AMENDED AND RESTATED EMPLOYMENT AGREEMENT


        This Amended and Restated Employment Agreement, (this "Agreement") is
executed and entered into on the second (2nd) day of May, 2002 (the "Amendment
Date") by and between Nastech Pharmaceutical Company, Inc., a Delaware
corporation (the "Company") with offices at 45 Davids Drive, Hauppauge, NY and
Steven C. Quay, M.D., Ph.D. (the "Executive").

                            W I T N E S S E T H :

        WHEREAS, the Company and the Executive executed and entered into an
initial Employment Agreement on or about August 8, 2000 (the "August 2000
Agreement") with a term of three years; and

        WHEREAS, the Executive has performed his duties under the August 2000
Agreement to the full satisfaction of the Company and has contributed to a
large improvement in the Company's performance and prospects; and

        WHEREAS, the Company desires to obtain an extension of the Executive's
contract term with the Company and the Executive is willing to extend his
contract term with the Company as provided herein;

        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 of Agreements. This Agreement shall govern the
employment relationship between the Company and the Executive from and after
the Amendment Date and in other respects to the extent provided herein. To the
extent that they are not inconsistent with the terms of this Agreement, the
August 2000 Agreement and other agreements between the Company and the
Executive shall continue to apply as to the employment of the Executive by the
Company prior to the Amendment Date. For example, those earlier agreements
shall govern: (a) the Executive's rights to receive incentive compensation
with respect to periods prior to those expressly covered by this Agreement
even if some such incentive compensation may be payable after the Amendment
Date and (b) the rights created by and with respect to the options granted to
the Executive to purchase 600,000 shares of the common stock of the Company
pursuant to the August 2000 Agreement, including the vesting and
exerciseability of those stock options.

        2.     Employment

               (a)    Subject to the terms and conditions of this Agreement,
the Company shall continue to employ the Executive as its President, Chief
Executive Officer and Chairman of its Board of Directors (the "Board") during
the Employment Period (as defined in Section 8) and to perform such acts and
duties and furnish such services to the Company and its Subsidiaries (as
defined below) as the Board shall from time to time reasonably direct. The
Executive shall have general and active charge of the business and affairs of
the Company as its Chief Executive Officer and President and, in such
capacity, shall have responsibility for the day-to-day operations of the
Company, subject to the authority and control of the Board. During the
Employment Period, the Company shall: (i) continue to take such actions as may
be necessary to









cause the nomination and recommendation of both (A) the Executive for election
as a director and as Chairman of the Board and (B) a nominee selected by the
Executive and reasonably acceptable to the Company (such nominee, at the
option of the Executive, to be changed prior to any annual or other meeting of
the stockholders of the Company at which directors are elected or due to the
death or resignation of such nominee) for election as a director of the
Company and (ii) use all best efforts to cause such persons to be elected to
the positions provided for them above respectively.

               (b)    Subject to the terms and conditions of this Agreement,
Executive hereby accepts such employment and agrees to devote his full time
and best efforts to the duties provided herein, provided that the Executive
may engage in other business, research (subject to the further proviso set
forth below), professional, and other activities, during his employment by the
Company, that (1) involve no conflict of interest with the Company or any of
its Subsidiaries in the Business (as those terms are defined below) and (2) do
not materially interfere with the reasonable performance by Executive of his
duties under this Agreement, provided further that, in the case of any
research in medicine or in the health sciences in which the Executive may be
involved other than for the benefit of the Company or any such
Subsidiary(ies), both of the immediately following clauses "i" and "ii" must
be satisfied:

                      (i) Such research shall be in subject matter unrelated
to the Business and unrelated to any other products, services, or technology
in medicine or the health sciences in which the Company shall then be
undertaking, or actively and in good faith considering, research or commercial
involvement and

                      (ii) The Executive shall disclose to the Board or to the
Compensation Committee on a timely basis the nature and subject matter of any
such research in which he may become involved and shall keep the Board or such
committee reasonably apprised of material changes in such nature and/or
subject matter.

For purposes of this Agreement: (1) the "Business" means and includes the
development, marketing, selling, and/or commercializing of (a) drug delivery
products, services, and/or technology and/or (b) products, services, and/or
technology related to the FDA approved Mammary Aspirate Specimen Cytology Test
(MASCT) kit and any successor product(s) and (2) the term "Subsidiary" means a
corporation or other entity that is at least majority owned, directly or
indirectly, by the Company. The foregoing provisos do not limit the
obligations of the Executive under Section 16(a) hereof.

        3.     Salary. For services rendered to the Company during the
Employment Period, the Company shall compensate the Executive with a base
salary, payable in bi-weekly installments, which shall be $325,000 per annum
for the period from the Amendment Date through the end of calendar year 2002
and which shall be increased by ten percent (10%) effective on January 1 of
each calendar year after 2002 during the Employment Period. As to any pay
periods all or a part of which fall on or after the Amendment Date, the
Company shall pay to the Executive within sixty (60) days after the Amendment
Date any shortfall of amounts actually delivered to him relative to the
amounts that would have been delivered to him if his pay rate had been
immediately adjusted as of the Amendment Date.



                                      2



        4.     Incentive Cash Compensation.

               (a) For the Company's fiscal year that began January 1, 2002,
and for each subsequent fiscal year or portion thereof during the Employment
Period, the Executive shall also be entitled to incentive cash compensation
based on the "Annual Base Bonus Amount" of one hundred thousand dollars
($100,000.00) (or more if so determined by the Compensation Committee or by
the Board) and the performance areas and performance levels on which the
Executive and the Board or the Compensation Committee shall agree as described
below.

               (b) The Company and the Executive shall agree periodically on
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 agreement shall be made, as to each
fiscal year, prior to the end of the first month of such fiscal year. The
Company and the Executive presently intend that such performance criteria
shall be comprised of several designated performance areas and two levels of
performance in each area, and that, depending on the levels of performance
achieved in the various areas, the actual amount of incentive cash
compensation actually payable to the Executive for each fiscal year will be
between zero and twice the Annual Base Bonus 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
performance levels referred to here 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 levels,
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 in any event no later than ninety
(90) days, following the end of each fiscal year of the Company, the
Compensation Committee 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 forthwith.
To the extent that unforeseen developments arise and make the performance
areas and performance levels previously agreed upon unachievable and
inappropriate as a measure of the performance of the Executive, the
Compensation Committee or the Board shall consider in good faith whether a
cash bonus should nevertheless be paid to the Executive for the applicable
fiscal year.

               (d) Absent separate agreement between the Executive and the
Company, for any fiscal year that ends after the end of the Employment Period,
a pro-rated annual bonus shall be payable to the Executive based on the
portion of such fiscal year that shall have elapsed to the end of the
Employment Period, the methodology referred to above, and the reasonable, good
faith determination of the Compensation Committee or the Board of the extent
to which reasonably proportionate progress toward achievement of the
applicable performance levels was made from the beginning of such fiscal year
to the date the Employment Period ended.

        5.     Stock Options. As further compensation, and in addition to the
stock options that were issued to the Executive pursuant to the August 2000
Agreement (which shall remain outstanding and shall be and become exerciseable
in accordance with their terms), the Company






                                      3



is granting to the Executive new options to purchase additional shares of
common stock of the Company (the "New Options") as follows:

        (a) All of the New Options shall be deemed granted and issued (and are
hereby so granted) on the Amendment Date, provided that this grant and
issuance, and the effectiveness of the New Options, are subject to approval by
the shareholders of the Company, on or before July 31, 2002, of the Nastech
Pharmaceutical Company, Inc. 2002 Stock Option Plan (the "Option Plan"), which
has been approved and adopted by the Board. The New Options are issued under
and pursuant to the Option Plan.

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

        (c) Among the New Options, options for the maximum permissible number
of shares shall be 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 are issued with the minimum
per-share exercise price consistent with tax-advantaged treatment of those
options as ISOs under the Tax Laws. Those ISOs shall be among the New Options
referred to in each of the clauses "i," "ii," "iii," "iv," and "v" in
paragraph "f" below in this Section 5, with the numbers of shares for which
such ISOs will be exerciseable under each of those clauses being 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 provided in those clauses
respectively.

        (d) The remainder of the New Options shall be non-statutory stock
options and shall be issued with a per-share exercise price equal to the per
share closing price of common stock of the Company on the Nasdaq National
Market on the Amendment Date except that those referred to in clause "v" of
paragraph "f" of this Section 5, which will vest (if at all), only on January
1, 2006, shall have an exercise price of Twenty-Five Dollars ($25.00) per
share.

        (e) The exercise prices of the New Options and the numbers of shares
that may be purchased upon exercise of the New Options shall be subject to
customary anti-dilution adjustments.

        (f) The New Options, in the aggregate, shall grant the right to
purchase a total of nine hundred thousand (900,000) shares of common stock of
the Company, and they shall vest and become exerciseable on the dates set
forth in the following clauses (or as expressly stated elsewhere in this
Agreement in the event of certain circumstances and events provided for
herein):

               (i) New Options for 200,000 shares (some of which shall be ISOs
and some of which shall be non-statutory stock options, as provided above) are
vested and exerciseable as of the Amendment Date;

               (ii) New Options for another 200,000 shares (some of which
shall be ISOs and some of which shall be non-statutory stock options, as
provided above) shall vest and become exerciseable if Executive's employment
by the Company or by an affiliate of the Company continues on August 8, 2003;




                                      4





                      (iii) New Options for another 200,000 shares (some of
which shall be ISOs and some of which shall be non-statutory stock options, as
provided above) shall vest and become exerciseable if Executive's employment
by the Company or by an affiliate of the Company continues on August 8, 2004;

                      (iv) New Options for another 200,000 shares (some of
which shall be ISOs and some of which shall be non-statutory stock options, as
provided above) shall vest and become exerciseable if Executive's employment
by the Company or by an affiliate of the Company continues on August 8, 2005;

                      (v) New Options for another 100,000 shares (some of
which shall be ISOs and some of which shall be non-statutory stock options, as
provided above) shall vest and become exerciseable on January 1, 2006 if (A)
Executive's employment by the Company or by an affiliate of the Company
continues on December 31, 2005 and (B) on or before December 31, 2005, the
Company and the Executive shall have agreed in writing to continue the
employment of Executive by the Company or by an affiliate of the Company on a
substantially full time basis (and on such other terms as they may agree)
until at least December 31, 2007.

               (g) Except for those that are ISOs as described above, the New
Options shall be transferable by Executive to a trust for the benefit of
Executive and/or member(s) of his immediate family and/or to a partnership,
limited liability company, and/or other entity owned by Executive and/or by
member(s) of his immediate family. The terms of the New Options shall include
customary provisions for, among other things, the ability of the Executive, if
he so chooses, (A) to pay the exercise price for the options via a
same-day-sale exercise arrangement and/or a margin account exercise
arrangement with a broker-dealer or bank and/or loan or deferral arrangements
with the Company and/or (B) to surrender shares (either previously outstanding
shares or shares being purchased by exercise of options) to the Company at
fair market value for payment of the minimum amount required to satisfy all
withholding requirements and/or to pay all or a part of the exercise price by
surrender to the Company, at fair market value, of shares of the Company's
common stock that shall then have been owned for at least six months by
Executive and/or by a trust, partnership, limited liability company, or other
entity for the benefit of, or owned by, Executive and/or member(s) of his
immediate family.

               (h) 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 and issuance. The Company shall cause the
shares of Common Stock issuable upon the exercise of the New Options to be
registered under the Securities Act of 1933 within ninety (90) days after the
Amendment Date pursuant to a Form S-8 or such other form as may be available
for such purpose; and the Company shall use its best efforts to maintain such
registration, or a substantially similar registration, in effect for such
shares and to maintain the similar registration of the shares of Common Stock
issuable under the options issued to the Executive pursuant to the August 2000
Agreement.

        6.     Benefits.  During the Employment Period, the Company shall
provide or cause to be provided to the Executive such employee benefits as are
provided to other officers of the Company.  Without limiting the preceding
sentence, the benefits provided to the Executive shall include at least family
medical and dental, disability, and life insurance.


                                      5





        7.     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.

        8.     Term; Employment Period. The "Employment Period" under this
Agreement shall commence on the Amendment Date and shall terminate at the
close of business on December 31, 2005 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 9. If the Executive shall remain in substantially
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.

        9.     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 may be terminated by his
death or disability. Termination of Executive's employment hereunder as
provided here 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 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 9 shall have the meanings provided for them
respectively:

                      (i) "Good Reason" shall mean (i) any substantial
diminution in the Executive's responsibilities; (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 3 or 4 above, or to honor promptly
any of its obligations or commitments regarding stock options or other
benefits referred to in Sections 5 or 6 above, or to honor promptly any of its
other material obligations hereunder; (iii) a demotion in the Executive's
title or status; or (iv) at any time prior August 8, 2005, either (or both) of
the Executive and the nominee of the Executive described in Section 2(a)
hereof (and subject to change as provided there) is not elected as a director
of the Company, in the case of both such individuals, or as Chairman of the
Board, in the case of the Executive (unless due to death or resignation of
such individual or, in the case of the nominee only, lost election as a result
of the vote against such nominee of non-affiliates of the Company if such vote
represents the majority of votes cast).

                      (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 Board if such failure of
performance or compliance is not cured within thirty (30) days following






                                      6






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
December 31, 2005, the effective date of the termination as provided in
Section 9(a) hereof; or (iv) if this Agreement expires by its terms, December
31, 2005.

        10.    Severance

               (a) Subject to Section 19 hereof, if (i) the Company terminates
the employment of the Executive prior to December 31, 2005 against his will
and without Cause, or (ii) the Executive terminates his employment prior to
December 31, 2005 for Good Reason, then (A) Executive shall be entitled to
receive base salary, incentive cash compensation (determined on a pro-rated
basis as provided in Section 4(d) hereof), pay for accrued but unused vacation
time, and reimbursement for expenses pursuant to Section 11 hereof through the
Termination Date plus the balance of the Executive's compensation hereunder to
December 31, 2005 computed using the base salary rate in effect at the date of
the termination, and (B) notwithstanding the vesting and exercisability
provisions otherwise applicable to the New Options, all of such options shall
be fully vested and exercisable upon such termination and shall remain
exercisable for the remainder of their terms, and (C) the vesting and
exercisability of the stock options issued pursuant to the August, 2000
Agreement shall be accelerated as provided in that agreement. The Company
shall make the cash portion of such termination payment within 30 days after
such termination. Notwithstanding the foregoing, the Company shall not be
required to pay any severance pay for any period following the Termination
Date if the Executive materially violates the provisions of Section 16,
Section 17 or Section 18 of this Agreement and such violation is not cured
within thirty (30) day following receipt of written notice from the Company
containing a description of the violation and a demand for immediate cure.

               (b) Subject to Section 19 hereof, if the Executive voluntarily
terminates his employment prior to December 31, 2005 other than for Good
Reason, then the Executive shall be entitled to receive salary, accrued
vacation, and reimbursement of expenses pursuant to Section 11 hereof through
the Termination Date only; vesting of the New Options shall cease on such
Termination Date; and only the then-vested New Options (and options issued
pursuant to the August 2000 Agreement if and to the extent that their terms or
the terms of the associated plan so provide) shall remain vested and
exerciseable for the remainder of their terms.





                                      7


               (c) Subject to Section 19 hereof, if the Executive's employment
is terminated by the Company prior to December 31, 2005 for Cause, then the
Executive shall be entitled to receive salary, accrued vacation, and
reimbursement of expenses pursuant to Section 11 hereof through the
Termination Date only; vesting of the New Options shall cease on such
Termination Date; any unexercised New Options, whether or not vested, shall
terminate; and the options issued pursuant to the August 2000 Agreement shall
remain exerciseable or shall terminate as provided in such options or in the
associated plan.

               (d) Subject to Section 19 hereof, if the Executive's employment
is terminated prior to December 31, 2005 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
11 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 such death or disability occurs (determined as
provided in Section 4(d) hereof); and (iii) a lump sum, payable within 30 days
after the termination date, 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 New Options shall cease on such Termination Date, and
only the then-vested New Options (and options issued pursuant to the August
2000 Agreement if and to the extent applicable) shall remain vested and
exerciseable for the remainder of their terms.

               (e) In addition to the provisions of Sections 10(a), 10(b) or
10(c) hereof, as the case may be, to the extent COBRA shall be applicable to
the Company 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.

               (f) Subject to Section 19 hereof, the Executive acknowledges
that, upon termination of this employment, he is entitled to no other
compensation, severance or other benefits other than those specifically set
forth in this Agreement.

        11.    Expenses. The Company shall pay or reimburse the Executive for
all expenses normally reimbursed by Company 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. Without limiting the
foregoing, the Company shall continue to provide Executive with up to Five
Thousand Dollars ($5,000.00) per month for local living expenses occasioned by
or associated with Executive's service for the Company for all periods until
the office is fully operational in the Seattle, Washington area.

        12.    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.

        13.    Mitigation not Required. In the event this Agreement is
terminated, the Executive shall not be required to mitigate amounts payable
pursuant hereto by seeking other employment or otherwise. The Executive's
acceptance of any such other employment shall not diminish or impair the
amounts payable to the Executive pursuant hereto.


                                      8






        14.    Place of Performance. The Executive shall perform his duties at
such locations as the Executive may reasonably choose, provided that the
Executive shall make reasonable efforts to accommodate the Company's needs and
considerations of efficiency in this regard, and provided further that, in
consultation and cooperation with the Executive, the Company shall expand its
research facilities at a location or locations reasonably acceptable to the
Executive in the Seattle, Washington area during 2002.

        15.    Insurance and Indemnity. With respect to his service hereunder,
the Company shall maintain, at its expense, customary officers and directors
liability insurance covering the Executive and, if such coverage is available
at reasonable cost, for all other executive officers and directors, in an
amount of no less than Five Million Dollars ($5,000,000). The Company shall
also indemnify the Executive, to the fullest extent permitted by law, from 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 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 15 shall survive the termination of the
Executive's employment hereunder and any termination of this Agreement.

        16.    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.

               (b) In addition, the Executive agrees that, for a period of six
months after the end of 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.






                                      9



               (c) Executive further agrees, for twelve months following the
end of 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 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
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.

               (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 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.    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
Employee during the Employment Period or (b) such discovery(ies), idea(s),
concept(s) and/or invention(s) are made by Employee 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. 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 provided
below. The Executive shall give the Company, its attorneys and solicitors, all
reasonable assistance in preparing and prosecuting such applications and, on
request of the Company, execute all papers and do all things that may 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 all actions
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 Four Hundred Dollars
($400) per hour; and all such activities shall be scheduled in a manner
reasonably convenient to the Executive.




                                      10





        18.    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 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 and that is/are owned by
the Company or its Subsidiaries ("Confidential Material"). The Executive
recognizes and acknowledges that included with the Confidential Material are
the following as they may specifically relate or be applicable to the drug
delivery business technology, or 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 18 if the Executive shall be specifically 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 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.

        19.    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 December
31, 2005 and within one year following the occurrence of such Change of
Control or (ii) prior to the date upon which all options granted to the
Executive pursuant to Section 5 hereof 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 10 hereof, salary, expense
reimbursement, and pay for unused vacation time through the termination date
and, in addition, the following:




                                      11





                      (i) Base Salary: A lump-sum amount equal to the greater
of (a) twelve (12) months of Executive's base salary as in effect at the date
of termination and (b) the balance of Executive's base salary compensation
hereunder to the end of the term of this Agreement, such amount to be paid to
the Executive within ten (10) days after the date of termination;

                      (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 as provided in Section
4(d) hereof and the Annual Base Bonus Amount for the following fiscal year
(regardless of satisfaction of any performance criteria or progress toward
such satisfaction), such amounts to be paid to the Executive within ten (10)
days after the date of termination; and

                      (iii) Other Benefits: Notwithstanding the vesting and/or
exercisability provisions otherwise applicable to the New Options and/or to
the stock options issued pursuant to the August 2000 Agreement, all stock
options ("options") granted Executive by the Company shall be fully vested and
exercisable upon a Change of Control and shall remain exercisable for the
remainder(s) of their term(s).

        (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 date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board, provided that any individual becoming a director
subsequent to the date hereof 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








                                      12









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 or 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

                      (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.

               (c) In the event that (i) the Executive becomes entitled to any
payments or benefits in connection with a Change of Control or the termination
of the Executive's employment, whether pursuant to the terms of this Agreement
or otherwise (collectively, the "Total Benefits"), and (ii) any of the Total
Benefits will be subject to the excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive from the Gross-Up Payment, after
the payment of all taxes on the Gross-Up Payment (including but not limited to
income, excise and employment taxes and any interest and penalties imposed
with respect to all such taxes), is equal to the Excise Tax on the Total
Benefits. For purposes of this Section 19(c), the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence (or of such
jurisdiction(s) as may apply income taxation to the Executive's income) at the
time the Gross-Up Payment is made.

               (d) All determinations required to be made under Section 19(c)
shall be made by tax counsel selected by the Executive and reasonably
acceptable to the Company ("Tax Counsel"), which determinations shall be
conclusive and binding on the Company and on the Executive absent manifest
error. Prior to any determination of the amount of any Gross-Up Payment
payable pursuant to Section 19(c), Tax Counsel shall provide the Executive and
the Company with a report setting forth its calculations and containing
related supporting





                                      13




information. All fees and expenses of Tax Counsel shall be borne solely by the
Company. In the event that, after a Gross-Up Payment is made pursuant to
Section 19(c), it is determined that the Excise Tax on the Total Benefits
exceeds the amount theretofore taken into account hereunder, the Company shall
promptly make an additional Gross-Up Payment (which shall be calculated by Tax
Counsel as set forth herein) to the Executive in respect of such excess (plus
any associated interest, penalties or additions payable by the Executive to
the Internal Revenue Service or any other federal, state, local or foreign
taxing authority).

        20.    Payment of Certain Costs of the Executive. Promptly from time
to time the Company shall pay directly (or promptly reimburse the Executive to
the extent that the Executive shall have paid) all actual legal, accounting,
and other fees and expenses that are or shall have been:

               (a) Incurred by the Executive in the preparation, revision,
and/or negotiation of this Agreement and/or

               (b) Incurred by the Executive as a result of a bona fide
dispute regarding the application of any provision of this Agreement,
including all such fees and expenses, if any, incurred in seeking to obtain or
enforce any right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the application of
Section 280G of the Tax Laws to any payment or benefit provided to the
Executive.

Such payments shall be made within five (5) business days after delivery to
the Company of the Executive's respective written requests for payment
accompanied by evidence of fees and expenses incurred by the Executive.

        21.    Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered or
certified mail, return receipt requested to his residence in the case of the
Executive, or to its principal office in the case of the Company, or to such
other addresses as they may respectively designate in writing.

        22.    Entire Agreement; Waiver. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and may
not be changed orally but only by an agreement 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.

        23.    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 assignee 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.

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

        25.    Governing Law; Arbitration. This agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
of the State of Washington applicable to contracts made and to be performed
wholly within such state. Any dispute or




                                      14




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.

        26.    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.

        27.    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.

        28.    Condition to Continued Effectiveness. This Agreement and the
obligations of the Executive and of the Company hereunder (other than the
obligations of the Company set forth below in this paragraph) are dependent
upon the approval by the shareholders of the Company, on or before July 31,
2002, of the Option Plan covering the issuance of the New Options. The Company
hereby agrees: (a) to solicit, and to use all reasonable efforts to secure,
such approval as soon as practicable and, in any event, prior to that date and
also (b) to prepare and deliver to the Executive, as soon as practical and, in
any event, prior to July 1, 2002, customary, mutually acceptable definitive
documentation memorializing the grant of the New Options on the terms provided
for herein and otherwise as provided in the Option Plan. If such shareholder
approval is not secured by the close of business on July 31, 2002, the Company
shall so notify the Executive promptly (in any event by August 5, 2002) and in
writing, this Agreement shall become null and void, and the terms of the
August 2000 Agreement shall apply without amendment hereby.

        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/ BRUCE R. THAW
                                  -----------------------
                               Print name: Bruce R. Thaw

                               Print title:  Secretary



      EXECUTIVE:
                                      /s/ STEVEN C. QUAY, M.D., Ph.D.
                                    ---------------------------------------
                                      Steven C. Quay, M.D., Ph.D.


                                      15