SecProbe.io

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<TYPE>CORRESP
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Via U.S. Mail
  and EDGAR

November 11, 2005

Mr. Jim B. Rosenberg and Mr. Oscar Young
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

RE:     NASTECH PHARMACEUTICAL COMPANY INC.
        AMENDMENT #1 TO FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2004
        (THE "FORM 10-K/A")
        FILED APRIL 29, 2005
        FILE NO. 000-13789

Dear Mr. Rosenberg and Mr. Young:

        We are responding to your further questions left via voice message by
Mr. Young on October 27, 2005 regarding Issue 2 from your September 14, 2005
letter of comment relating to our 2004 Form 10-K/A. In a follow-up phone call on
October 31, 2005 with Ms. Ino of your office, we agreed that a response by
November 11, 2005 would be acceptable.

THE INITIAL QUESTION WAS:

        PLEASE TELL US WHY IT WAS APPROPRIATE TO ALLOCATE $5 MILLION TO DEFERRED
REVENUE AND $5 MILLION TO (OR $20 PER SHARE) EQUITY. AS THE MARKET VALUE OF YOUR
COMMON STOCK DURING THAT MONTH APPEARS TO HAVE BEEN SIGNIFICANTLY LESS THAN $20
PER SHARE, IT IS UNCLEAR HOW THAT ALLOCATION WAS APPROPRIATE. PLEASE ALSO CITE
THE LITERATURE SUPPORTING YOUR ALLOCATION.

OUR TRANSCRIPTION OF MR. YOUNG'S FURTHER QUESTION LEFT ON VOICEMAIL WAS:

        WERE THERE ANY DIFFERENCES IN THE RIGHTS AND PRIVILEGES OF THE STOCK
THAT WAS ISSUED TO PHARMACIA COMPARED TO YOUR COMMON STOCK THAT IS BEING
PUBLICLY TRADED?

        MR. YOUNG INDICATED THAT YOUR OFFICE BELIEVED THAT IF THERE WERE NOT
SUBSTANTIAL DIFFERENCES BETWEEN THE TWO, THAT YOU BELIEVED THAT IT WOULD HAVE
BEEN APPROPRIATE TO TAKE THE FAIR VALUE OF THE STOCK AT THE DATE THAT IT WAS
TRANSFERRED (AND RECORD THAT PORTION AS EQUITY), AND THE INCREMENTAL PROCEEDS
WOULD BE ATTRIBUTABLE TO REVENUE OF THE LICENSE COMPONENT. PLEASE PROVIDE
ADDITIONAL CLARIFICATION AND CITE ACCOUNTING LITERATURE SUPPORTING YOUR
CONCLUSION.

        MR. YOUNG ALSO OFFERED TO HAVE A CONFERENCE CALL TO DISCUSS OUR
ARGUMENTS. WE WOULD LIKE TO SCHEDULE A CALL WITH YOU AFTER YOU HAVE HAD AN
OPPORTUNITY TO REVIEW THIS RESPONSE LETTER. MY PHONE NUMBER IS (425) 908-3614.

RESPONSE:

        The common stock sold to Pharmacia had no different rights or privileges
compared to our publicly traded common stock.

        We would, however, like to add further discussion and background
supporting our accounting for the entire $5 million payment (250,000 shares at
$20.00) as equity rather than recognizing revenue for any portion considered
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to be a premium over the price of our publicly traded shares. We will discuss
the background and final resolution of the transaction, explain date differences
in our periodic reporting disclosures, analyze key events and the stock prices
at the dates of those events and describe why we believe that our reporting of
the equity premium was reasonable and appropriate. We believe that the facts and
circumstances support the accounting that has been reported.

BACKGROUND OF THE TRANSACTION AND FINAL RESOLUTION OF THE TRANSACTION IN 2001,
2002 AND 2003:

        Our product, Apomorphine, was to be a nasal formulation of a drug for
male sexual dysfunction. There are three major drugs for this indication on the
market today, Viagra(R) from Pfizer Inc, Levitra(R) from Bayer Pharmaceuticals
Corporation, GlaxoSmithKline and Schering Corporation and Cialis(R) from Lilly
ICOS LLC. Discussions of collaboration on Apomorphine with Pharmacia began in
2001 and culminated in the February 1, 2002 Collaboration and License Agreement
(the "License Agreement") that included the purchase of equity securities for
$5 million with separate terms included in an investment agreement. As 2002
progressed, Pharmacia reimbursed us for R&D costs and paid us additional
milestones. In late 2002 Pharmacia announced a merger with Pfizer, and since
Pfizer owned rights to Viagra(R), they were forced for antitrust purposes to
divest the Apomorphine product. On January 23, 2003 we entered into a
divestiture agreement with Pharmacia. We reacquired all rights to Apomorphine
subject to the License Agreement. Pharmacia returned Apomorphine to us in March,
2003, along with substantial cash payments to pay for future R&D.
(Pharmacia/Pfizer held the 250,000 shares of stock until July 2005, when they
sold their investment.)

        For revenue recognition purposes, we began to amortize an initial $3
million (and a secondary $2 million) license fee received from Pharmacia over
the estimated development period starting in the three months ended March 31,
2002. We accelerated and completed recognition of the remaining deferred revenue
during the three months ended March 31, 2003, the period during which the
collaboration ended and when the product was returned to us. During 2002 and
2003, we recognized $1,749,000 and $3,251,000, respectively, in license fee
revenue related to these payments.

SELECTED PERIODIC DISCLOSURE TO THE PUBLIC OF THE DATES OF THE EQUITY
TRANSACTION:

        At the end of 2002 our financial statement note disclosure was changed
to use the cash transaction date of "March 2002" as the disclosure date for the
stock investment rather than the contract date of "February 2002" as was
initially used in the 2001 Form 10K. The March 2002 date was when the cash
transferred and shares issued after the Hart-Scott-Rodino antitrust reviews had
been completed. The following table lists disclosures we have made over time:

<TABLE>
<S>                               <C>

2001 10K MD&A (Liquidity &        "As part of the licensing agreement we entered into with Pharmacia &
      Cap. Resources)             Upjohn Company in FEBRUARY 2002..., Pharmacia agreed to purchase 250,000
                                  shares of our common stock for $5.0 Million. Pharmacia will make this
                                  investment shortly after all the conditions in the Pharmacia investment
                                  agreement have been satisfied,  including the expiration or termination of
                                  the applicable waiting period under the Hart-Scott-Rodino Antitrust
                                  Improvements Act of 1975 relating to the Pharmacia investment."

2001 10K Financial Statement      "On FEBRUARY 1, 2002, we entered into a licensing agreement with
      Note 16 Subs. Event         Pharmacia & Upjohn Company (Pharmacia)...Pharmacia will also purchase
                                  250,000 shares of the Company's common stock for $5.0 million."

2002 10K Financial Statement      "Pharmacia purchased 250,000 shares of the Company's common stock for
     Note 11                       $5.0 million in MARCH 2002."

2003 10K Financial Statement       "In MARCH 2002, the Company sold 250,000 shares of common stock to Pharmacia &
     Note 7                        Upjohn Company (Pfizer) for $20.00 per share in conjunction with the Collaboration
                                   and License Agreement dated February 1, 2002 between the Company and Pharmacia. The
                                   sale yielded $5.0 million in cash to the Company."

2004 10K Financial Statement      "In MARCH 2002, the Company sold 250,000 shares of common stock for $5 million in cash
     Note 9                        to Pharmacia at $20.00 per share in conjunction with the February 2002 Collaboration
                                   and License Agreement between the Company and Pharmacia

</TABLE>

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        We believe that the migration from the contract date of February 1, 2002
in our initial disclosures to the March 2002 transfer date in later disclosures
may have exaggerated the appearance of any premium on this transaction since the
trading price of Nastech stock was lower in mid-March 2002 compared to late
January 2002. This exaggerated price differential is shown below.

STOCK PRICE INFORMATION:

        The following table indicates certain dates, events, stock prices and
mathematical premium calculations surrounding this transaction:

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<CAPTION>

                                                                                                        MATHEMATICAL
                                                         CLOSING      $20 PREMIUM     PREMIUM % OF      PREMIUM OF
        DATE                     EVENT                 STOCK PRICE    DIFFERENTIAL    CLOSING PRICE    THE $5 MILLION
----------------      -----------------------          -----------    ------------    -------------    --------------
<S>                   <C>                              <C>            <C>             <C>              <C>

December 2001         Volume-weighted average price      $13.95          $6.05             43%          $1,515,500
                         (Sec 8.2 of Lic. Agmt.)

January 16, 2002      Negotiation meetings concluding    $18.27          $1.83              9%           $ 457,500

January 31, 2002      Last stock price before signing    $17.09          $2.91             17%           $ 727,500

FEBRUARY 1, 2002      CONTRACT SIGNED                    $18.00          $2.00             11%           $ 500,000

March 12, 2002        HSR Approval received              $13.80          $6.20             45%          $1,550,000

March 18, 2002        Cash received from                 $15.45          $4.55             29%          $1,450,000
                         Pharmacia
</TABLE>

        We believe that there was nothing in the equity transaction that should
be reported as revenue of the license transaction. We note that the equity and
licensing transactions were executed through separate agreements between the
parties, and the execution and performance of either agreement was neither a
condition nor a covenant of the other.

        Further, we do not believe the premium over the market price of our
publicly traded stock was unusual. In general, for any buyer to acquire such a
large number of shares on the open market (approximately 3% of our outstanding
shares) the stock price would be bid up dramatically prior to completion of the
transaction. The average daily trading volume for Nastech common stock in
January 2002 was 176,600, and in February was 118,750. During the negotiations,
Pharmacia was given a single transaction taking this block trade pricing into
account. (See FTB 85-6 comments below.)

         Also, in determining the amount of such a premium, we believe that any
such calculation should be based on the date when the premium over the market
price was fixed - the date that a performance commitment was reached. In this
case, the date the price was fixed was the date the contract was signed,
February 1, 2002. The December and March dates become irrelevant to any premium
calculation - an analogy would be the purchase of a house by contract - the
price is set at the end of negotiations, not during the initial talks or when
the closing occurs some weeks later and the transaction recorded. (See EITF
00-8, SFAS 141 and EITF 99-12 comments below.)

        The December dates are included in this table because they were referred
to in Section 8.2 of the License Agreement. There was a sentence in this
agreement noting that the price was at a 43% premium to the December 2001 volume
weighted average price. This language was inserted into the contract during the
negotiations on January 16, 2002 by Pharmacia lawyers, we believe, for purposes
of potential future downward negotiation in the final phases. Since the price
increased in the next few days, no changes were made, and the language was
apparently not removed as it was indeed accurate. However, it did not reflect
the more current pricing of the shares in the marketplace at that time at close
to $18.00.

        Ultimately, we believe that accounting for the premium as revenue would
have over-stated revenue and earnings during the 2002 and early 2003 periods
since these equity dollars were not related to the earnings process and would
not have followed the substance of the negotiated transaction. After analyzing
the nature of the transaction, the facts around the negotiations with Pharmacia
and after considering the accounting by other biotechnology firms with similar
transactions, the Company believes that the substance of the transaction
appropriately accounted for the issuance of equity at the agreed upon price of
$20. Further, the $3 million non-
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refundable cash payment was received for the revenue transaction in the first
week of February 2002. If the equity transaction had never closed due to HSR or
other reasons, the licensing agreement would have continued pursuant to its
contract terms. We believe that ascribing additional value to the revenue
transaction would have been inappropriate and misleading.

ADDITIONAL ACCOUNTING CITATIONS AND COMMENTS:

     We considered guidance in the literature surrounding capital transactions
which generally would indicate that unless there is evidence to the contrary,
proceeds from the issuance of common stock solely for cash are assumed to equal
the fair value of the shares issued. Additionally, we believe that it is general
practice that shareholders' equity transactions are not to be recorded until an
exchange or payment has taken place. This supports the March dating for the
transaction date (but not the measurement date) as the actual recording of stock
transactions may not be completed until payment has been received.

        FASB TECHNICAL BULLETIN 85-6, ACCOUNTING FOR A PURCHASE OF TREASURY
        SHARES AT A PRICE SIGNIFICANTLY IN EXCESS OF THE CURRENT MARKET PRICE OF
        THE SHARES AND THE INCOME STATEMENT CLASSIFICATION OF COSTS INCURRED IN
        DEFENDING AGAINST A TAKEOVER ATTEMPT ("FTB 85-6")

        We noted that in FTB 85-6 regarding treasury stock, if stock is
issued solely for cash but the proceeds are not consistent with the fair value
of the stock (in this case, the mathematical premium paid by Pharmacia over the
publicly traded market price), the entity should determine whether the
transaction involves a stated or unstated right, privilege, or obligation for
which there should be separate accounting. There was no stated or unstated
right, privilege or obligation associated with the equity investment in this
transaction.

        Paragraph 15 of FTB 85-6 states "Transactions do arise, however, in
which an acquisition of an enterprise's stock may take place at prices different
from routine transactions in the open market. For example, to obtain the desired
number of shares in a tender offer to all or most shareholders, the offer may
need to be at a price in excess of the current market price. In addition, a
block of shares representing a controlling interest will generally trade at a
price in excess of market, and a large block of shares may trade at a price
above or below the current market price depending on whether the buyer or seller
initiates the transaction. A company's acquisition of its shares in those
circumstances is solely a treasury stock transaction properly accounted for at
the purchase price of the treasury shares. Therefore, in the absence of stated
or unstated consideration in addition to the capital stock, the entire purchase
price should be accounted for as the cost of treasury shares." We believe that
this language by analogy would apply to investment transactions as well as to
treasury transactions, and that it provides support for the accounting as filed
by the Company. We noted that FTB 85-6 does not define a "price significantly in
excess of the current market price of the shares" which we believe leaves this
determination to management's judgment of the facts and circumstances of each
transaction. In a company such as ours, where the average daily trading volume
was quite small in early 2002, a party seeking to acquire approximately 3%, or
$5 million worth of our common stock would likely have had to pay more than