8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 1, 2006

NASTECH PHARMACEUTICAL COMPANY INC.

(Exact name of registrant as specified in charter)

DELAWARE
(State or other jurisdiction
of incorporation) 0-13789
(Commission
File Number) 11-2658569
(IRS Employer
Identification No.)

3830 Monte Villa Parkway
Bothell, Washington
(Address of principal executive offices) 98021
(Zip Code)

425-908-3600
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EXHIBIT 10.1

EXHIBIT 99.1

Item 1.01 Entry Into A Material Definitive Agreement.

     Effective November 1, 2006, Nastech Pharmaceutical Company Inc. (the “Company”) entered into an employment agreement (the “Employment Agreement”) with Paul H. Johnson, Ph.D., the Company’s Chief Scientific Officer, for the period beginning November 1, 2006 and ending October 6, 2007.

     Pursuant to the Employment Agreement, Dr. Johnson will be entitled to annual base compensation of $239,200, and will be eligible for increases in his base salary as may be determined by the board of directors of the Company (the “Board of Directors”) and the Company’s Chief Executive Officer. Effective for the Company’s fiscal year that began on January 1, 2006, and each calendar year thereafter (or portion thereof) during the term of the Employment Agreement, Dr. Johnson’s targeted incentive cash compensation is forty percent of his annual base compensation for the year, with the actual amount, which may be more or less than said targeted amount, to be determined by the Board of Directors and the Company’s Chief Executive Officer and subject to certain conditions.

     Under the Employment Agreement, in the event that, prior to October 6, 2007, the Company terminates Dr. Johnson’s employment without cause or if Dr. Johnson terminates his employment as the result of the failure of the Company to honor promptly any of its material obligations under the Employment Agreement or any other reason, then Dr. Johnson will be entitled to receive base salary, pay for accrued but unused paid time off, and reimbursement for expenses through the termination date, plus a lump sum equal to the amount of base salary payable under the Employment Agreement from the termination date through October 6, 2007.

     In the event that, prior to October 6, 2007, the Company terminates Dr. Johnson for cause or his employment is terminated due to his death, then Dr. Johnson or his estate, as applicable, is entitled to receive base salary, pay for accrued but unused paid time off, and reimbursement of expenses through the termination date.

     In the event that, prior to October 6, 2007, the Company terminates Dr. Johnson for cause or Dr. Johnson terminates his employment without good reason, Dr. Johnson would be restricted from competing with the Company, and from directly or indirectly soliciting or hiring the Company’s collaborative partners, consultants, employees, and other similar persons, from the termination date through October 6, 2007.

     The Employment Agreement also contains customary provisions regarding confidentiality and providing for the Company’s ownership of intellectual property created by Dr. Johnson in the course of his employment with the Company. A copy of the Employment Agreement is filed herewith as Exhibit 10.1.

2

Item 2.02 Results of Operations and Financial Condition.

     On November 1, 2006, the Company reported its financial results for its third quarter of fiscal year 2006 ended September 30, 2006. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

     The information contained herein and in the accompanying Exhibit 99.1 is being furnished pursuant to “Item 2.02 Results of Operations and Financial Condition.” The information contained herein and in the accompanying Exhibit 99.1 shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

(b) On November 1, 2006, the Company announced that Paul H. Johnson, Ph.D., the Company’s Chief Scientific Officer, would retire from the Company at the expiration of the term of his Employment Agreement on October 6, 2007.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number		Description
	10.1	Employment Agreement effective as of November 1, 2006 by and between Nastech Pharmaceutical Company Inc. and Paul H. Johnson, Ph.D.
	99.1	Press Release of Nastech Pharmaceutical Company Inc. dated November 1, 2006.

3

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Nastech Pharmaceutical Company Inc. (Registrant)
By:	/s/ Philip C. Ranker
	Name:	Philip C. Ranker
	Title:	CFO

Dated:

November 1, 2006

Exhibit Index

Exhibit Number		Description
	10.1	Employment Agreement effective as of November 1, 2006 by and between Nastech Pharmaceutical Company Inc. and Paul H. Johnson, Ph.D.
	99.1	Press Release of Nastech Pharmaceutical Company Inc. dated November 1, 2006.

4

EX-10.1

                                                                    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
Paul H. Johnson, Ph.D., an individual resident in the State of Washington (the
"Executive"), effective November 1, 2006 (the "Effective Date").

                                   WITNESSETH:

     WHEREAS, in contemplation of the Executive's retirement and the transition
of his responsibilities to his successor, the Company and the Executive wish to
enter into this Agreement which shall set forth the Executive's terms of
employment as Chief Scientific Officer;

     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:

     1. Application and Effectiveness of Agreements. Effective as of the
Effective Date, this Agreement shall govern (i) the employment relationship
between the Company and the Executive 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 Effective Date and matters growing out of that employment.

     2. Employment; Responsibilities and Authority; Definitions.

          (a) Subject to the terms and conditions of this Agreement, the Company
shall employ the Executive as its Chief Scientific Officer 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 of the Company shall from time
to time direct.

          (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 herein.

          (c) 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.

     3. Term; Employment Period. The "Employment Period" under this Agreement
shall commence on the Effective Date and shall terminate at the close of
business on October 6,



2007 unless it is extended by written agreement between the parties or earlier
terminated pursuant to Section 10 hereof.

     4. 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 two hundred thirty-nine
thousand, two hundred dollars and eight cents ($239,200.08) per annum commencing
on the Effective Date and which shall thereafter be set by the Board of
Directors of the Company (the "Board") and/or the Chief Executive Officer from
time to time as determined by the Board and/or the Chief Executive Officer.

     5. Incentive Cash Compensation.

          (a) For the Company's fiscal year that began 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 the Executive's performance in relation to the performance areas and
performance targets which the Chief Executive Officer and/or the Board shall
determine and communicate to the Executive as described below (the "Annual Bonus
Plan"). The targeted amount of such Annual Bonus Plan shall be forty percent
(40%) of the Executive's base salary for such year; provided, however, that the
Executive and the Company acknowledge that the amount actually paid to the
Executive pursuant to this Section 5 for any fiscal year or portion thereof may
be more or less than said targeted amount, and that (i) the Executive shall only
be eligible to receive a bonus for fiscal year 2006 (or any portion thereof)
provided that (A) he has executed this Agreement, (B) he is employed by the
Company on December 31, 2006, or, before that date, the Executive's employment
with the Company is terminated by the Company without Cause (as defined in
Section 10 of this Agreement) or by the Executive with Good Reason (as defined
in Section 10 of this Agreement), and (C) if the Executive is terminated by the
Company without Cause (as so defined) or the Executive terminates his employment
with the Company with Good Reason (as so defined) prior to December 31, 2006,
the Executive has executed a release, dated as of a date on or after his last
date of employment, similar in form to the release contained in Section 17 of
this Agreement, and (ii) the Executive shall only be eligible to receive a bonus
for fiscal year 2007 (or any portion thereof) provided that (A) he has executed
this Agreement, (B) he is employed by the Company on October 6, 2007, or, before
that date but after December 31, 2006, the Executive's employment with the
Company is terminated by the Company without Cause (as defined in Section 10 of
this Agreement) or by the Executive with Good Reason (as defined in Section 10
of this Agreement), and (C) the Executive has executed a release, dated as of a
date on or after his last date of employment, similar in form to the release
contained in Section 17 of this Agreement.

          (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. 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 performance targets


                                        2



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 of the Board (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 criteria 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
performance criteria had been achieved; and, to such extent, payment shall be
made to the Executive.

     6. Stock Options. The Company and the Executive hereby acknowledge that the
Board or the Compensation Committee has granted to the Executive options to
purchase shares of common stock of the Company (collectively, the "Outstanding
Options"). The terms of the grant agreements granting such Outstanding Options
shall govern the rights and obligations of the Executive with respect thereto.
The Executive hereby acknowledges that no further options to purchase shares of
common stock of the Company shall be granted to the Executive on or after the
date of this Agreement.

     7. Restricted Shares. The Company and the Executive hereby acknowledge that
the Board or the Compensation Committee has issued to the Executive restricted
shares of common stock of the Company (collectively, the "Outstanding Restricted
Shares"). The terms of the grant agreements issuing such Outstanding Restricted
Shares shall govern the rights and obligations of the Executive with respect
thereto. The Executive hereby acknowledges that no further restricted shares of
common stock of the Company shall be issued to the Executive on or after the
date of this Agreement.

     8. 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 similarly situated employees of the Company.

     9. Paid Time Off. The Executive shall be entitled to paid time off in
accordance with the Company's policies in effect from time to time for executive
officers of the Company.

     10. Termination. Executive's employment by the Company shall be "at will."
In other words, either the Company or the Executive may terminate the
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


                                        3



immediately by his death. Termination of the Executive's employment as provided
for herein shall terminate the Employment Period.

          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 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 term "Termination Date" shall also have
the meaning set forth for it below:

          (a) "Good Reason" shall mean the failure of the Company to honor
promptly any of its material obligations hereunder.

          (b) "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 if such failure of
performance or compliance is not cured within fifteen (15) 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 fifteen (15)
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) "Termination Date" shall mean (i) if this Agreement is terminated
on account of death, the date of death; or (ii) if this Agreement is terminated
by the Company or by the Executive prior to October 6, 2007, the effective date
of the termination as provided in Section 10(a) hereof.

     11. Severance.

          (a) If (i) the Company terminates the employment of the Executive
prior to October 6, 2007 against his will and without Cause, or (ii) the
Executive terminates his employment prior to October 6, 2007 with or without
Good Reason, then the Executive shall be entitled to receive base salary, pay
for accrued but unused paid time off, and reimbursement for expenses pursuant to
Section 12 hereof through the Termination Date plus a lump sum equal to the
amount of base salary payable hereunder from the Termination Date through
October 6, 2007, at the rate in effect on the Termination Date. The Company
shall pay the cash amounts provided for in this Section within ninety (90) 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 paid time off 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 other than the lump sum equal to the amount of base
salary payable hereunder from the Termination Date through October 6, 2007, the
Company shall pay such cash amounts as soon as administratively practicable and
no later than fifteen (15) days following such termination (but no later than
the end of the calendar year in which such termination occurs). Notwithstanding
the foregoing, the Company shall not


                                        4



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
14, 15, or 16 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) If the Executive's employment is terminated by the Company prior
to October 6, 2007 for Cause or due to the death of the Executive, then the
Executive shall be entitled to receive salary, pay for accrued but unused paid
time off, and reimbursement of expenses pursuant to Section 12 hereof through
the Termination Date only. The Company shall pay the cash amounts provided for
in this Section within ninety (90) 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 paid time off 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 as soon as administratively practicable and
no later than fifteen (15) days following such termination (but no later than
the end of the calendar year in which such termination occurs).

          (c) 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.

     12. 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.

     13. Place of Performance. The Executive shall perform his duties at the
main offices of the Company or such other reasonable location as directed by the
Chief Executive Officer, subject to reasonable travel requirements which may be
authorized and directed from time to time by the Chief Executive Officer.

     14. 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, however, 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.


                                        5



          (b) In addition, the Executive agrees that, during the Employment
Period and, if the Executive's employment is terminated by the Company prior to
October 6, 2007 for Cause or the Executive terminates his employment prior to
October 6, 2007 without Good Reason, the Executive shall not, prior to October
6, 2007, (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; provided, however,
that employment or service as a consultant, agent or representative shall not be
subject to the foregoing limitation in this Section 14(b) to the extent that
such employment or service would not be directly competitive with and/or adverse
to the 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.

          (c) Executive further agrees that, during the Employment Period and,
if the Executive's employment is terminated by the Company prior to October 6,
2007 for Cause or the Executive terminates his employment prior to October 6,
2007 without Good Reason, the Executive shall, until October 6, 2007, refrain
from directly or indirectly soliciting or hiring 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
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 terminates or then being actively developed, with the bona fide
intent to market same, by the Company or any of its Subsidiaries.

          (d) The Executive further agrees that, during the Employment Period
and, if the Executive's employment is terminated by the Company prior to October
6, 2007 for Cause or the Executive terminates his employment prior to October 6,
2007 without Good Reason, the Executive shall not, prior to October 6, 2007,
directly or indirectly, as a sole proprietor, member of a partnership or as a
stockholder, investor, officer or director of a corporation, or as an employee,
agent, associate or consultant of any person, firm or corporation, other than
for the exclusive benefit of the Company or any of its Subsidiaries, solicit or
accept business from, or perform or supervise the performance of any services
related to such business for, (i) any client of the Company or any of its
Subsidiaries who was a client during the Executive's employment with the
Company, (ii) any clients or prospective clients of the Company or any of its
Subsidiaries who were solicited or serviced, directly or indirectly, by the
Executive, in whole or in part, or (iii) any former client of the Company or any
of its Subsidiaries who was a client within one (1) year prior to the
Executive's termination of employment and who was solicited or serviced,
directly or indirectly, by the Executive, or by those supervised, directly or
indirectly, by the Executive, in whole or in part, in connection with activities
that would be directly competitive with and/or adverse to the Business of the
Company or any of its Subsidiaries or


                                        6



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

          (e) 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 14 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 14 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.

     15. Assignment of Patents. The 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 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; provided, however, 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
twelve (12) months after his employment terminates and are in whole or in part
the result of his work with the Company. Such disclosure is to be made promptly
after each such discovery or conception, and each such discovery, idea, concept
or invention will become and remain the property of the Company, whether or not
patent applications are filed thereon. Upon the request and at the expense of
the Company, the Executive shall (i) make application through the patent
solicitors of the Company for letters patent of the United States and any and
all other countries at the discretion of the Company on such discoveries, ideas
and inventions, and (ii) assign all such applications to the Company, or at its
order, without additional payment by the Company except as otherwise agreed by
the Company and the Executive. The Executive shall give the Company, its
attorneys and solicitors, reasonable assistance in preparing and prosecuting
such applications and, on request of the Company, execute such papers and do
such things as shall be reasonably necessary to protect the rights of the
Company and vest in it or its assigns the discoveries, ideas or inventions,
applications and letters patent herein contemplated. Said cooperation shall also
include such actions as are reasonably necessary to aid the Company in the
defense of its rights in the event of litigation. To the extent that the
Executive's actions referred to in this paragraph are performed after the end of
the Executive's employment by the Company, the Company shall promptly compensate
the Executive for his time spent in or because of such activities at the rate of
two hundred dollars ($200.00) per hour. This Section 15 shall not apply to any
invention for which no equipment, supplies, facilities, or trade secret
information of the Company or its Subsidiaries was used, and which was developed
entirely on the Executive's own time, unless (i) the invention relates directly
to the Business of the Company or of any of its Subsidiaries or to the actual or
demonstrably anticipated research or development of the Company or of any of its
Subsidiaries, or (ii) the invention results from any work performed by the
Executive for the Company.


                                        7



     16. Trade Secrets.

          (a) Prior to and during the course of the term of this Agreement, it
is anticipated that the Executive had and 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 the control of the Executive. The
Executive shall not be deemed to have breached this Section 16 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 16 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 16 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.

     17. Release.

          (a) In consideration for the continued employment of the Executive by
the Company pursuant to this Agreement, which the Executive acknowledges to be
good and valuable consideration for the following release, the Executive
knowingly and voluntarily releases and forever discharges the Company, any of
its parent, Subsidiary, division, and related companies, and any of its past and
present directors, managers, officers, shareholders, partners, employees,
agents, attorneys and servants, and each of their predecessors, successors and
assigns (the "Releasees") from any and all claims, or causes of action, of any
nature whatsoever, known or unknown, which exist as of the Effective Date (the
"Release"). This Release includes, without limitation, any rights or claims
relating in any way to the Executive's employment relationship with any of the
Releasees, or the termination thereof, or arising under any statute or
regulation, including, but not limited to, any rights or claims the Executive
may have under the Age


                                        8



Discrimination in Employment Act, which prohibits age discrimination in
employment; Title VII of the Civil Rights Act of 1964, as amended, which
prohibits discrimination in employment based on race, color, national origin,
religion, or sex; the Equal Pay Act, which prohibits paying men and women
unequal pay for equal work; the Americans With Disabilities Act, which prohibits
discrimination in employment by reason of disability; the Employee Retirement
Income Security Act ("ERISA"), which protects employees' interests in certain
health and retirement benefits; the Fair Labor Standards Act ("FLSA"), which
protects employees' wages and regulates hours; or any other federal, state, or
local laws or regulations prohibiting employment discrimination. This Release
also includes a release by the Executive of any claims for wrongful discharge,
defamation, intentional tort, and breach of contract, implied or otherwise. This
Release includes both claims that the Executive knows about and those he may not
know about. The Executive represents that as of the date of his execution of
this Agreement, he has incurred no disability or injury in relation to or as a
result of his employment and asserts no claim for any form of compensation for
such disability, injury or job-related condition.

          (b) The Executive hereby promises never to file a lawsuit asserting
any claims that are released in Section 17(a), above. If the Executive files a
lawsuit in breach of the foregoing representation, he will pay for all costs
incurred by the Company, any related entities, or the present or former
directors, officers, employees or representatives of the Company or any related
entities, including their reasonable attorneys' fees, in defending against such
claims. The terms of this Section 17(b) do not apply to any claims the Executive
may or may not have under the Older Workers' Benefits Protection Act which have
been specifically released by the Executive in Section 17(a) above.

          (c) The Executive acknowledges that unless he entered into this
Agreement, he would not otherwise continue to be employed by the Company. The
Release is not, and should not be construed as, an admission of liability or
wrongdoing by the Company. The Executive promises not to discuss or disclose the
terms of this Agreement to any person other than his family members and his
attorney and/or financial advisor, should one be consulted, provided that those
to whom the Executive may make such disclosure agree to keep said information
confidential and not disclose it to others. Furthermore, the Executive shall not
disparage or make any statement which might adversely affect the reputation of
the Company or any related entity, or their directors, officers, employees or
representatives. For the purpose of this Section 17(c), disparagement shall
include, without limitation, any statement accusing the aforesaid individuals or
entities of acting in violation of any law or governmental regulation or of
condoning any such action, or otherwise acting in an unprofessional, dishonest,
disreputable, improper, incompetent or negligent manner. The Executive expressly
acknowledges that the terms of this Section 17(c) are integral to this Agreement
and that if he breaches the representations contained herein, he must pay to the
Company all damages incurred by the Company, any related entity, or their
directors, officers, employees or representatives, including attorneys' fees
resulting from such breach.

          (d) The Executive acknowledges and understands that the Company has
given the Executive a period of twenty-one (21) days to review and consider this
Agreement before signing it. The Executive further acknowledges and understands
that he may use as much of this twenty-one (21) day period as he wishes prior to
signing, and that the Company has encouraged the Executive to consult with an
attorney before signing this Agreement. The Executive understands that whether
or not he does so is the Executive's decision.


                                        9



          (e) The Executive may revoke this Agreement within seven (7) days of
the date on which he signs it by delivering a written notice of revocation to
the Company, no later than the close of business on the seventh day after he
signs and delivers this Agreement to the Company. If the Executive revokes this
Agreement, it shall not be effective or enforceable. The EXECUTIVE HEREBY
ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND THE RELEASE CONTAINED
THEREIN, UNDERSTANDS IT, AND IS VOLUNTARILY ENTERING INTO IT OF HIS OWN FREE
WILL, WITHOUT DURESS OR COERCION, AFTER DUE CONSIDERATION OF ITS TERMS AND
CONDITIONS.

     18. 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 (3) days after mailing.

     19. Entire Agreement; Waiver. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof (it being
acknowledged, however, that the Company and the Executive have entered into
certain grant agreements relating to Outstanding Options and Outstanding
Restricted Shares, which shall be effective in accordance with the terms
thereof). 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.

     20. 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.

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

     22. 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. Except as otherwise provided in Sections 14(e) and 16(b) of this
Agreement, 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.

     23. 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


                                       10



attorney and/or assurances as may be necessary or proper to carry out the
provisions or intent of this Agreement.

     24. 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.

     25. 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
                                            ------------------------------------
                                        Name: Steven C. Quay, M.D., Ph.D.
                                        Title: Chief Executive Officer


EXECUTIVE:                              /s/ Paul H. Johnson
                                        ----------------------------------------
                                        Name: Paul H. Johnson, Ph.D.
                                        Title: Chief Scientific Officer


                                       11

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Nastech Announces Third Quarter 2006 Financial Results

Bothell, Wash., November 1, 2006 — Nastech Pharmaceutical Company Inc. (Nasdaq: NSTK) today reported financial results for the three- and nine-month periods ended September 30, 2006.

Revenue for the three months ended September 30, 2006 was $5.5 million, compared to $1.2 million for the prior year period. Revenue for the nine months ended September 30, 2006 was $23.7 million, compared to $6.2 million for the prior year period. Revenue for 2006 includes approximately $3.7 million in previously deferred revenue related to our Merck collaboration that was recognized when the agreement was terminated on March 1, 2006, reimbursement revenue related to our Parathyroid Hormone (PTH_1-34) nasal spray development agreement with Procter & Gamble Pharmaceuticals, Inc. (“P&G”) including a $7.0 million milestone payment received and recognized in June 2006, revenue from our other collaborative agreements and approximately $0.6 million in Nascobal^® product sales. The prior year nine-month period included recognition of a $2.0 million milestone payment received from Questcor related to Nascobal^®.

The net loss for the current quarter was $7.8 million or $0.36 per share, compared to a net loss of $8.8 million or $0.46 per share for the prior year period. The net loss for the nine months ended September 30, 2006 was $16.2 million or $0.77 per share, compared to a net loss of $23.2 million or $1.28 per share for the prior year period. The changes in the net loss from the prior year period are due to a combination of higher revenue and interest income in the current year periods, partially offset by higher spending due to headcount growth and increased funding to support our research and development projects. The net loss for the nine month period ending September 30, 2006 includes a cumulative benefit from the accounting change of adopting SFAS123R on January 1, 2006 of approximately $0.3 million.

Research and development expenses increased $2.4 million to approximately $10.5 million for the current quarter compared to the prior year period and increased $8.5 million to approximately $31.1 million for the nine months ended September 30, 2006 compared to the prior year period. The increases are primarily due to in-process R&D expenses related to our acquisition of RNAi intellectual property from Galenea Corp. incurred in the first quarter of 2006, increases in the number of research and development employees and increased funding to support our research and development projects.

Selling, general and administrative expenses increased $1.1 million to approximately $3.4 million for the current quarter compared to the prior year period and increased $2.6 million to approximately $10.5 million for the nine months ended September 30, 2006, primarily due to increases in amortization of non-cash stock compensation expense, legal expenses and increased headcount to support our R&D activities.

We ended the third quarter of 2006 with approximately $56.4 million in cash, cash equivalents and short-term investments compared to $59.9 million at December 31, 2005.

RECENT CORPORATE HIGHLIGHTS

• Awarded RO1 and SBIR grants by the National Institute of Health totaling approximately $2.3 million in funding for development of RNAi therapeutics to prevent and treat influenza

• In partnership with Amylin Pharmaceuticals, Inc., initiated clinical testing of a nasal spray formulation of exenatide

• Initiated clinical development program for insulin nasal spray to treat diabetes

• Initiated dose ranging study for PYY_3-36 to treat obesity

• Submitted complete response to FDA regarding Nastech’s calcitonin-salmon nasal spray Abbreviated New Drug Application

Conference Call and Webcast Information

Management will host a conference call to review our financial results for the period ended September 30, 2006 and recent business developments. The call is scheduled for today, November 1, 2006, at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time). To participate in the live conference call, U.S. residents should dial (866) 713-8565 and international callers should dial (617) 597-5324. The access code for the live conference call is 17513049. To access the 24-hour telephone replay, U.S. residents should dial (888) 286-8010 and international callers should dial (617) 801-6888. The access code for the replay is 33009860.

Alternatively, log on to www.nastech.com to access a live webcast or the subsequent 30-day archive. Please connect to the Investor section of Nastech’s website several minutes prior to the start of the live conference call to ensure adequate time for any software download that may be necessary.

About Nastech

We are a pharmaceutical company developing innovative products based on proprietary molecular biology-based drug delivery technologies. We and our collaboration partners are developing products for multiple therapeutic areas including osteoporosis, diabetes, obesity, respiratory diseases and inflammatory conditions. Additional information about Nastech is available at www.nastech.com.

Nastech Forward-Looking Statements

Statements made in this press release may be forward-looking statements within the meaning of Federal Securities laws that are subject to certain risks and uncertainties and involve factors that may cause actual results to differ materially from those projected or suggested. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to: (i) the ability of Nastech to obtain additional funding; (ii) the ability of Nastech to attract and/or maintain manufacturing, research, development and commercialization partners; (iii) Nastech’s and/or a partner’s ability to successfully complete product research and development, including preclinical and clinical studies and commercialization; (iv) Nastech’s and/or a partner’s ability to obtain required governmental approvals; and (v) Nastech’s and/or a partner’s ability to develop and commercialize products that can compete favorably with those of competitors. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in Nastech’s most recent periodic reports on Form 10-K and Form 10-Q that are filed with the Securities and Exchange Commission. Nastech assumes no obligation to update and supplement forward-looking statements because of subsequent events.

Contacts:
Nastech
Ed Bell, Senior Investor Relations Manager
(425) 908-3639, ir@nastech.com
Noonan Russo
Matthew Haines (Investors/Media)
(212) 845-4235

NASTECH PHARMACEUTICAL COMPANY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2006			2005			2006
Revenues
Product revenue, net		—		$	32			—		$	624
License and research fees	$	1,223			5,130		$	6,155			22,667
Government grants		—			383			—			383
Total revenue	$	1,223		$	5,545		$	6,155		$	23,674
Operating expenses:
Cost of product revenue		—			13			—			314
Research and development		8,099			10,483			22,559			31,050
Selling, general and administrative		2,364			3,447			7,912			10,529
Total operating expenses		10,463			13,943			30,471			41,893
Loss from operations		(9,240	)		(8,398	)		(24,316	)		(18,219	)
Other income (expense):
Interest income		496			751			1,321			2,107
Interest expense		(75	)		(162	)		(265	)		(405	)
Other income and expense, net		5			1			15			11
Loss before change in accounting principle	$	(8,814	)	$	(7,808	)	$	(23,245	)	$	(16,506	)
Cumulative effect of change in accounting principle		—			—			—			291
Net Loss	$	(8,814	)	$	(7.808	)	$	(23,245	)	$	(16,215	)
Basic and diluted net loss per share:
Prior to cumulative effect of change in accounting principle	$	(0.46	)	$	(0.36	)	$	(1.28	)	$	(0.78	)
Cumulative effect of change in accounting principle		—			—			—			0.01
Net loss per common share — basic and diluted	$	(0.46	)	$	(0.36	)	$	(1.28	)	$	(0.77	)
Shares used in computing net loss per share — basic and diluted		19,009			21,408			18,208			21,115

	December 31,			September 30,
Selected Balance Sheet Data	2005			2006
Cash, cash equivalents and investments (includes restricted cash of $998 and $2,155, respectively)	$	59,909		$	56,410
Accounts receivable		189			2,589
Property, intangibles and other assets		12,855			18,664
Total assets		72,953			77,663
Working capital		55,198			48,899
Accumulated deficit		(115,616	)		(131,831	)
Stockholders’ equity		55,567			51,514