SECURITY AGREEMENT



        This SECURITY AGREEMENT (as amended, supplemented, amended and restated

or otherwise modified from time to time, this "Security Agreement"), dated as of

September 30, 2002, is made by NASTECH PHARMACEUTICAL COMPANY, INC., a Delaware

corporation (the "Grantor"), in favor of SCHWARZ PHARMA, INC., a Delaware

corporation (the "Beneficiary").



                              W I T N E S S E T H:



        WHEREAS, pursuant to that certain Loan Agreement, dated as of the date

hereof (as amended, supplemented, amended and restated or otherwise modified

from time to time, the "Loan Agreement"), among the Grantor and the Beneficiary,

the Beneficiary has extended commitments to the Grantor;



        WHEREAS, as a condition precedent to the Loan Agreement, the Grantor is

required to execute and deliver this Security Agreement; and



        WHEREAS, the Grantor has duly authorized the execution, delivery and

performance of this Security Agreement;



        NOW, THEREFORE, for good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, the Grantor agrees, for the

benefit of Beneficiary, as follows:



                                    ARTICLE I



                                   DEFINITIONS



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

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

recitals, shall have the following meanings (such definitions to be equally

applicable to the singular and plural forms thereof):



        "Beneficiary" is defined in the preamble.



        "Best Efforts" is defined in the Asset Purchase Agreement.



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

Nascobal in the Territory.



        "Collateral" is defined in Section 2.1.



        "Collateral Account" is defined in Section 4.1.2(b).



        "Computer Hardware and Software Collateral" means, in each case to the

extent that they are used in the Business:







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               (a) all computer and other electronic data processing hardware,

        integrated computer systems, central processing units, memory units,

        display terminals, printers, features, computer elements, card readers,

        tape drives, hard and soft disk drives, cables, electrical supply

        hardware, generators, power equalizers, accessories and all peripheral

        devices and other related computer hardware;



               (b) all software programs (including, both source code, object

        code and all related applications and data files), whether now owned,

        licensed or leased or hereafter acquired by the Grantor, designed for

        use on the computers and electronic data processing hardware described

        in clause (a) above;



               (c) all firmware associated therewith;



               (d) all documentation (including flow charts, logic diagrams,

        manuals, guides and specifications) with respect to such hardware,

        software and firmware described in the preceding clauses (a) through

        (c); and



               (e) all rights with respect to all of the foregoing, including

        any and all copyrights, licenses, options, warranties, service

        contracts, program services, test rights, maintenance rights, support

        rights, improvement rights, renewal rights and indemnifications and any

        substitutions, replacements, additions or model conversions of any of

        the foregoing.



        "Copyright Collateral" means all copyrights of the Grantor, whether

statutory or common law, registered or unregistered, now or hereafter in force

throughout the Territory including all of the Grantor's right, title and

interest in and to all copyrights registered in the United States Copyright

Office, and all applications for registration thereof, whether pending or in

preparation, all copyright licenses, the right to sue for past, present and

future infringements of any thereof, all rights corresponding thereto throughout

the Territory, all extensions and renewals of any thereof and all proceeds of

the foregoing, including licenses, royalties, income, payments, claims, damages

and proceeds of suit, in each case to the extent that they are used in the

Business.



        "Equipment" is defined in clause (b) of Section 2.1.



        "Grantor" is defined in the preamble.



        "Intellectual Property Collateral" means, collectively, the Computer

Hardware and Software Collateral, the Copyright Collateral, the Patent

Collateral, the Trademark Collateral and the Trade Secrets Collateral.



        "Inventory" is defined in clause (c) of Section 2.1.



        "Loan Agreement" is defined in the first recital.



        "Patent Collateral" means, in each case only to the extent that they are

used in the Business:







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               (a) all letters patent and applications for letters patent

        throughout the Territory, including all patent applications in

        preparation for filing anywhere in the Territory and including each

        patent and patent application referred to in Item A of Schedule II

        attached hereto;



               (b) all reissues, divisions, continuations,

        continuations-in-part, extensions, renewals and reexaminations of any of

        the items described in clause (a);



               (c) all patent licenses, including each patent license referred

        to in Item B of Schedule II attached hereto; and



               (d) all proceeds of, and rights associated with, the foregoing

        (including license royalties and proceeds of infringement suits), the

        right to sue third parties for past, present or future infringements of

        any patent or patent application, including any patent or patent

        application referred to in Item A of Schedule II attached hereto, and

        for breach or enforcement of any patent license, including any patent

        license referred to in Item B of Schedule II attached hereto, and all

        rights corresponding thereto throughout the Territory.



        "Permits and Approvals" means the NDA, the INDs, any future New Drug

Approvals or Investigational New Drug Approvals filed with the FDA with respect

to the Business and all other regulatory filings, registrations and governmental

authorizations that relate to the Business.



        "Receivables" is defined in clause (d) of Section 2.1.



        "Related Contracts" is defined in clause (d) of Section 2.1.



        "Security Agreement" is defined in the preamble.



        "Trademark Collateral" in each case to the extent they are used in the

Business:



               (a) all trademarks, trade names, corporate names, company names,

        business names, fictitious business names, trade styles, service marks,

        certification marks, collective marks, logos, other source of business

        identifiers, prints and labels on which any of the foregoing have

        appeared or appear, designs and general intangibles of a like nature

        (all of the foregoing items in this clause (a) being collectively called

        a "Trademark"), now existing anywhere in the Territory or hereafter

        adopted or acquired, whether currently in use or not, all registrations

        and recordings thereof and all applications in connection therewith,

        whether pending or in preparation for filing, including registrations,

        recordings and applications in the United States Patent and Trademark

        Office or in any office or agency of the United States of America or any

        State thereof, including those referred to in Item A of Schedule III

        attached hereto;



               (b) all Trademark licenses, including each Trademark license

        referred to in Item B of Schedule III attached hereto;







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               (c) all reissues, extensions or renewals of any of the items

        described in clauses (a) and (b);



               (d) all of the goodwill of the business connected with the use

        of, and symbolized by the items described in, clauses (a) and (b); and

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