LOAN AGREEMENT



        This LOAN AGREEMENT, dated as of September 30, 2002, is among NASTECH

PHARMACEUTICAL COMPANY, INC., a Delaware corporation (the "Borrower"), and

SCHWARZ PHARMA, INC., a Delaware corporation (the "Lender").



                              W I T N E S S E T H:



        WHEREAS, Borrower and Lender entered into that certain License and

Supply Agreement, dated July 15, 1997 (as amended on November 24, 2000, the

"License Agreement") in respect of the pharmaceutical product Nascobal; and



        WHEREAS, on September 30, 2002, Borrower and Lender entered into that

certain Asset Purchase Agreement (the "Asset Purchase Agreement") for the sale

to Borrower of Lender's right, title and interest in and to Nascobal arising

under the License Agreement; and



        WHEREAS, Borrower desires to obtain a Loan from Lender in order to pay

the unpaid portion of purchase price due to Lender pursuant to the Asset

Purchase Agreement; and



        WHEREAS, Lender is willing, on the terms and subject to the conditions

hereinafter set forth (including Article V), to make such Loan to Borrower;



        NOW THEREFORE, in consideration of the premises, the mutual promises

made herein and for other good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:



                                    ARTICLE I



                        DEFINITIONS AND ACCOUNTING TERMS



        SECTION 1.1. Defined Terms. The following terms (whether or not

underscored) when used in this Agreement, including its preamble and recitals,

shall, except where the context otherwise requires, have the following meanings

(such meanings to be equally applicable to the singular and plural forms

thereof):



        "Affiliate" of any Person means any other Person which, directly or

indirectly, controls, is controlled by or is under common control with such

Person. A Person shall be deemed to be "controlled by" any other Person if such

other Person possesses, directly or indirectly, power to vote 50% or more of the

securities (on a fully diluted basis) having ordinary voting power for the

election of directors or managing general partners.



        "Agreement" means, on any date, this Loan Agreement as originally in

effect on the Effective Date and as thereafter from time to time amended,

supplemented, amended and restated, or otherwise modified and in effect on such

date.



        "Annual Net Sales" means, for any Year, the Net Sales for such Year.







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        "Business" means the development, manufacturing, marketing, sale and

distribution of Nascobal in the Territory.



        "Business Day" means any day which is neither a Saturday or Sunday nor a

legal holiday on which banks are authorized or required to be closed in Seattle,

Washington or Milwaukee, Wisconsin.



        "CERCLA" means the Comprehensive Environmental Response, Compensation

and Liability Act of 1980, as amended.



        "Code" means the Internal Revenue Code of 1986, as amended, reformed or

otherwise modified from time to time.



        "Collateral" is defined in the Security Agreement.



        "Controlled Group" means all members of a controlled group of

corporations and all members of a controlled group of trades or businesses

(whether or not incorporated) under common control which, together with

Borrower, are treated as a single employer under Section 414(b) or 414(c) of the

Code or Section 4001 of ERISA.



        "Constating Documents" shall mean the certificate of incorporation and

bylaws of Borrower.



        "Contingent Liability" means any agreement, undertaking or arrangement

by which any Person guarantees, endorses or otherwise becomes or is contingently

liable upon (by direct or indirect agreement, contingent or otherwise, to

provide funds for payment, to supply funds to, or otherwise to invest in, a

debtor, or otherwise to assure a creditor against loss) the indebtedness,

obligation or any other liability of any other Person (other than by

endorsements of instruments in the course of collection), or guarantees the

payment of dividends or other distributions upon the shares of any other Person.

The amount of any Person's obligation under any Contingent Liability shall

(subject to any limitation set forth therein) be deemed to be the outstanding

principal amount (or maximum principal amount, if larger) of the debt,

obligation or other liability guaranteed thereby.



        "Default" means any Event of Default or any condition, occurrence or

event which, after notice or lapse of time or both, would constitute an Event of

Default.



        "Dollar" and the sign "$" mean lawful currency of the United States.



        "Effective Date" means the date this Agreement becomes effective

pursuant to Section 7.8.



        "Environmental Laws" means all applicable federal, state or local

statutes, laws, ordinances, codes, rules, regulations and guidelines (including

consent decrees and administrative orders) relating to public health and safety

and protection of the environment.



        "ERISA" means the Employee Retirement Income Security Act of 1974, as

amended, and any successor statute of similar import, together with the

regulations thereunder, in each case







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as in effect from time to time. References to sections of ERISA also refer to

any successor sections.



        "FDA" means the U.S. Food and Drug Administration or any successor

thereto.



        "FDCA" means the Food, Drug and Cosmetic Act, 21 U.S.C. 1 et seq., as

amended, or corresponding provisions of subsequent superseding federal laws.



        "F.R.S. Board" means the Board of Governors of the Federal Reserve

System or any successor thereto.



        "Hazardous Material" means



               (a) any "hazardous substance," as defined by CERCLA;



               (b) any "hazardous waste," as defined by the Resource

        Conservation and Recovery Act, as amended;



               (c) any petroleum product; or



               (d) any pollutant or contaminant or hazardous, dangerous or toxic

        chemical, material or substance within the meaning of any other

        applicable federal, state or local law, regulation, ordinance or

        requirement (including consent decrees and administrative orders)

        relating to or imposing liability or standards of conduct concerning any

        hazardous, toxic or dangerous waste, substance or material, all as

        amended or hereafter amended.



        "herein," "hereof," "hereto," "hereunder" and similar terms contained in

this Agreement or any other Loan Document refer to this Agreement or such other

Loan Document, as the case may be, as a whole and not to any particular Section,

paragraph or provision of this Agreement or such other Loan Document.



        "including" means including without limiting the generality of any

description preceding such term.



        "Indebtedness" of any Person means, without duplication:



               (a) all obligations of such Person for borrowed money and all

        obligations of such Person evidenced by bonds, debentures, notes or

        other similar instruments;



               (b) all obligations, contingent or otherwise, relative to the

        face amount of all letters of credit, whether or not drawn, and banker's

        acceptances issued for the account of such Person;



               (c) net liabilities of such Person under all interest rate swap

        agreements, interest rate cap agreements and interest rate collar

        agreements, and all other agreements or arrangements designed to protect

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