's Net
            Sales to the first independent Third Party;

            (y)   no royalties shall accrue on the sale or other disposition of
            Product by Merck or its related Parties for use in a Clinical Trial;
            and

            (z)   no royalties shall accrue on the disposition of Product in
            reasonable quantities by Merck or its Related Parties as samples
            (promotion or otherwise) or as donations (for example, to non-profit
            institutions or government agencies for a non-commercial purpose).

      5.4.2 CHANGE IN SALES PRACTICES. The Parties acknowledge that during the
            term of this Agreement, Merck's sales practices for the marketing
            and distribution of Product may change to the extent to which the
            calculation of the payment for royalties on Net Sales may become
            impractical or even impossible. In such event the Parties agree to
            meet and discuss in good faith new ways of compensating Nastech to
            the extent currently contemplated under Section 5.4.1.

      5.4.3 ROYALTIES FOR [***]. In those cases where Merck sells a Nasal
            Formulation contained in Product [***] to an independent Third
            Party, the royalty obligations of this Section 5.4 shall be
            applicable to the sale of [***].

      5.4.4 COMPULSORY LICENSES. If a compulsory license is granted to a Third
            Party with respect to Product in any country in the Territory with a
            royalty rate lower than the royalty rate provided by subsection
            5.4.1, then the royalty rate to be paid by Merck on Net Sales in
            that country under subsection 5.4.1 shall be reduced to [***].

      5.4.5 THIRD PARTY LICENSES. [***]

            (a)   [***]; and

            (b)   (i) [***]; or

                  (ii) [***].

      5.4.6 [***] Notwithstanding anything else to the contrary in this Section
            5.4, Merck shall not be required to make any royalty payments to
            Nastech on Net Sales in a country once a [***] sold by a party other
            than Merck or its Related Parties has or attains on a Calendar Year
            basis a market share of [***] or more of units of Product sold in
            such country of sale as measured by prescriptions or other similar
            information in the country of sale.

      5.4.7 [***]

5.5   REPORTS; PAYMENT OF ROYALTY. During the term of this Agreement following
      the First Commercial Sale of a Product, Merck shall furnish to Nastech a
      quarterly written report for the

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COMMISSION.]

      Calendar Quarter showing the Net Sales of all Products subject to royalty
      payments sold by Merck and its Related Parties in the Territory during the
      reporting period and the royalties payable under this Agreement. Reports
      shall be due on the [***] day following the close of each Calendar
      Quarter. Royalties shown to have accrued by each royalty report shall be
      due and payable on the date such royalty report is due. Merck shall keep
      complete and accurate records in sufficient detail to enable the royalties
      payable hereunder to be determined.

5.6   AUDITS.

      5.6.1 Upon the written request of Nastech and not more than once in each
            Calendar Year, Merck shall permit an independent certified public
            accounting firm of nationally recognized standing selected by
            Nastech and reasonably acceptable to Merck, at the Nastech's
            expense, to have access during normal business hours to such of the
            records of Merck as may be reasonably necessary to verify the
            accuracy of the royalty reports hereunder for any year ending not
            more than [***] months prior to the date of such request. The
            accounting firm shall disclose to Nastech only whether the royalty
            reports are correct or incorrect and the specific details concerning
            any discrepancies. No other information shall be provided to
            Nastech.

      5.6.2 If such accounting firm correctly identifies a discrepancy made
            during such period, the appropriate Party shall pay the other Party
            the amount of the discrepancy within [***] of the date Nastech
            delivers to Merck such accounting firm's written report so correctly
            concluding, or as otherwise agreed upon by the Parties. The fees
            charged by such accounting firm shall be paid by Nastech; provided,
            however, that if an audit uncovers an underpayment of royalties by
            Merck [***], then the fees of such accounting firm shall be paid by
            Merck.

      5.6.3 Merck shall include in each sublicense granted by it pursuant to
            this Agreement a provision requiring the sublicensee to make reports
            to Merck, to keep and maintain records of sales made pursuant to
            such sublicense and to grant access to such records by Nastech's
            independent accountant to the same extent required of Merck under
            this Agreement.

      5.6.4 Upon the expiration of [***] following the end of any year, the
            calculation of royalties payable with respect to such year shall be
            binding and conclusive upon Nastech, and Merck and its Related
            Parties shall be released from any liability or accountability with
            respect to royalties for such year.

      5.6.5 Nastech shall treat all financial information subject to review
            under this Section 5.6 or under any sublicense agreement in
            accordance with the confidentiality and non-use provisions of this
            Agreement, and shall cause its accounting firm to enter into an
            acceptable confidentiality agreement with Merck and/or its Related
            Parties obligating it to retain all such information in confidence
            pursuant to such confidentiality agreement.

5.7   PAYMENT EXCHANGE RATE. All payments to be made by Merck to Nastech under
      this Agreement shall be made in United States dollars and may be paid by
      check made to the order of Nastech or bank wire transfer in immediately
      available funds to such bank account in the United States designated in
      writing by Nastech from time to time. In the case of sales outside the
      United States,

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      the rate of exchange to be used in computing the amount of currency
      equivalent in United States dollars due Nastech shall be made at the rate
      of exchange utilized by Merck in its worldwide accounting system,
      prevailing on the third to the last business day of the month prior to the
      month in which such sales are recorded by Merck.

5.8   INCOME TAX WITHHOLDING. If laws, rules or regulations require withholding
      of income taxes or other taxes imposed upon payments set forth in this
      Article 5, Merck shall make such withholding payments as required and
      subtract such withholding payments from the payments set forth in this
      Article 5. Merck shall submit appropriate proof of payment of the
      withholding taxes to Nastech within a reasonable period of time.

ARTICLE 6 REPRESENTATIONS AND WARRANTIES

6.1   REPRESENTATIONS AND WARRANTIES.

      Nastech represents and warrants to Merck that as of the date of this
Agreement:

      6.1.1 to the best of Nastech's knowledge, the Nastech Patent Rights and
            Nastech Know-How exist and are not invalid or unenforceable, in
            whole or in part;

      6.1.2 it has the full right, power and authority to enter into this
            Agreement, to perform the Development Program and to grant the
            licenses granted under Article 3 hereof;

      6.1.3 it has not previously assigned, transferred, conveyed or otherwise
            encumbered its right, title and interest in Nastech Patent Rights or
            Nastech Know-How;

      6.1.4 to the best of Nastech's knowledge, it is the sole and exclusive
            owner of the Nastech Patent Rights and Nastech Know-How, all of
            which are (and shall be, in the case of Nastech Information and
            Invention) free and clear of any liens, charges and encumbrances,
            and no other person, corporate or other private entity, or
            governmental entity or subdivision thereof, has or shall have any
            claim of ownership whatsoever with respect to the Nastech Patent
            Rights and Nastech Know-How;

      6.1.5 to the best of Nastech's knowledge, the exercise of the license
            granted to Merck under the Nastech Patent Rights and Nastech
            Know-How, including without limitation the development, manufacture,
            use, sale and import of Products do not interfere with or infringe
            any intellectual property rights owned or possessed by any Third
            Party;

      6.1.6 there are no claims, judgments or settlements against or owed by the
            Nastech or pending or threatened claims or litigation relating to
            the Nastech Patent Rights and Nastech Know-How; and

      6.1.7 Nastech has disclosed to Merck all reasonably relevant information
            regarding the Nastech Patent Rights and Nastech Know-How licensed
            under this Agreement, including without limitation all patent
            opinions obtained by Nastech related thereto.

      6.1.8 Nastech has delivered to Merck a true and complete copy (subject to
            redaction of financial and other information not material to
            Nastech's ability to sublicense rights

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            licensed thereunder to Merck under this Agreement) of that certain
            License Agreement by and between Nastech and [***]; and that certain
            License Agreement between Nastech and [***], including any and all
            amendments, side letters, or other modifications thereto, in each
            case as it is in effect as of the Effective Date (collectively, the
            "NASTECH THIRD PARTY LICENSE AGREEMENTS"). Nastech hereby represents
            and warrants that under each Nastech Third Party License Agreement,
            it has the necessary rights to sublicense all patent rights granted
            to Nastech under such Nastech Third Party License Agreement as
            Nastech Patent Rights, to Merck consistent with the licenses granted
            to Merck by Nastech under Sections 3.1 and 3.2. Nastech further
            covenants and agrees that during the term of this Agreement (a) it
            will satisfy all of its obligations under, and take all steps
            necessary to maintain in full force and effect, each of the Nastech
            Third Party License Agreements; (b) it will not assign, amend,
            restate, amend and restate, terminate in whole or in part, or
            otherwise modify any of the Nastech Third Party License Agreements
            in a manner that would adversely affect Merck's rights or
            obligations hereunder without the prior written consent of Merck;
            and (c) it will provide Merck with prompt notice of any claim of a
            material breach under any Nastech Third Party License Agreement made
            by either Nastech or a respective counter party thereto.

ARTICLE 7 PATENT PROVISIONS.

7.1   FILING, PROSECUTION AND MAINTENANCE OF PATENTS. Nastech agrees to file,
      prosecute and maintain in the Territory, upon appropriate consultation
      with Merck, the Nastech Patent Rights licensed to Merck under this
      Agreement. With respect to Joint Information and Inventions, Merck agrees
      to file, prosecute and maintain patent applications and Nastech agrees to
      cooperate with Merck in such actions. With respect to Nastech Information
      and Inventions, Nastech may elect not to file and if so Nastech shall
      notify Merck and Merck shall have the right to file patent applications.
      In such event, Nastech shall execute such documents and perform such acts
      at Nastech's expense as may be reasonably necessary to effect an
      assignment of such Nastech Patent Rights to Merck in a timely manner to
      allow Merck to continue such prosecution or maintenance. In each case, the
      filing Party shall give the non-filing Party an opportunity to review the
      text of the application before filing, shall consult with the non-filing
      Party with respect thereto, and shall supply the non-filing Party with a
      copy of the application as filed, together with notice of its filing date
      and serial number. Nastech shall keep Merck advised of the status of the
      actual and prospective patent filings and, upon Merck's request, shall
      provide advance copies of any papers related to the filing, prosecution
      and maintenance of such patent filings. Nastech shall also inform Merck in
      a timely manner of any communications Nastech receives from the relevant
      patent office with respect to the filing, prosecution and maintenance of
      such patent filings. Nastech shall promptly give notice to Merck of the
      grant, lapse, revocation, surrender, invalidation or abandonment of any
      Nastech Patent Rights licensed to Merck for which Nastech is responsible
      for the filing, prosecution and maintenance. With respect to all filings
      hereunder, the filing Party shall be responsible for payment of all costs
      and expenses related to such filings.

7.2   OPTION OF OTHER PARTY TO PROSECUTE AND MAINTAIN PATENTS. Nastech shall
      give notice to Merck of any desire to cease prosecution and/or maintenance
      of Nastech Patent Rights on a country by country basis in the Territory
      and, in such case, shall permit Merck, in its sole discretion, to continue
      prosecution or maintenance of such Nastech Patent Rights at its own
      expense. If Merck elects to continue prosecution or maintenance or to file
      based on Nastech's election not to file pursuant to Section 7.1 above,
      Nastech shall execute such documents and perform such acts at

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      Nastech's expense as may be reasonably necessary to effect an assignment
      of such Nastech Patent Rights to Merck in a timely manner to allow Merck
      to continue such prosecution or maintenance. Any patents or patent
      applications so assigned shall not be considered Nastech Patent Rights.
      Merck may, in its discretion, elect not to file, cease prosecution and/or
      maintenance of Joint Inventions Patent Rights on a country by country
      basis in the Territory and, in such case, shall give notice to Nastech of
      any such desire and permit Nastech, in its sole discretion, to file and/or
      continue prosecution or maintenance of such Joint Inventions Patent Rights
      at its own expense. If Nastech elects to continue prosecution or
      maintenance or to file based on Merck's election not to file Joint
      Inventions Patent Rights, Merck shall execute such documents and perform
      such acts at Merck's expense as may be reasonably necessary to effect an
      assignment of such Merck Joint Inventions Patent Rights to Nastech in a
      timely manner to allow Nastech to continue such prosecution or
      maintenance.

7.3   INTERFERENCE, OPPOSITION, REEXAMINATION AND REISSUE.

      7.3.1 Nastech shall, within ten (10) days of learning of such event,
            inform Merck of any request for, or filing or declaration of, any
            interference, opposition, reissue or reexamination relating to
            Nastech Patent Rights. Merck and Nastech shall thereafter consult
            and cooperate fully to determine a course of action with respect to
            any such proceeding. Merck shall have the right to review and
            approve any submission to be made in connection with such
            proceeding.

      7.3.2 Nastech shall not initiate any reexamination, interference or
            reissue proceeding relating to Patent Rights without the prior
            written consent of Merck, which consent shall not be unreasonably
            withheld.

      7.3.3 In connection with any interference, opposition, reissue, or
            reexamination proceeding relating to Patent Rights, Merck and
            Nastech will cooperate fully and will provide each other with any
            information or assistance that either may reasonably request.
            Nastech shall keep Merck informed of developments in any such action
            or proceeding, including, to the extent permissible by law,
            consultation on and approval of any settlement, the status of any
            settlement negotiations and the terms of any offer related thereto.

      7.3.4 Nastech shall bear the expense of any interference, opposition,
            reexamination, or reissue proceeding relating to Nastech Patent
            Rights.

      7.3.5 Regardless of which Party has the right to initiate and prosecute
            such action, both Parties shall, as soon as practicable after
            receiving notice of such action, convene and consult with each other
            regarding the appropriate course of conduct for such action. The
            non-initiating Party shall have the right to be kept fully informed
            and participate in decisions regarding the appropriate course of
            conduct for such action, and the right to join and participate in
            such action.

      7.3.6 [***].

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7.4   ENFORCEMENT AND DEFENSE.

      7.4.1 Nastech shall give Merck notice of either (i) any infringement of
            Nastech Patent Rights, or (ii) any misappropriation or misuse of
            Nastech Know-How, that may come to Nastech's attention. Merck and
            Nastech shall thereafter consult and cooperate fully to determine a
            course of action, including but not limited to the commencement of
            legal action by either or both Merck and Nastech, to terminate any
            infringement of Nastech Patent Rights or any misappropriation or
            misuse of Nastech Know-How. [***].

      7.4.2 [***].

      7.4.3 [***].

      7.4.4 [***]:

            (a)   [***];

            (b)   [***]; and

            (c)   [***].

      7.4.5 Nastech shall inform Merck of any certification regarding any
            Nastech Patent Rights it has received pursuant to either 21
            U.S.C. Sections 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or it
            successor provisions or any similar provisions in a country in the
            Territory other than the United States and shall provide Merck with
            a copy of such certification within five (5) days of receipt.
            Nastech's and Merck's rights with respect to the initiation and
            prosecution of any legal action as a result of such certification or
            any recovery obtained as a result of such legal action shall be as
            defined in subsections 7.4.1 through 7.4.4; provided, however, that
            Nastech shall exercise its first right to initiate and prosecute any
            action and shall inform Merck of such decision within ten (10) days
            of receipt of the certification, after which time Merck shall have
            the right to initiate and prosecute such action. Regardless of which
            Party has the right to initiate and prosecute such action, both
            Parties shall, as soon as practicable after receiving notice of such
            certification, convene and consult with each other regarding the
            appropriate course of conduct for such action. The non-initiating
            Party shall have the right to be kept fully informed and participate
            in decisions regarding the appropriate course of conduct for such
            action, and the right to join and participate in such action.

7.5   PATENT TERM RESTORATION. The Parties hereto shall cooperate with each
      other, including without limitation to provide necessary information and
      assistance as the other Party may reasonably request, in obtaining patent
      term restoration or supplemental protection certificates or their
      equivalents in any country in the Territory where applicable to Patent
      Rights. In the event that elections with respect to obtaining such patent
      term restoration are to be made, Merck shall have the right to make the
      election and Nastech agrees to abide by such election.

7.6   [***].

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ARTICLE 8 TERM AND TERMINATION

8.1   TERM AND EXPIRATION. This Agreement shall be effective as of the Effective
      Date and unless terminated earlier pursuant to Sections 8.2 or 8.3 below,
      this Agreement shall continue in effect until expiration of all royalty
      obligations hereunder. Upon expiration of this Agreement, the licenses
      granted to Merck pursuant to Section 3.1 and 3.2 shall become fully
      paid-up, perpetual licenses.

8.2   TERMINATION BY MERCK. Notwithstanding anything contained herein to the
      contrary, Merck shall have the right to terminate this Agreement at any
      time in its sole discretion by giving [***] advance written notice to
      Nastech; provided that if Merck terminates this Agreement under this
      Section 8.2 prior to [***] such termination shall be effective [***].
      Until the date that such termination is effective each Party will remain
      subject to its obligations under this Agreement. Not later than [***] days
      after the effective date of such termination, each Party shall return or
      cause to be returned to the other Party all Information in tangible form
      received from the other Party and all copies thereof, except that each
      Party may retain any Information reasonably necessary for such Party's
      continued practice under any license(s) which do not terminate pursuant to
      this Section, and may keep one copy of Information received from the other
      Party in its confidential files for record purposes. In the event of
      termination under this Section 8.2: (i) each Party shall pay all amounts
      then due and owing to the other Party as of the termination date; and (ii)
      except for the surviving provisions set forth in Section 8.4, the rights
      and obligations of the Parties hereunder shall terminate as of the date of
      such termination; provided, however, that the license granted to Merck in
      [***] and the license granted to Nastech in [***] shall [***]. In the
      event of termination under this Section 8.2, with respect to any Product
      that was under clinical development or commercialization by Merck under
      this Agreement at the time of such termination and only to the extent that
      such Product [***] (collectively, the "REVERTED PRODUCTS"), at the written
      request of Nastech made within thirty (30) days after the effective date
      of such termination:

      8.2.1 Merck shall grant to Nastech [***];

      8.2.2 the license granted by Merck to Nastech under this Section 8.2 shall
            [***] without the prior written consent of Merck; provided that if
            [***]; and

      8.2.3 [***].

8.3   TERMINATION FOR CAUSE.

      8.3.1 CAUSE FOR TERMINATION. This Agreement may be terminated at any time
            during the term of this Agreement:

            (a)   upon written notice by either Party if the other Party is in
                  breach of its material obligations hereunder by causes and
                  reasons within its control and has not cured such breach
                  within [***] after notice requesting cure of the breach;
                  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 9.7 hereof; or

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            (b)   by either Party upon the filing or institution of bankruptcy,
                  reorganization, liquidation or receivership proceedings, 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 [***] after the filing
                  thereof.

      8.3.2 Effect of Termination for Cause on License.

            (a)   (i)   If Merck terminates this Agreement under Section
                        8.3.1(a), Merck's rights under the licenses [***] shall
                        survive termination and become perpetual licenses,
                        [***]. Nastech shall, within [***] after the effective
                        date of such termination return or cause to be returned
                        to Merck all Nasal Formulations or Products (except to
                        the extent otherwise provided in the Supply Agreement),
                        all Information in tangible form, and all substances or
                        compositions delivered or provided by Merck, as well as
                        any other material provided by Merck in any medium.

                  (ii)  If Nastech terminates this Agreement under subsection
                        8.3.1(a), Merck's licenses [***] shall terminate as of
                        such termination date and Merck shall, within [***] days
                        after the effective date of such termination, return or
                        cause to be returned to Nastech all Information in
                        tangible form and substances or compositions delivered
                        or provided by Nastech, as well as any other material
                        provided by Nastech in any medium; provided, however,
                        that the license granted to Merck in Section 3.1.6 shall
                        continue in accordance with its terms.

            (b)   Upon termination of this Agreement by Merck pursuant to
                  Section 8.2, or by Nastech pursuant to subsection 8.3.1(a),
                  Merck and its Affiliates, sublicensees and distributors shall
                  be entitled, during the [***] month period immediately
                  following the effective date of termination, to finish any
                  work-in-progress and to sell any Nasal Formulation remaining
                  in inventory, in accordance with the terms of this Agreement
                  unless otherwise provided in the Supply Agreement.

            (c)   If this Agreement is terminated by Merck pursuant to
                  subsection 8.3.1(b) due to the rejection of this Agreement by
                  or on behalf of Nastech under Section 365 of the United States
                  Bankruptcy Code (the "CODE"), all licenses and rights to
                  licenses granted under or pursuant to this Agreement by
                  Nastech to Merck are, and shall otherwise be deemed to be, for
                  purposes of Section 365(n) of the Code, licenses of rights to
                  "intellectual property" as defined under Section 101(35A) of
                  the Code. The Parties agree that Merck, as a licensee of such
                  rights under this Agreement, shall retain and may fully
                  exercise all of its rights and elections under the Code, and
                  that upon commencement of a bankruptcy proceeding by or
                  against Nastech under the Code, Merck shall be entitled to a
                  complete duplicate of or complete access to (as Merck deems
                  appropriate), any such intellectual property and all
                  embodiments of such intellectual property. Such intellectual
                  property and all embodiments thereof shall be promptly
                  delivered to Merck (i)

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                  upon any such commencement of a bankruptcy proceeding upon
                  written request therefore by Merck, unless Nastech elects to
                  continue to perform all of its obligations under this
                  Agreement or (ii) if not delivered under (i) above, upon the
                  rejection of this Agreement by or on behalf of Nastech upon
                  written request therefore by Merck.

      The foregoing provisions of subsection 8.3.2 are without prejudice to any
      rights Merck may have arising under the Code or other applicable law.

8.4   EFFECT OF EXPIRATION OR TERMINATION; SURVIVAL. 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, including without limitation the obligation to
      pay royalties for Product(s) sold prior to such expiration or termination.
      The provisions of Article 4 shall survive the expiration or termination of
      this Agreement and shall continue in effect for [***] years. In addition,
      the provisions of Article 1, Article 6, Article 7 (for clarity, subject to
      the provisions of [***]), Article 8 and Article 9 shall survive any
      expiration or termination of this Agreement.

ARTICLE 9 MISCELLANEOUS

9.1   FORCE MAJEURE. Neither Party shall be held liable to the other Party nor
      be deemed to have defaulted under or breached this Agreement for failure
      or delay in performing any obligation under this Agreement when such
      failure or delay is caused by or results from causes beyond the reasonable
      control of the affected Party including, but not limited to, embargoes,
      war, acts of war (whether war be declared or not), acts of terrorism,
      insurrections, riots, civil commotions, strikes, lockouts or other labor
      disturbances, fire, floods, or other acts of God, or acts, omissions or
      delays in acting by any governmental authority or the other Party. The
      affected Party shall notify the other Party of such force majeure
      circumstances as soon as reasonably practical, and shall promptly
      undertake all reasonable efforts necessary to cure such force majeure
      circumstances.

9.2   ASSIGNMENT; CHANGE OF CONTROL.

      9.2.1 Except as provided in this Section 9.2, this Agreement may not be
            assigned or otherwise transferred, nor may any right or obligation
            hereunder be assigned or transferred, by either Party without the
            consent of the other Party.

      9.2.2 Merck may, without consent of Nastech, assign this Agreement and its
            rights and obligations hereunder in whole or in part to an Affiliate
            of Merck or in connection with a Change of Control.

      9.2.3 Nastech may assign this Agreement in its entirety to the successor
            party in connection with a Change of Control; provided that [***],
            then Nastech shall provide written notice to Merck at least [***]
            days prior to the completion of [***] and Merck shall have the
            right, at Merck's election at any time after such notice to [***].

            (a)   [***];

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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.]

            (b)   [***];

            (c)   [***];

            (d)   [***];

            (e)   [***];

            (f)   [***].

      9.2.4 Any attempted assignment not in accordance with this Section 9.2
            shall be void. Any permitted assignee shall assume all assigned
            obligations of its assignor under this Agreement.

9.3   STANDSTILL. [***]

      [***].

9.4   SEVERABILITY. If any one or more of the provisions contained in this
      Agreement is 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 affects 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.

9.5   NOTICES. All notices which are required or permitted hereunder shall be in
      writing and sufficient if delivered personally, sent by facsimile (and
      promptly confirmed by personal delivery, registered or certified mail or
      overnight courier), sent by nationally-recognized overnight courier or
      sent by registered or certified mail, postage prepaid, return receipt
      requested, addressed as follows:

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

      and:                       Pryor Cashman Sherman & Flynn LLP
                                 410 Park Avenue
                                 New York, NY  10022
                                 Attention: Lawrence Remmel
                                 Facsimile No.: (212) 326-0806

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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.]

      if to Merck, to:           Merck & Co., Inc.
                                 One Merck Drive
                                 [***]
                                 Whitehouse Station, NJ 08889-0100
                                 Attention: [***]
                                 Facsimile No.: [***]

      and                        Merck & Co., Inc.
                                 One Merck Drive
                                 Attention: [***]
                                 [***]
                                 Whitehouse Station, NJ 08889-0100
                                 Facsimile No.: [***]

      or to such other address(es) as the Party to whom notice is to be given
      may have furnished to the other Party in writing in accordance herewith.
      Any such notice shall be deemed to have been given: (a) when delivered if
      personally delivered or sent by facsimile on a business day (or if
      delivered or sent on a non-business day, then on the next business day);
      (b) on the business day after dispatch if sent by nationally-recognized
      overnight courier; or (c) on the fifth (5th) business day following the
      date of mailing if sent by mail.

9.6   APPLICABLE LAW. This Agreement shall be governed by and construed in
      accordance with the laws of the State of New Jersey and the patent laws of
      the United States without reference to any rules of conflict of laws or
      renvoi.

9.7   DISPUTE RESOLUTION.

      9.7.1 The Parties shall negotiate in good faith and use reasonable efforts
            to settle any dispute, controversy or claim arising from or related
            to this Agreement or the breach thereof. If the Parties do not fully
            settle, and a Party wishes to pursue the matter, each such dispute,
            controversy or claim that is not an "Excluded Claim" shall be
            finally resolved by binding arbitration in accordance with the
            Commercial Arbitration Rules and Supplementary Procedures for Large
            Complex Disputes of the American Arbitration Association ("AAA"),
            and judgment on the arbitration award may be entered in any court
            having jurisdiction thereof.

      9.7.2 The arbitration shall be conducted by a panel of three persons
            experienced in the pharmaceutical business: within thirty (30) days
            after initiation of arbitration, each Party shall select one person
            to act as arbitrator and the two Party-selected arbitrators shall
            select a third arbitrator within thirty (30) days of their
            appointment. If the arbitrators selected by the Parties are unable
            or fail to agree upon the third arbitrator, the third arbitrator
            shall be appointed by the AAA. The place of arbitration shall be New
            York, New York, and all proceedings and communications shall be in
            English.

      9.7.3 Either Party may apply to the arbitrators for interim injunctive
            relief until the arbitration award is rendered or the controversy is
            otherwise resolved. Either Party also may, without waiving any
            remedy under this Agreement, seek from any court having jurisdiction
            any injunctive or provisional relief necessary to protect the rights
            or property

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COMMISSION.]

            of that Party pending the arbitration award. The arbitrators shall
            have no authority to award punitive or any other type of damages not
            measured by a Party's compensatory damages. Each Party shall bear
            its own costs and expenses and attorneys' fees and an equal share of
            the arbitrators' fees and any administrative fees of arbitration.

      9.7.4 Except to the extent necessary to confirm an award or as may be
            required by law, neither a Party nor an arbitrator may disclose the
            existence, content, or results of an arbitration without the prior
            written consent of both Parties. In no event shall an arbitration be
            initiated after the date when commencement of a legal or equitable
            proceeding based on the dispute, controversy or claim would be
            barred by the applicable New York statute of limitations.

      9.7.5 The Parties agree that, in the event of a dispute over the nature or
            quality of performance under this Agreement, neither Party may
            terminate this Agreement until final resolution of the dispute
            through arbitration or other judicial determination. The Parties
            further agree that any payments made pursuant to this Agreement
            pending resolution of the dispute shall be refunded if an arbitrator
            or court determines that such payments are not due.

      9.7.6 As used in this Section, the term "EXCLUDED CLAIM" shall mean a
            dispute, controversy or claim that concerns (a) the validity or
            infringement of a patent, trademark or copyright; or (b) any
            antitrust, anti-monopoly or competition law or regulation, whether
            or not statutory.

9.8   ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the Schedules
      and Exhibits hereto, contains the entire understanding of the Parties with
      respect to the subject matter hereof and supercedes and cancels all
      previous express or implied agreements and understandings, negotiations,
      writings and commitments, either oral or written, in respect to the
      subject matter hereof. The Schedules and Exhibits to this Agreement are
      incorporated herein by reference and shall be deemed a part of this
      Agreement. This Agreement may be amended, or any term hereof modified,
      only by a written instrument duly executed by authorized representatives
      of both Parties hereto.

      Notwithstanding anything to the contrary in the foregoing, those certain
      confidentiality agreements between the Parties [***] shall remain in full
      force and effect with respect to the subject matter thereof and
      information disclosed thereunder.

9.9   HEADINGS. The captions to the several Articles, Sections and subsections
      hereof are not a part of this Agreement, but are merely for convenience to
      assist in locating and reading the several Articles and Sections hereof.

9.10  INDEPENDENT CONTRACTORS. It is expressly agreed that Nastech and Merck
      shall be independent contractors and that the relationship between the two
      Parties shall not constitute a partnership, joint venture or agency.
      Neither Nastech nor Merck shall have the authority to make any statements,
      representations or commitments of any kind, or to take any action, which
      shall be binding on the other Party, without the prior written consent of
      the other Party.

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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.]

9.11  WAIVER. The waiver by either Party hereto of any right hereunder, or of
      any failure of the other Party to perform, or of any breach by the other
      Party, shall not be deemed a waiver of any other right hereunder or of any
      other breach or failure of such other Party, whether of a similar nature
      or otherwise.

9.12  CUMULATIVE REMEDIES. 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 under law.

9.13  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.

9.14  SUCCESSOR AND ASSIGNS. This Agreement shall be binding on the permitted
      successors and assigns of the Parties hereto.

9.15  CERTAIN CONVENTIONS. Any reference in this Agreement to an Article,
      Section, subsection, paragraph, clause, Schedule or Exhibit shall be
      deemed to be a reference to an Article, Section, subsection, paragraph,
      clause, Schedule or Exhibit, of or to, as the case may be, this Agreement,
      unless otherwise indicated. Unless the context of this Agreement otherwise
      requires, (a) words of any gender include each other gender, (b) words
      such as "herein", "hereof", and "hereunder" refer to this Agreement as a
      whole and not merely to the particular provision in which such words
      appear, (c) words using the singular shall include the plural, and vice
      versa, and (d) the words "include," "includes" and "including" shall be
      deemed to be followed by the phrase "but not limited to", "without
      limitation", "inter alia" or words of similar import.

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

                   [REMINDER OF PAGE INTENTIONAL LEFT BLANK.]

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ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

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

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

                                       32
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COMMISSION.]

                                  SCHEDULE 1.33

                                      [***]

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COMMISSION.]

                                  SCHEDULE 1.37

                                      [***]

                                       34
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COMMISSION.]

                                  SCHEDULE 1.47

                                      [***]

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COMMISSION.]

                                  SCHEDULE 3.4

                           NASTECH CO-PROMOTION RIGHTS

GENERAL. This Schedule 3.4 (this "SCHEDULE"; capitalized terms not otherwise
defined in this Schedule shall have the meaning given such terms in the
Agreement to which this Schedule is attached) sets out the terms under which
Nastech may Detail (as defined below). [***] pursuant to Section 3.4.3 of the
Agreement. As used in this Schedule, "Detail" and "Detailing" means one-on-one,
face-to-face meeting, between one or more target Specialists for a Product and a
qualified, well-trained sales representative employee of either Party, during
which Product information is communicated orally to the Specialists that is in
addition to any discussion regarding the Specialists' sample needs.

A.    CO-PROMOTION AGREEMENT. Unless otherwise agreed, the Co-Promotion
      Agreement shall include the following provisions, among other appropriate
      and customary provisions:

      a.    Recruitment and Training; Branding. Nastech sales representative
            shall be recruited by Nastech with a profile agreed to by Merck,
            [***]. All Nastech sales representatives will have been recruited
            and trained by Nastech, at Nastech's sole expense, subject to the
            remaining provisions of this paragraph. The Nastech sales
            representatives will be trained on the Product by Merck with the
            training facilities, trainers and training materials being provided
            by Merck at Merck's expense, and such training of the Nastech
            representatives related to the Product will be equivalent to
            training received by the corresponding Merck sales force. [***].

      b.    Size of Nastech Sales Force and Territories. [***].

      c.    Launch Meeting. The Nastech representatives will attend the [***].
            Merck shall keep Nastech apprised of its anticipated launch date for
            Product.

      d.    [***].

      e.    Content of Details. The form and content of all information
            communicated in all Details or other communications to health care
            professionals shall be pre-approved by Merck, and Merck shall
            specify the Target Prescribers for all Nastech Details. Nastech and
            Merck sales representatives shall not engage in any pre-marketing
            activities for Products prohibited by applicable law or regulations.
            Nastech will limit its claims of efficacy and safety for the
            Products to those which are consistent with Merck's approved
            labeling for the Products and shall provide appropriate balance in
            all communications regarding the Products. Nastech shall Detail the
            Products in strict adherence to all applicable legal, regulatory,
            professional and policy requirements, including, but not limited to,
            all applicable Merck policies, as they may exist from time to time.

      f.    Compensation for Detailing. [***].

      g.    Schedule of Payments for Detailing. [***].

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COMMISSION.]

      h.    Bonus Incentives. [***].

      i.    Performance Criteria. Merck shall establish a minimum number of
            Details to be conducted. [***].

      j.    Sampling and Promotional Materials. Merck shall provide Nastech
            sales representatives equal access to all promotional materials
            without additional cost to Nastech. Merck shall likewise provide
            samples to Nastech representatives in a manner and quantity
            consistent with its provision of samples to its own sales force.

      k.    Maintenance and Audit of Records. Under the Co-Promotion Agreement,
            Nastech will be responsible for the maintenance of accurate records
            of the activities of its sales representatives, including, without
            limitation, an accurate monthly record of the number of Details and
            its sales representatives costs. Merck shall have the right to
            review and audit all such records of Nastech.

      l.    [***] /No Assignment. [***] Nastech shall not be entitled to assign,
            sublicense, delegate or otherwise transfer all or any portion of its
            Product co-promotion right.

      m.    Remedies. A provision for remedies to Merck in the event that
            Nastech after entering into a Co-Promotion Agreement does not
            provide or ceases to provide the agreed upon level of support for a
            Product.

      n.    Miscellaneous Provisions. The Co-Promotion Agreement will include
            other customary and appropriate provisions, including, without
            limitation, provisions relating to confidentiality, adverse
            experience reporting, indemnity, arbitration, public announcements,
            etc. Merck shall control and manage trademark selection,
            registration, regulatory and all other governmental interactions,
            distribution, pricing strategy, reimbursement strategies, managed
            care and hospital contracting, promotional strategy and message,
            medical legal review of the content of promotional materials and all
            disputes and litigation, if any, with Third Parties. Nastech shall
            be obligated to comply with all laws and regulations relating to
            interactions between sales personnel and prescribers.

      o.    Term and Termination. The term of the Co-Promotion Agreement shall
            be for as long as Nastech is actively co-promoting Product(s)
            (subject to satisfaction of mutually agreed objective performance
            criteria). The Co-Promotion Agreement shall be subject to
            termination:

            (i)   by Merck in the event of [***];

            (ii)  by Merck at any time, with a [***] notice period and an
                  opportunity for Nastech to meet the expected Detail levels, if
                  it is evident that Nastech is not meeting the expected minimum
                  Detail levels;

            (iii) by Nastech at any time with a [***] notice period;

            (iv)  by either Party in the event of termination or expiration of
                  the Agreement;

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COMMISSION.]

            (v)   by either Party in the event of an uncured material breach by
                  the other Party, including, but not limited to, a violation by
                  Nastech in promoting any of the Products of any applicable
                  law, regulation or Merck policy or procedure applicable to the
                  sale and promotion of such Product; or

            (vi)  by either Party in the event of other mutually agreed
                  termination events as set forth in the Co-Promotion Agreement
                  (breach, bankruptcy, etc.).

                                       38<PAGE>

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

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

      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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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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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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[*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 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.: [***]

                                       24
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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.]

       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

                                       25
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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.]

       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.

                                       26
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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.]

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

                                       27
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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.]

                                  SCHEDULE 1.11

                                      [***]

<PAGE>
[*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.]

                                 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.

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