Document:

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                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "Agreement"), is executed and entered into
by and between Nastech Pharmaceutical Company Inc., a Delaware corporation (the
"Company"), with offices at 3450 Monte Villa Parkway, Bothell, Washington and
Philip C. Ranker, an individual resident in the State of Washington (the
"Executive"). This Agreement shall be effective on the date determined in
accordance with Section 1 hereof but, except as provided herein, one or more
other existing agreements shall continue to govern the Executive's employment by
the Company, including his compensation for services rendered, prior to January
1, 2006 (the "Transition Date"), and certain related matters.

                              W I T N E S S E T H :

      WHEREAS, the Company hired the Executive as the Vice President of
Finance on August 5, 2004; and

      WHEREAS, on September 7, 2005 the Executive was made interim Chief
Financial Officer ("CFO"); and

      WHEREAS, as of the Transition Date the Executive has been promoted to
CFO of the Company; and

      WHEREAS, the Company and the Executive wish to enter into this Agreement
which shall set forth the Executive's new terms of employment as CFO;

      NOW THEREFORE, in consideration of the mutual promises and agreements
herein and for other good and valuable consideration the receipt and sufficiency
of which are hereby mutually acknowledged, the Company and the Executive agree
as follows:

            Application and Effectiveness of Agreements. This Agreement shall
govern (i) the employment relationship between the Company and the Executive
from and after the Transition Date and (ii) other matters as set forth herein.
Other agreements, as applicable, between the Company and the Executive shall
continue to govern the employment of the Executive by the Company prior to the
Transition Date and matters growing out of that employment.

            Employment; Responsibilities and Authority; Outside Activities;
Definitions.

            (a) Subject to the terms and conditions of this Agreement, the
Company shall employ the Executive as its CFO during the Employment Period (as
defined in Section 3, below) and the Executive shall perform such acts and
duties and furnish such services to the Company and its Subsidiaries (as defined
below) as the Chief Executive Officer and the Board of Directors of the Company
(the "Board") shall from time to time direct. The Executive shall have general
and active charge of, and responsibility for, the financial affairs of the
Company and, in such capacity, shall have responsibility for the day-to-day
financial operations of the Company, subject to the authority and control of the
Chief Executive Officer and the Board.
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            (b) Subject to the terms and conditions of this Agreement, the
Executive hereby accepts such employment and agrees to devote his full time and
continuous best efforts to the duties provided.

            For purposes of this Agreement: (1) the "Business of the Company"
means the description of the Company's business as is described in Part I, Item
1 of the Company's most recent Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission, and (2) the term "Subsidiary" means a
corporation or other entity that is at least majority owned, directly or
indirectly, by the Company.

            Term; Employment Period. The "Employment Period" under this
Agreement shall commence on the Transition Date and shall terminate at the close
of business on January 2, 2009 unless it is (a) extended by written agreement
between the parties or by continuing employment of the Executive by the Company
as provided in the following sentence or (b) earlier terminated pursuant to
Section 11 hereof. If the Executive shall remain in full-time employment by the
Company beyond what would otherwise be the end of the Employment Period without
any written agreement between the parties, this Agreement and the Employment
Period shall be deemed to continue on a month-to-month basis and either party
shall have the right to terminate the Executive's employment hereunder at the
end of any ensuing calendar month on written notice of at least 30 days.

            Salary. For services rendered to the Company during the Employment
Period, the Company shall compensate the Executive with a base salary, payable
in semi-monthly installments, which initially shall be $230,000 per annum
commencing on the Transition Date and which shall thereafter be set by the Board
and/or Chief Executive Officer from time to time as determined by the Board
and/or the Chief Executive Officer.

      2. Incentive Cash Compensation.

            (a) For the Company's fiscal year that will begin on January 1,
2006, and for each subsequent fiscal year or portion thereof during the
Employment Period, the Executive shall also be eligible to receive incentive
cash compensation based on (i) the "Annual Bonus Expectancy Amount," which shall
be forty percent (40%) of the Executive's base salary for such year, and (ii)
the Executive's performance in relation to the performance areas and performance
targets on which the Chief Executive Officer and/or the Board shall determine
and communicate to the Executive as described below.

            (b) The Chief Executive Officer, upon consultation with the Board,
shall establish performance criteria for determination of the incentive cash
compensation that will be payable to the Executive with respect to each fiscal
year of the Company. To the extent possible, such criteria shall be established,
as to each fiscal year, prior to the end of the first month of such fiscal year.
As an example, such performance criteria may be comprised of several designated
performance areas and one or more performance targets in each area, and,
depending on the targets achieved, the actual amount of incentive cash
compensation actually payable to the Executive for each fiscal year will be
between zero and the Annual Bonus Expectancy Amount. The Company acknowledges
that the business objectives heretofore used in determining the Executive's
incentive cash compensation have been, and that the performance areas and

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performance targets referred to herein shall continue to be, based largely on
the input and recommendations of the Company's Chief Executive Officer and that,
in exercising its review and supervisory role with respect to the determination
and adoption of those performance areas and performance targets, the Board or
the Compensation Committee, as the case may be, shall act reasonably and in
consultation and cooperation with the Chief Executive Officer and consistently
with past practice.

            (c) As soon as practical, and absent unforeseen circumstances no
later than ninety (90) days following the end of each fiscal year of the
Company, the Chief Executive Officer and/or the Board, shall determine,
reasonably and in good faith, the extent to which the applicable performance
levels for such fiscal year shall have been achieved and, accordingly, shall
cause the appropriate amount of incentive cash compensation to be paid to the
Executive. If unforeseen developments occur that in the opinion of the Chief
Executive Officer make the performance areas and/or targets previously
determined unachievable, infeasible, or inadvisable -- and therefore
inappropriate as a measure of the performance of the Executive -- the Chief
Executive Officer and/or the Board shall consider in good faith the extent to
which the actual performance of the Executive nevertheless warrants payment of
the amounts that would have been payable if the targets had been achieved; and,
to such extent, payment shall be made to the Executive.

      3. New Stock Options. As further compensation, and in addition to the
stock options (the "Outstanding Options") that have been issued to the Executive
prior to the Transition Date, the Company has granted to the Executive, for
service on and after the Transition Date, new options to purchase additional
shares of common stock of the Company (the "New Options") as follows:

            (a) All of the New Options are deemed granted and issued on the
Transition Date.

            (b) The New Options have a term of 10 years, running from the
Transition Date.

            (c) Among the New Options, options for the maximum permissible
number of shares are Incentive Stock Options ("ISOs") for purposes of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
(together, the "Tax Laws"), and those ISOs were issued with the minimum per
share exercise price consistent with tax-advantaged treatment of those options
as ISOs under the Tax Laws. Those ISOs are among the New Options referred to as
vesting in each of the three annual installments provided for in paragraph "(f)"
below in this Section 6, with the numbers of shares for which such ISOs will be
exerciseable in each of those installments having been determined in such a
manner as to maximize the total number of shares as to which such tax advantaged
treatment is available; and the ISOs shall vest and become first exerciseable at
the times and under the conditions for each such installment, respectively.

            (d) The remainder of the New Options, if any, are non-statutory
stock options and were issued with a per share exercise price equal to the fair
market value of a share of common stock of the Company on the Transition Date,
as determined in accordance with the terms of the Company's 2004 Stock Incentive
Plan (the "2004 Plan").

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            (e) The exercise price of the New Options and the number of shares
that may be purchased upon exercise of the New Options are subject to the
anti-dilution adjustments provided for in the 2004 Plan.

            (f) The New Options, in the aggregate, grant the right to purchase a
total of Twenty-Thousand One Hundred and Thirty-Three (20,133) shares of common
stock of the Company, and they shall vest and become exerciseable as follows (or
as expressly stated elsewhere in this Agreement in the event of certain
circumstances and events provided for herein):

      New Options for Six Thousand Seven Hundred and Eleven (6,711) shares (some
      of which are ISOs and some of which may be non-statutory stock options, as
      provided above) shall vest and become exerciseable on January 1 of each of
      2007, 2008, and 2009 if the Executive's employment by the Company or by an
      affiliate of the Company continues on such respective date.

            (g) The shares of Common Stock issuable upon the exercise of the New
Options shall be fully vested in the hands of the Executive immediately upon
such exercise.

      4. Restricted Shares. As further compensation, and in addition to
restricted shares of common stock (the "Outstanding Restricted Shares") that
have been issued to the Executive prior to the Transition Date, the Company has
issued to the Executive, for services to be rendered on and after the Transition
Date, Twenty-Thousand One Hundred and Thirty-Three (20,133) shares of common
stock of the Company (the "New Restricted Shares"), subject to the following
provisions:

            (a) At the close of business on the Transition Date, all of the New
Restricted Shares were duly authorized, validly issued and outstanding shares of
common stock of the Company owned by the Executive and were fully paid and
non-assessable.

            (b) The New Restricted Shares are subject to the following
restrictions:

                  (i) Subject to Section 7(c) and other provisions herein
providing for the vesting of such shares, upon the occurrence of a triggering
event as provided in Section 12(b) or 12(c) below, the Executive shall forfeit
all non-vested New Restricted Shares, provided, however, that the Company shall
pay the Executive an amount, if any, equal to the par value payment made by the
Executive to the Company upon grant of the New Restricted Shares upon notice
given by the Company to the Executive at any time within ninety (90) days after
the occurrence of such triggering event (the "Forfeiture/Repurchase Right").

                  (ii) Subject to Section 7(c) and other provisions herein
providing for the vesting of such shares, the New Restricted Shares shall not be
sold or otherwise transferred voluntarily by the Executive and the New
Restricted Shares shall remain subject to the Transfer Restriction until it
lapses or terminates as provided for herein (the "Transfer Restriction").

            (c) Six Thousand Seven Hundred and Eleven (6,711) shares of the New
Restricted Shares shall vest on January 1 of each of 2007, 2008, and 2009,
provided that Executive remains continuously employed by the Company and/or any
Subsidiary thereof

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through and on each such date. Such vesting, or vesting pursuant to other
provisions of this Agreement, shall cause and constitute the lapse and
termination of the Forfeiture/Repurchase Right and the Transfer Restriction as
to the New Restricted Shares that so vest.

            (d) Upon the occurrence of any taxable event which arises due to the
vesting of New Restricted Shares, the Executive shall have the right to direct
the Company to withhold the minimum number of New Restricted Shares necessary to
satisfy the tax withholding liability and obligations of or relating to the
Executive (both Federal and State) with respect to such vesting of New
Restricted Shares, and the Company shall remit the value of the withheld New
Restricted Shares to the proper governmental authorities.

      5. Registration. The Company shall use its reasonable efforts to (a) cause
the shares of Common Stock issuable upon the exercise of the New Options to be
registered and qualified for public resale on a registration statement and
re-offer prospectus filed with the U.S. Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Securities Act"), and under any
applicable state securities laws, within one hundred and eighty (180) days after
the Approval Date; (b) cause New Restricted Shares that vest to be similarly
registered and qualified for public resale by the date of such vesting; (c)
maintain in effect all such registrations and qualifications, or substantially
similar registrations and qualifications, until the Executive and any related
family member(s) and any entity(ies) related to him shall be free of any and all
restrictions on any such sales under the Securities Act and any applicable state
securities law(s); and (d) if such effectiveness should lapse before that time,
restore the effectiveness thereof as soon as reasonably possible. These
registrations and qualifications are in addition to the registrations and
qualifications that may be required as to other securities of the Company that
are owned by the Executive or that may be issuable pursuant to securities or
options heretofore issued to him.

      6. Benefits. During the Employment Period, the Company shall provide or
cause to be provided to the Executive at least such employee benefits as are
provided to other executive officers of the Company.

            Vacation. The Executive shall be entitled to annual vacations in
accordance with the Company's vacation policies in effect from time to time for
executive officers of the Company.

            Termination.

            (a) Executive's employment by the Company shall be "at will." In
other words, either the Company or the Executive may terminate Executive's
employment by the Company at the end of any calendar month, with or without
Cause or Good Reason (as such terms are defined below), in its or his sole
discretion, upon thirty (30) days' prior written notice of termination. In
addition, the Executive's employment by the Company shall be terminated by his
death or Disability (as defined below). Termination of the Executive's
employment as provided for herein shall terminate the Employment Period.

            (b) For purposes of this Agreement, in the case of a termination of
the Executive's employment hereunder by the Executive, the term "Good Reason"
shall have the

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meaning set forth for it below; in the case of a termination of the Executive's
employment hereunder by the Company, the term "Cause" shall have the meaning set
forth for it below; and the other terms set out below in this Section 11 shall
have the meanings provided for them respectively:

                  (i) "Good Reason" shall mean (i) any substantial diminution in
the Executive's authority or role as CFO; (ii) failure of the Company to pay to
the Executive any amounts of base salary and/or incentive cash compensation as
provided for in Sections 4 or 5 above, or to honor promptly any of its
obligations or commitments regarding stock options or other benefits referred to
in Sections 6, 9, and/or 10 above, or to honor promptly any of its other
material obligations hereunder; or (iii) a material demotion in the Executive's
title or status.

                  (ii) "Cause" shall mean (i) the Executive's willful and
repeated failure to perform his duties hereunder or to comply with any
reasonable and proper direction given by the Chief Executive Officer or the
Board if such failure of performance or compliance is not cured within thirty
(30) days following receipt by the Executive of written notice from the Company
containing a description of such failures and non-compliance and a demand for
immediate cure thereof; (ii) the Executive being found guilty in a criminal
court of an offense involving moral turpitude; (iii) the Executive's commission
of any material act of fraud or theft against the Company; or (iv) the
Executive's material violation of any of the material terms, covenants,
representations or warranties contained in this Agreement if such violation is
not cured within thirty (30) days following receipt by the Executive of written
notice from the Company containing a description of the violation and a demand
for immediate cure thereof.

            (c) "Disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

            (d) "Termination Date" shall mean (i) if this Agreement is
terminated on account of death, the date of death; (ii) if this Agreement is
terminated for Disability, the date that such Disability is established; (iii)
if this Agreement is terminated by the Company or by the Executive prior to
January 2, 2009, the effective date of the termination as provided in Section
11(a) hereof; or (iv) if this Agreement expires by its terms, January 2, 2009.

      7. Severance.

            (a) Subject to Section 21 hereof, if (i) the Company terminates the
employment of the Executive prior to January 2, 2009 against his will and
without Cause, or (ii) the Executive terminates his employment prior to January
2, 2009 for Good Reason, then (A) Executive shall be entitled to receive base
salary, incentive cash compensation (determined on a pro-rated basis as to the
year in which the Termination Date occurs), pay for accrued but unused vacation
time, and reimbursement for expenses pursuant to Section 13 hereof through the
Termination Date plus a lump sum equal to twelve (12) months of the Executive's
specified base salary hereunder at the rate in effect on the Termination Date,
and (B) notwithstanding the vesting and exercisability provisions otherwise
applicable to Outstanding Options or the New Options and the restrictions
applicable to Outstanding Restricted Shares or the New Restricted Shares, all of
such options shall be fully vested and exercisable upon such termination and
shall remain exercisable for the remainder of their terms, as specified in the
option grant agreements, and all

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of such restricted shares shall thereon become immediately and fully vested.
Except to the extent that more time is required to determine any of the
incentive compensation amounts, the Company shall pay the cash amounts provided
for in this Section within thirty (30) days after the six (6) month anniversary
of the date of such termination (but no later than the end of the calendar year
in which such six (6) month anniversary occurs). Notwithstanding the foregoing,
the Company shall not be required to pay any severance pay for any period
following the Termination Date if the Executive shall have materially violated
the provisions of Section 18, 19, or 20 of this Agreement and such violation is
not cured within thirty (30) days following receipt of written notice from the
Company containing a description of the violation and a demand for immediate
cure.

            (b) Subject to Section 21 hereof, if (A) the Executive voluntarily
terminates his employment prior to January 2, 2009 other than for Good Reason or
(B) the Executive's employment is terminated by the Company prior to January 2,
2009 for Cause, then the Executive shall be entitled to receive salary, pay for
accrued but unused vacation time, and reimbursement of expenses pursuant to
Section 13 hereof through the Termination Date only; vesting of Outstanding
Options, the New Options, Outstanding Restricted Shares and the New Restricted
Shares shall cease on such Termination Date; any then un-vested Outstanding
Options or New Options shall terminate (with the then-vested Outstanding Options
and New Options vested and exerciseable for the remainder of their terms in
accordance with the grant agreements); and this occurrence shall be a triggering
event for purposes of the Forfeiture/Repurchase Right as provided in Section
7(b)(i), above. The Company shall pay the cash amounts provided for in this
Section within thirty (30) days after the six (6) month anniversary of the date
of such termination (but no later than the end of the calendar year in which
such six (6) month anniversary occurs); provided, however, that pay for accrued
but unused vacation time shall be paid as soon as practicable following such
termination, and that to the extent that Section 409A of the Internal Revenue
Code of 1986 and any guidance or regulations issued thereunder, as amended, do
not require the effectuation of the six (6) month delay described above with
respect to any other cash amounts provided for in this Section, the Company
shall pay such cash amounts within thirty (30) days after the date of such
termination (but no later than the end of the calendar year in which such
termination occurs).

            (c) Subject to Section 21 hereof, if the Executive's employment is
terminated prior to January 2, 2009 due to death or Disability, the Executive
(or his estate or legal representative as the case may be) shall be entitled to
receive (i) salary, reimbursement of expenses pursuant to Section 13 hereof, and
pay for any unused vacation time accrued through the Termination Date; (ii) a
pro-rated amount of incentive cash compensation for the fiscal year in which the
Termination Date occurs; and (iii) a lump sum equal to base salary at the rate
in effect on the date of such termination for the lesser of (a) twelve (12)
months and (b) the remaining term of this Agreement at the time of such
termination. In such case, vesting of the Outstanding Options, New Options,
Outstanding Restricted Shares and New Restricted Shares shall cease on such
Termination Date, and any then un-vested Outstanding Options and New Options
shall terminate (with the then-vested Outstanding Options and New Options vested
and exerciseable for the remainder of their terms in accordance with the grant
agreements); and this occurrence shall be a triggering event for purposes of the
Forfeiture/Repurchase Right as provided in Section 7(b)(i), above. Except to the
extent that more time is required to determine any of the incentive compensation
amounts, the Company shall pay the cash amounts provided

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for in this Section on the thirtieth (30th) day following the Executive's death,
or if termination is due to Disability, within thirty (30) days after the six
(6) month anniversary of the date of such termination (but no later than the end
of the calendar year in which such six (6) month anniversary occurs); provided,
however, that to the extent that Section 409A of the Internal Revenue Code of
1986 and any guidance or regulations issued thereunder, as amended, do not
require the effectuation of the six (6) month delay described above with respect
to any cash amounts provided for in this Section upon termination due to
Disability, the Company shall pay such cash amounts within thirty (30) days
after the date of such termination (but no later than the end of the calendar
year in which such termination occurs).

            (d) In addition to the provisions of Section 12(a), 12(b), or 12(c),
hereof, as the case may be, to the extent COBRA shall be applicable or as
provided by law, the Executive shall be entitled to continuation of group health
plan benefits for the periods provided by law following the Termination Date if
the Executive makes the appropriate election and payments; provided, further,
that if the Executive is entitled to severance under Section 12(a) hereof, and
the Executive elects COBRA coverage under a group health plan maintained by the
Company, the Company shall continue to contribute towards the cost of such
coverage for the Executive and his dependents for the six (6) month period
following his Termination Date, at the same rate which was in effect upon the
date of such termination of employment.

            (e) Subject to Section 21 hereof, the Executive acknowledges that,
upon termination of his employment, he is entitled to no other compensation,
severance or other benefits other than those specifically set forth or referred
to in this Agreement.

      8. Expenses. The Company shall pay or reimburse the Executive for all
expenses that are reasonably incurred by him in furtherance of his duties
hereunder and such further expenses as may be authorized and approved by the
Company from time to time.

      9. Facilities and Services. The Company shall furnish the Executive with
office space, secretarial and support staff, and such other facilities and
services as shall be reasonably necessary for the performance of his duties
under this Agreement.

      10. Mitigation Not Required. In the event this Agreement is terminated,
the Executive shall not be required to mitigate his losses or the amounts
otherwise payable hereunder by seeking other employment or otherwise. The
Executive's acceptance of any other employment shall not diminish or impair the
amounts otherwise payable to the Executive hereunder.

      11. Place of Performance. The Executive shall perform his duties at the
main offices of the Company subject to reasonable travel requirements which may
be authorized and directed from time to time by the Chief Executive Officer.

      12. Insurance and Indemnity. With respect to his service hereunder, the
Company shall maintain, at its expense, customary directors' and officers'
liability and errors and omissions insurance covering the Executive and, if such
coverage is available at reasonable cost, for all other executive officers and
directors of the Company, in an amount both deemed appropriate by the Company
and available in the marketplace. To the extent such defense and

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indemnification are not fully and irrevocably provided by Company-supplied
insurance, the Company shall defend and indemnify the Executive, to the fullest
extent permitted by law, from and against any liability asserted against or
incurred by the Executive (a) by reason of the fact that the Executive is or was
an officer, director, employee, or consultant of the Company or any affiliate or
related party or is or was serving in any capacity at the request of the Company
for any other corporation, partnership, joint venture, trust, employment benefit
plan or other entity or enterprise or (b) in connection with any action(s),
omission(s), or occurrence(s) during the course of such service or such status
as an officer, director, employee, or consultant of or to any of the foregoing.
The Company's obligations under this Section 17 shall survive the termination of
the Executive's employment hereunder and any termination of this Agreement.

      13. Non-Competition.

            (a) The Executive agrees that, except in accordance with his duties
under this Agreement on behalf of the Company, he will not during the Employment
Period: participate in, be employed in any capacity by, serve as director,
consultant, agent or representative for, or have an interest, directly or
indirectly in, any enterprise which is engaged in the business of developing,
licensing, or selling technology, products or services which are directly
competitive with the Business of the Company or any of its Subsidiaries or with
any technology, products or services being actively developed, with the bona
fide intent to market same, by the Company or any of its Subsidiaries at the
time in question; provided that interests in publicly-traded entities that
constitute less than a five percent (5%) interest in such entities, and do not
otherwise constitute control either directly or indirectly of such entities,
which interests were acquired or are held for investment purposes, shall not be
deemed to be a violation of this paragraph.

            (b) In addition, the Executive agrees that, for a period of six
months after the end of the Executive's employment by the Company (unless such
employment is terminated due to a breach of the terms hereof by the Company in
failing to pay to the Executive all sums due him under the terms hereof or to
honor any of its other obligations under this Agreement, in which event the
following shall be inapplicable), the Executive shall not (1) own, either
directly or indirectly or through or in conjunction with one or more members of
his or his spouse's family or through any trust or other contractual
arrangement, a greater than five percent (5%) interest in, or otherwise control
either directly or indirectly, or (2) participate in, be employed in any
capacity by, or serve as director, consultant, agent or representative for, any
partnership, corporation, or other entity which is engaged in the business of
developing, licensing, or selling technology, products or services which are
directly competitive with the Business of the Company or any of its Subsidiaries
as of the termination of the Executive's employment with the Company or which
are directly competitive with any technology, products, or services being
actively developed by the Company or any of its Subsidiaries, with the bona fide
intent to market same, as of the termination of the Executive's employment at
the Company.

            (c) Executive further agrees, for twelve months following the end of
the Executive's employment by the Company (unless such employment is terminated
due to a breach of the terms hereof by the Company as described above), to
refrain from directly or indirectly soliciting the Company's collaborative
partners, consultants, certified research organizations, principal vendors,
licensees or employees except any such solicitation in connection with
activities that would not be directly competitive with and/or adverse to the

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Business of the Company or any of its Subsidiaries or with and to any products
or services being offered by the Company or any of its Subsidiaries at the date
such employment terminated or then being actively developed, with the bona fide
intent to market same, by the Company or any of its Subsidiaries.

            (d) The Executive hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section 18 by the
Executive, and the Executive therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section 18 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.

      14. Assignment of Patents. Executive shall disclose fully to the Company
any and all discoveries he shall make and any and all ideas, concepts or
inventions he shall conceive or make that are related or applicable to the
Business of he Company or of any of its Subsidiaries or to any other products,
services, or technology in medicine or the health sciences in which the Company
shall during the Employment Period undertake, or actively and in good faith
consider, research or commercial involvement provided that either (a) such
discovery(ies), idea(s), concept(s) and/or invention(s) are made by the
Executive during the Employment Period or (b) such discovery(ies), idea(s),
concept(s) and/or invention(s) are made by the Executive during the period of
six months after his employment terminates and are in whole or in part the
result of his work with the Company.

      15. Trade Secrets.

            (a) In the course of the term of this Agreement, it is anticipated
that the Executive shall have access to secret or confidential technical,
scientific and commercial information, records, data, formulations,
specifications, systems, methods, plans, policies, inventions, material and
other knowledge that is (are) specifically related or applicable to the Business
of the Company or of any of its Subsidiaries or to any other products, services,
or technology in medicine or the health sciences in which the Company shall
during the Employment Period undertake, or actively and in good faith consider,
research or commercial involvement and that is/are owned by the Company or its
Subsidiaries ("Confidential Material"). The Executive recognizes and
acknowledges that included within the Confidential Material are the following as
they may specifically relate or be applicable to the Company's drug delivery
business or technology, or to current or specifically contemplated future drug
delivery products or services: the Company's confidential commercial
information, technology, formulations, STA-T (Systemic Transnasal Absorption
Technology) and know-how, methods of manufacture, chemical formulations, device
designs, pending patent applications, clinical data, pre-clinical data and any
related materials, all as they may exist from time to time, and that such
material is or may be valuable special, and unique aspects of the Company's
business. All such Confidential Material shall be and remain the property of the
Company. Except as required by his duties to the Company, the Executive shall
not, directly or indirectly, either during the term of his employment or at any
time thereafter, disclose or disseminate to anyone or make use of, for any
purpose whatsoever, any Confidential Material. Upon termination of his
employment, the Executive shall promptly deliver to the Company all Confidential
Material (including all copies thereof, whether prepared by the Executive or
others) which are in the possession or under

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the control of the Executive. The Executive shall not be deemed to have breached
this Section 19 if the Executive is compelled by legal process or order of any
judicial, legislative, or administrative authority or body to disclose any
Confidential Material.

            (b) The Executive hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section 19 by the
Executive, and the Executive therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section 19 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.

      16. Payment and Other Provisions After Change of Control.

            (a) In the event the Executive's employment with the Company is
terminated either by the Company or by the Executive (other than because of the
Executive's death or Disability) following the occurrence of a Change of Control
(regardless of whether such termination is for Good Reason or for Cause or
otherwise) and the date of such termination is (i) prior to January 2, 2009 and
within one year following the occurrence of such Change of Control or (ii) prior
to the date upon which all of the Outstanding Options and New Options are fully
vested and exerciseable and all the Outstanding Restricted Shares and New
Restricted Shares are fully vested, then the Executive shall be entitled to
receive from the Company, in lieu of the severance payment otherwise payable
pursuant to Section 12 hereof, salary, expense reimbursement, and pay for unused
vacation time through the termination date and, in addition, the following:

                  (i) Additional Amount Based on Base Salary. A lump-sum amount
equal to the greater of: (a) twelve (12) months of Executive's specified base
salary hereunder, and (b) the balance of Executive's specified base salary
hereunder to the end of the term of this Agreement;

                  (ii) Incentive Cash Compensation. The amount of the
Executive's incentive cash compensation for the fiscal year in which the date of
termination occurs (determined on a pro-rated basis) plus an additional lump-sum
amount equal to the Annual Bonus Expectancy Amount (regardless of satisfaction
of any performance criteria or progress toward such satisfaction); and

                  (iii) Other Benefits. Notwithstanding the vesting and/or
exerciseability provisions otherwise applicable to Outstanding Options and the
New Options and the vesting and restriction provisions applicable to Outstanding
Restricted Shares and the New Restricted Shares, all such stock options shall be
fully vested and exercisable, and all such restricted shares shall be fully
vested, upon a Change of Control and, in the case of the options, shall remain
exercisable for the remainder(s) of their term(s) in accordance with their grant
agreements and subject to the right of the Company to direct the sale of shares
in connection with a Change of Control.

Except to the extent that more time is required to determine the incentive cash
compensation payable pursuant to Section 21(a)(ii) hereof, the Company shall pay
the cash amounts provided for in this Section 21(a) within thirty (30) days
after the six (6) month anniversary of the date of

                                       11
<PAGE>
such termination (but no later than the end of the calendar year in which such
six (6) month anniversary occurs).

            (b) For purposes of this Agreement, the term "Change of Control"
shall mean:

                  (i) The acquisition by any individual, entity or group (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or any successor provision) (any of the
foregoing hereafter a "Person") of 40% or more of either (a) the then
outstanding shares of Capital Stock of the Company (the "Outstanding Capital
Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Voting Securities"), provided, however, that such an acquisition
by one of the following shall not constitute a change of control: (1) the
Company or any of its Subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its Subsidiaries or (2)
any Person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act,
to file a statement on Schedule 13G with respect to its beneficial ownership of
Voting Securities, whether or not such Person shall have filed a statement on
Schedule 13G, unless such Person shall have filed a statement on Schedule 13D
with respect to beneficial ownership of 40% or more of the Voting Securities or
(3) any corporation with respect to which, following such acquisition, more than
60% of both the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Capital Stock or Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Capital Stock or
Voting Securities, as the case may be; or

                  (ii) Individuals who, as of the Transition Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board and Dr. Steven C. Quay ceases to be the Chief Executive
Officer of the Company, provided that any individual becoming a director
subsequent to the Transition Date whose election or nomination for election by
the Company's shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company (as such terms are used in Rule 14a-11 of Regulation
14A, or any successor section, promulgated under the Exchange Act); or

                  (iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in each
case, with respect to which all or substantially all holders of the Outstanding
Capital Stock and Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly of indirectly, in substantially the same proportions, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from the Business Combination; or

                                       12
<PAGE>
                  (iv) A complete liquidation or dissolution of the Company; or

                  (v) A sale or other disposition of all or substantially all of
the assets of the Company other than to a corporation with respect to which,
following such sale or disposition, more than 60% of the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors are then
owned beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Capital Stock or Voting Securities Immediately prior to such sale or
disposition in substantially the same proportions as their ownership of the
Outstanding Capital Stock and Voting Securities, as the case may be, immediately
prior to such sale or disposition.

      17. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and personally delivered (including
by regular messenger service, signature required) or sent by registered or
certified mail, return receipt requested, to both his office and his residence,
in the case of notices directed to the Executive, or to its principal office,
Attn.: Chief Executive Officer, in the case of notices directed to the Company,
or to such other address and/or addressee as the party to whom such notice is
directed shall have designated for this purpose by notice to the other in
accordance with this Section. Such notices shall be effective upon personal
delivery or three days after mailing.

      18. Entire Agreement; Waiver. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof (it being
acknowledged, however, that other agreements between the Executive and the
Company remain effective as to closely related matters). This Agreement may not
be changed orally but only by an instrument in writing, signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought. Waiver of or failure to exercise any rights provided by this Agreement
in any respect shall not be deemed a waiver of any further or future rights.

      19. Binding Effect; Assignment. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any transferee of all or
substantially all of the Company's business or properties. The Executive's
rights hereunder are personal to and shall not be transferable nor assignable by
the Executive.

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

      21. Governing Law; Arbitration. This agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Washington applicable to contracts made and to be performed wholly within such
state. Any dispute or controversy arising out of or relating to this Agreement
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association, and judgement upon the award may be entered in any
court having jurisdiction thereover. The arbitration shall be held in King
County, Washington or in such other place as the parties hereto may agree.

                                       13
<PAGE>
      22. Further Assurances. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and/or
assurances as may be necessary or proper to carry out the provisions or intent
of this Agreement.

      23. Severability. The parties agree that if any one or more of the terms,
provisions, covenants or restrictions of this Agreement shall be determined by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.

      24. Counterparts. This Agreement may be executed in several counterparts,
and all counterparts so executed shall constitute one agreement, binding on the
parties hereto, notwithstanding that both parties are not signatory to the
original or the same counterpart.

      IN WITNESS WHEREOF, NASTECH PHARMACEUTICAL COMPANY INC. has caused this
instrument to be signed by a duly authorized officer and the Executive has
hereunto set his hand as of the day and year first above written.

     COMPANY:            NASTECH PHARMACEUTICAL COMPANY INC.

                         By: /s/ Steven C. Quay, M.D., Ph.D.
                             -------------------------------
                         Name:   Steven C. Quay, M.D., Ph.D.
                             Title:  Chief Executive Officer

     EXECUTIVE:                /s/ Philip C. Ranker
                               --------------------
                               Philip C. Ranker

                                       14<PAGE>
                                                                    EXHIBIT 10.2

                       NASTECH PHARMACEUTICAL COMPANY INC.
                            2004 STOCK INCENTIVE PLAN

                        RESTRICTED STOCK GRANT AGREEMENT

            This Restricted Stock Grant Agreement (the "Agreement") is entered
into as of January 1, 2006 by and between Nastech Pharmaceutical Company Inc.
(the "Company"), a Delaware Corporation, and Philip C. Ranker ("Grantee").

                                   ARTICLE I
                            GRANT OF RESTRICTED STOCK

            1.1 Grant of Restricted Stock. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Nastech Pharmaceutical Company
Inc. 2004 Stock Incentive Plan (the "Plan"), the Company hereby grants to the
Grantee 20,133 restricted shares (the "Restricted Stock") of common stock of the
Company ("Common Stock").

            1.2 Grant Date. The Grant Date of the Restricted Stock is January 1,
2006.

            1.3 Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of the Plan, as interpreted by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"), shall govern. Except as otherwise provided herein, all capitalized
terms used herein shall have the meaning given to such terms in the Plan.

                                   ARTICLE II
                                     VESTING

            2.1 Vesting. Subject to the further provision of this Agreement, the
Restricted Stock shall vest with respect to a number of whole shares as close as
possible to the following percentage of the total number of shares of Restricted
Stock granted hereunder on the following dates (each, a "Vesting Date"):

<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL SHARES                    VESTING DATE
--------------------------                    ------------
<S>                                   <C>
          33.33%                      1st anniversary of Grant Date
          33.33%                      2nd anniversary of Grant Date
          33.33%                      3rd anniversary of Grant Date
</TABLE>

                                   ARTICLE III
                            TERMINATION OF EMPLOYMENT

            3.1 Termination of Employment. In the event that the Grantee's
employment (which for purposes of this Agreement shall include service as a
director or consultant) with the Company and all of the Company's subsidiaries
terminates for any reason other than as otherwise provided below, all unvested
shares of Restricted Stock, together with any property in respect of such shares
held by the custodian pursuant to Section 4.3 hereof, shall be forfeited as of
the date of such termination of employment and the Grantee promptly shall return
to the Company any certificates evidencing such shares. Notwithstanding the
foregoing or any other provision of this Agreement to the contrary, if such
termination occurs as a result of the Company terminating the employment of the
Grantee prior to January 2, 2009 against his will and without Cause (as defined
in the Grantee's employment agreement dated as of January 1, 2006), or the
Grantee terminating his employment prior to January 2, 2009 for Good Reason (as
defined in the Grantee's employment agreement dated as of January 2, 2006), all
unvested shares of Restricted Stock shall become immediately and fully vested.
Furthermore, the foregoing provisions of this Section 3.1 shall be subject to
the provisions of Section 21 of the Grantee's employment agreement dated as of
January 1, 2006. For purposes of this Agreement, the Grantee shall be deemed to
have terminated employment or incurred a termination of employment upon (i) the
date the Grantee ceases to be employed by, or to provide consulting services
for, the Company and all Company subsidiaries; or (ii) the date the Grantee
ceases to be a Board member, provided, however, that if the Grantee (x) at the
time of reference is both an employee or consultant and a Board member, or (y)
ceases to be engaged as an employee, consultant or Board member and immediately
is engaged in another of such relationships with the Company or any Company
subsidiary, the Grantee shall not be deemed to have a "termination of
employment" until the last of the dates determined pursuant to subparagraphs (i)
and (ii) above. The Committee, in its discretion, may determine whether any
leave of absence constitutes a termination of employment for purposes of this
Agreement.

                                   ARTICLE IV
                                  RESTRICTIONS

            4.1 Restrictions on Transferability. Until a share of Restricted
Stock vests, such share may not be sold, assigned, transferred, alienated,
commuted, anticipated, or otherwise disposed of (except by will or the laws of
descent and distribution), or pledged or hypothecated as collateral for a loan
or as security for the performance of any obligation, or be otherwise
encumbered, and is not subject to attachment, garnishment, execution or other
legal or equitable process, and any attempt

                                       2
<PAGE>

to do so shall be null and void. If the Grantee attempts to dispose of or
encumber the Grantee's unvested shares of Restricted Stock, such shares of
Restricted Stock, together with any property in respect of such shares held by
the custodian pursuant to Section 4.3 hereof, shall be forfeited as of the date
of such attempted transfer and the Grantee promptly shall return to the Company
any certificates evidencing such shares.

            4.2 Issuance of Certificates.

            (a) Reasonably promptly after the Grant Date, the Company shall
issue and deliver to the Grantee stock certificates, registered in the name of
the Grantee, evidencing the shares of Restricted Stock. Each such certificate
may bear the following legend:

      "THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR
      OTHER DISPOSAL OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
      SUBJECT TO THE TERMS OF THE NASTECH PHARMACEUTICAL COMPANY INC. 2004 STOCK
      INCENTIVE PLAN AND A RESTRICTED STOCK GRANT AGREEMENT BETWEEN NASTECH
      PHARMACEUTICAL COMPANY INC. AND THE HOLDER OF RECORD OF THE SECURITIES
      REPRESENTED BY THIS CERTIFICATE. NO TRANSFER OF THE SECURITIES REPRESENTED
      BY THIS CERTIFICATE IN CONTRAVENTION OF SUCH PLAN AND RESTRICTED STOCK
      GRANT AGREEMENT SHALL BE VALID OR EFFECTIVE. COPIES OF SUCH AGREEMENT MAY
      BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE
      CERTIFICATE TO THE SECRETARY OF NASTECH PHARMACEUTICAL COMPANY INC."

Such legend shall not be removed from such certificates until such shares of
Restricted Stock vest.

            (b) Reasonably promptly after any such shares of Restricted Stock
vest pursuant to Section 2.1 hereof, in exchange for the surrender to the
Company of the certificates evidencing such shares of Restricted Stock delivered
to the Grantee under Section 4.2(a) hereof, the Company shall issue and deliver
to the Grantee (or the Grantee's legal representative, beneficiary or heir)
certificates evidencing such shares of Restricted Stock, free of the legend
provided in Section 4.2(a) hereof, together with any property in respect of such
shares held by the custodian pursuant to Section 4.3 hereof.

            (c) The Company may require as a condition of the delivery of stock
certificates pursuant to Section 4.2(b) hereof that the Grantee remit to the
Company an amount sufficient in the opinion of the Company to satisfy any
federal, state and other governmental tax withholding requirements related to
the vesting of the shares represented by such certificates.

                                       3
<PAGE>

            (d) The Grantee shall not be deemed for any purpose to be, or have
rights as, a shareholder of the Company by virtue of the grant of Restricted
Stock, except to the extent a stock certificate is issued therefor pursuant to
Section 4.2(a) hereof, and then only from the date such certificate is issued.
Upon the issuance of a stock certificate, the Grantee shall have the rights of a
shareholder with respect to the Restricted Stock, including the right to vote
the shares, subject to the restrictions on transferability, the forfeiture
provisions and the requirement that dividends be held in escrow until the shares
vest, as set forth in this Agreement.

            4.3 Dividends, etc. Unless the Committee otherwise determines, any
property, including cash dividends, received by a Grantee with respect to a
share of Restricted Stock as a result of any dividend, recapitalization, merger,
consolidation, combination, exchange of shares or otherwise and for which the
Grant Date occurs prior to such event but which has not vested as of the date of
such event, will not vest until such share of Restricted Stock vests, and shall
be promptly deposited with the Company or a custodian designated by the Company.
The Company shall or shall cause such custodian to issue to the Grantee a
receipt evidencing the property held by it in respect of the Restricted Stock.

                                    ARTICLE V
                                  MISCELLANEOUS

            5.1 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, with respect to any similar breach or default
thereafter occurring, nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party or any provisions or conditions of this
Agreement, must be in a writing signed by such party and shall be effective only
to the extent specifically set forth in such writing.

            5.2 Right of Discharge Preserved. Nothing in this Agreement shall
confer upon the Grantee the right to continue in the employ or other service of
the Company or one of the Company's subsidiaries, or affect any right which the
Company may have to terminate such employment or service.

            5.3 Integration. This Agreement and the Grantee's employment
agreement dated as of January 1, 2006 (the "Employment Agreement") contain the
entire understanding of the parties with respect to the subject matter of this
Agreement. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein. This Agreement is subject to the
Employment Agreement. Other than the Employment Agreement, this Agreement,
including, without

                                       4
<PAGE>

limitation, the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.

            5.4 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.

            5.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, without
regard to the provisions governing conflict of laws.

            5.6 Grantee Acknowledgment. The Grantee hereby acknowledges receipt
of a copy of the Plan. The Grantee hereby acknowledges that all decisions,
determinations and interpretations of the Committee in respect of the Plan, this
Agreement and the Restricted Stock shall be final and conclusive.

            IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer, and the Grantee has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement and the Plan as of the day and year first
written above.

                                NASTECH PHARMACEUTICAL COMPANY INC.

                                By:   /s/ Steven C. Quay
                                      ----------------------------------------
                                      Name: Steven C. Quay
                                      Title: Chairman, President and CEO

                                GRANTEE

                                /s/ Philip C. Ranker
                                ----------------------------------------------
                                Philip C. Ranker
                                Chief Financial Officer

                                       5

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