International Distribution Agreement

EFFECTIVE DATE: ____________________________


PARTIES: Nastech Pharmaceuticals Inc.,
45 Davids Drive
Hauppauge
New York 11788
USA
Fax no: 00 1 516 273 0252 ("Company")


Cambridge Selfcare Diagnostics Limited
Richmond House
Old Brewery Court
Sandyford Road
Newcastle-upon-Tyne, NE2 1XG
England
Fax no: (191) 261 0568 ("Distributor")


RECITALS:


Company and Distributor desire to establish a relationship in which Company will sell and Distributor will distribute in the Territory the Product manufactured and/or distributed by Company as specified herein.


AGREEMENT:


In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:-


1 Appointment as Distributor


1.1 Appointment


1.1.1 Subject to the terms and conditions of this Agreement, Company hereby
grants to Distributor the exclusive right to distribute the product
described in Exhibit A attached hereto (the "Product") in the
geographic territory described in Exhibit B attached hereto (the
"Territory").


1.1.2 Company shall have the right to discontinue the Product, to make
improvements to the Product and to materially change the design of
the Product without incurring any liability to Distributor. If
Company proposes to make an improvement to or materially alter the
design of the Product and such improvement or change in design is
likely to result in a need for an alteration in the regulatory
approval for the sale of


1 2


the Product in the Territory Company shall give Distributor at least
twelve (12) months prior written notice of such improvement to or
change in the design of the Product and shall provide Distributor
with copies of all correspondence with the FDA regarding the said
improvement or change in design. Company agrees to give Distributor
not less than six (6) months notice of discontinuance of the Product
or a change in the design or improvement of the Product which is not
likely to require a change in the regulatory approval for the sale of
the Product in the Territory.


1.1.3 If the future improvement or change in design necessitates a new
regulatory approval by a governmental agency in the Territory,
Company and Distributor shall each pay fifty per cent (50%) of the
cost to secure such new regulatory approval.


1.2 Sales Outside Territory


1.2.1 Distributor shall not (i) actively advertise, promote, market or
solicit customers for the Product outside the Territory; (ii)
establish an office outside the Territory through which orders for
the Product are solicited; or (iii) store any Product in a warehouse
or depot located outside the Territory.


1.2.2 If Distributor receives an unsolicited request from a customer
located in the European Community but outside the Territory for
supply of Product to that country, Distributor shall be entitled to
fulfill such a request.


1.2.3 If Distributor receives a request from a customer located outside the
European Community and outside the Territory for supply of the
Product Distributor shall forward such information to Company. If
Company has appointed a distributor for the country where the Product
will be delivered, the lead will be forwarded to such distributor. If
Company has not established a distributor in such country,
Distributor shall be allowed to finalise such sale, subject to the
provisions of sub-section 1.3 below.


1.3 Support Services for Supplementary Sales In the event Distributor
makes a sale to a customer located in the Territory for delivery
outside the Territory or to a customer located outside the Territory
in accordance with the terms and conditions of this Agreement,
Distributor will be required to provide support services to such
customer in relation to such sale. Such support services shall be the
provision of pharmacovigilance and drug information and the provision
of services as a "responsible party" as required by applicable
regulatory approval agencies. Distributor acknowledges that Company
may appoint a distributor in a country where Distributor has made
such supplementary sales and at such time Distributor shall be
required to forward future Product orders to such Company
distributor.


1.4 Exclusiveness The parties agree that the "exclusive" nature of the
foregoing appointment prohibits Company from itself selling the
Product in the Territory and from granting any third party the right
to sell the Product in the Territory. Company shall forward to
Distributor all requests and inquiries regarding sales of the Product
in the Territory.


2 3


1.5 Regulatory Approval


1.5.1 Distributor acknowledges that Meda AB, the Company's distributor in
Sweden, Denmark, Norway, Finland, Iceland, Estonia, Lithuania, Latvia
and Russia, is in the process of applying for marketing approval for
the Product in Sweden under the Mutual Recognition Process (MRP).
Company acknowledges that Meda AB will be responsible for filing the
MRP application for approval of the sale of the Product in the
Territory and that Distributor will have no direct influence over the
timing or conduct of the application. Company shall ensure that Meda
AB makes the MRP application pertaining to the Territory as soon as
possible after the grant of the MRP application in Sweden.
Distributor shall remunerate Meda AB for the services provided by
Meda AB in relation to the MRP application in the manner set forth in
the agreement between Distributor and Meda AB dated the day of
1998. Subject to the foregoing, Distributor agrees to use all
reasonable endeavours to acquire the appropriate regulatory approval
certificates, in Distributor's name or the name of Distributor's
nominated sub-distributor, from the government agencies in the
Territory as are necessary to sell the Product in the Territory. Save
as provided below Distributor shall pay any and all expenses incurred
in securing such regulatory approval. Company shall, at its expense,
give Distributor and Meda AB all reasonable assistance to acquire the
regulatory approval certificates and shall provide to the
Distributor:-


1.5.1.1 a copy of the existing regulatory dossier regarding the Product in
the possession of the Company and/or Meda AB and all other data
pertaining to the MRP application in Sweden for the Product; and


1.5.1.2 a copy of the consolidated file created subsequent to MRP approval in
Sweden; and


1.5.1.3 a copy of all information requested by the governmental regulatory
authorities and such other information as reasonably requested by
Distributor to secure registration of the Product in the Territory.


1.5.2 The parties acknowledge and agree that such regulatory approval
certificates shall be the property of Company and shall remain
Company's property upon termination of this Agreement for whatever
reason. Upon expiration or termination of this Agreement for
whatever reason Distributor agrees to promptly execute and deliver
all documents reasonably requested by Company that may be appropriate
or necessary to change the reference of the authorised distributor of
the Product in the Territory on the regulatory approval to the person
designated by Company.


1.5.3 In the event of termination of this Agreement before the expiration
of a period of two (2) years from the date when price and regulatory
approvals for the Product had been obtained in all countries in the
Territory, Company shall pay to Distributor, within thirty (30) days
of the date of termination, a sum equal to the amount actually and
reasonably expended by the Distributor to third parties in obtaining
said regulatory approvals.


3 4


1.5.4 In the event of termination of this Agreement after the expiration of
a period of two (2) years from the date when price and reimbursement
approvals for the Product had been obtained in all countries in the
Territory but before the expiration of a period of three (3) years
from the date when price and reimbursement approvals for the Product
had been obtained in all countries in the Territory, Company shall
pay to Distributor, within thirty (30) days of the date of
termination, a sum equal to fifty (50) per cent of the amount
actually and reasonably expended by the Distributor to third parties
in obtaining regulatory approvals for the Product in the Territory.


1.5.5 In the event of termination of this Agreement after the expiration of
a period of three (3) years from the date when price and
reimbursement approvals for the Product had been obtained in all
countries in the Territory but before the expiration of a period of
four (4) years from the date when price and reimbursement approvals
for the Product had been obtained in all countries in the Territory,
Company shall pay to Distributor, within thirty (30) days of the date
of termination, a sum equal to thirty (30) per cent of the amount
actually and reasonably expended by the Distributor to third parties
in obtaining regulatory approvals for the Product in the Territory.


1.5.6 In the event of termination of this Agreement after the expiration
of a period of four (4) years from the date when price and
reimbursement approvals for the Product had been obtained in all
countries in the Territory but before the expiration of a period of
five (5) years from the date when price and reimbursement approvals
for the Product had been obtained in all countries in the Territory,
Company shall pay to Distributor, within thirty (30) days of the date
of termination, a sum equal to fifteen (15) per cent of the amount
actually and reasonably expended by the Distributor to third parties
in obtaining regulatory approvals for the Product in the Territory.


1.5.7 Save as provided in this sub-clause, if, despite using reasonable
endeavours, the Distributor is unable to obtain regulatory approval
for the sale or distribution of the Product in any country or
countries in the Territory, the Distributor shall be entitled to
relinquish the rights to the Product for that country or those
countries and return those rights to the Company and Company shall
pay to the Distributor a sum equal to the amount actually and
reasonably expended by the Distributor in seeking regulatory
approvals for the sale of the Product in that country. Company shall
not be required to reimburse to Distributor, pursuant to this
sub-clause, the costs of any application for regulatory approval for
the sale of the Product in any country in the Territory other than
the first application for regulatory approval for the sale of the
Product in that country unless Company has given its approval to any
subsequent application being made.


1.6 Sub-distributors/Sub-licensees It is contemplated that Distributor
shall appoint or sublicense third party distributors in each country
Distributor shall notify the Company of the identity of its proposed
sub-distributor for approval by the Company, which approval shall not
be unreasonably withheld. In the event that the Distributor receives
an extraordinary payment from a sub-distributor in consideration of
the appointment of the sub-distributor as sub-distributor in any
country in the Territory (and specifically excluding any royalties or
payments made


4 5


or to be made in the ordinary course of business between the
Distributor and the sub-distributor and any reimbursement received by
the Distributor from any sub-distributor of any expenditure made by
distributor in relation to the section of the Territory in which the
sub-distributor is appointed), the Distributor shall pay to Company
fifty per cent (50%) of such extraordinary payment within 30 days
from the receipt of such payment by the Distributor. In the event
Distributor fails to identify a sub-distributor in a given country in
the Territory within 30 days from the date of pricing and
reimbursement approval for the Product in that country, the Company
shall have the right to remove that country from the Territory
covered by this Agreement. Each sublicense/sub-distribution agreement
shall conform and be subject to the terms and conditions of this
Agreement.


2 Term Unless terminated earlier pursuant to the terms of clause 17,
this Agreement shall commence as of the Effective Date set forth on
the first page hereof and shall continue for a period of ten (10)
years for the Product after the Product has received regulatory
approval for resale in the Territory. This Agreement may be renewed
for a further period of five (5) years after the expiration of its
initial term by the mutual written agreement of the parties.


3 Purchase of Product


3.1 Forecasts/Placement of Orders Six (6) months prior to the Product
receiving pricing and reimbursement approval for sale in all
countries in the Territory, Distributor shall provide to Company a
twelve (12) month rolling forecast of its requirements of the
Product, which forecast will be updated quarterly. Such forecasts
shall be provided in good faith but shall not be legally binding, on
either party, either as a minimum or maximum purchase or sale
requirement and, while in no way limiting the generality of the
foregoing, the amount forecast as required for the period immediately
after the grant of pricing and reimbursement approval in all
countries in the Territory shall be indicative only and dependent on
the grant of said pricing and reimbursement approval proceeding as
scheduled.


3.2 Distributor shall order the Product by delivering a written purchase
order to Company by facsimile or by mail. Company shall inform
Distributor of its acceptance or rejection of any purchase order
within fourteen (14) days after receipt. Company shall not reject any
order submitted by Distributor so long as (1) Distributor submits the
purchase order at least ninety (90) days prior to any requested
delivery date, (2) the purchase order requests supply of a quantity
of the Product within +/- 50% of the quantity forecast as being
required for that period in the immediately preceding rolling
forecast submitted by Distributor. In the first year of this
Agreement after pricing and reimbursement approval has been obtained
in all countries in the Territory the Distributor shall order
quantities of the Product in full lots of 7,000 bottles. In the
second year of this Agreement and in each year thereafter after
pricing and reimbursement approval has been obtained in all countries
in the Territory the Distributor may, at its discretion, order
quantities of the Product in full lots of either 7,000 or 14,000
bottles or multiples thereof. If the


5 6


above provisions are not met in the purchase order, the Company may
accept or reject such purchase order in its sole discretion.


3.3 Terms and Conditions This Agreement sets forth the sole contract
terms between the parties and shall apply to all orders. Company
rejects any terms in any Distributor order forms or other Distributor
documents which are different from or additional to the provisions
hereof and no such terms shall be binding upon Company
notwithstanding Company's acceptance and shipment of Product
specified in Distributor's order form containing such terms.


3.4 Distributor may order Product as and when required at the initial
price set forth in Exhibit C and Company shall supply such Product as
ordered prior to receipt of full marketing authorisation for all
countries in the Territory subject to Distributor complying with
relevant requirements of any relevant regulatory authorities in the
country. Any Product supplied under this clause shall comply with the
FDA approval in all respects save for requirements of packaging and
labelling.


4 Prices


4.1 Save as provided below Company shall sell the Product to Distributor
FOB Company's plant in New York, USA at the prices set forth on
Exhibit C attached hereto. The Distributor shall be responsible for
insurance and freight costs. Risk in any consignment of the Product
shall pass to the Distributor once said consignment is loaded onto
transportation in New York, USA.


4.2 Save as provided below, Company shall have the right to increase such
prices no more than once during each twelve (12) month period during
the term of this Agreement by an amount up to, but not exceeding, (1)
the amount of any increase in manufacturing cost of the Product
experienced by Company, including, without limitation, overhead
allocations or (b) the amount of any increase in the UK
Manufacturer's Prices "All Manufactured Product" Index published by
the Central Statistical Office of the United Kingdom, whichever is
the lesser. Company shall provide Distributor with at least one
hundred and eighty (180) days advance written notice of any such
price increase together with substantiation of the price increase.


4.3 If Distributor experiences direct competition in the Territory and
believes the prices established in this Agreement do not allow
Distributor a sufficient profit margin, Company agrees to discuss
with Distributor the potential for country specific pricing.


4.4 Save as provided in clause 4.7, in the event that either:-


4.4.1 the average price, over all countries in the Territory, at which the
Distributor or the sub-distributor sells the Product to third parties
other than sub-distributors (hereinafter "the Average Price") decreases
each year for three consecutive years; or


4.4.2 the Average Price decreases in any one year of the agreement by more than
ten


6 7


percent (10%)


the price at which the Product is sold by the Company to the Distributor shall
be amended to (i) thirty two per cent (32%) of the Average Price if four
hundred and eighty thousand units (480,000) of the Product or more have
been ordered by the Distributor from the Company; or (ii) thirty six per
cent (36%) of the Average Price if less than four hundred and eighty
thousand units (480,000) but one hundred and twenty thousand (120,000) or
more units of the Product have been ordered by the Distributor from the
Company; or (iii) forty per cent (40%) of the Average Price if less than
one hundred and twenty thousand (120,000) units of the Product have been
ordered by the Distributor from the Company (said percentages hereinafter
referred to as "the Applicable Percentage"). During any year of the
Agreement Company shall sell the Product to the Distributor at the
Applicable Percentage of the Average Price from the previous year. At the
end of each year of the Agreement Distributor shall provide to Company a
report setting forth the Average Price for that year and the information
used in the calculation of such. If it transpires the Average Price for
the year is higher than the Average Price for the previous year Company
shall render to Distributor an invoice for the Applicable Percentage of
the difference between the Average Price for the year and the Average
Price for the previous year. Distributor shall pay such invoice within
thirty (30) days of receipt of such. If it transpires that the Average
Price for the year is lower than the Average Price for the previous year
Distributor shall render to Company an invoice for the Applicable
Percentage of the difference between the Average Price for the year and
the Average Price for the previous year. Company shall pay such invoice
within thirty (30) days of receipt of such


4.5 Distributor shall use reasonable endeavours to maximise the
Average Price.


4.6 Should Distributor determine that, in its opinion, it is economically
undesirable for it to continue to distribute the Product in a
particular country in the Territory it may, by written notice to the
Company relinquish the rights to the Product for that country or
those countries and return those rights to the Company without
incurring or being subject to any liability to the Company. In such
circumstances the Distributor will provide to Company a final
accounting for the country in the Territory so relinquished including
inventory units on hand for that country and an estimate as to the
likely on the Average Price and the Applicable Percentage for the
year.


4.7 In the event that thirty-two percent (32%) of the Average Price for
the Product in a country in the Territory is less than the equivalent
of thirteen US Dollars (US$13.00) per unit, Company may provide to
Distributor sixty (60) days' notice of its intention to withdraw the
rights of the Distributor to distribute the Product in that country.
At any time before expiry of that notice Distributor may, by written
notice, advise Company that either:-


4.7.1 it will hand back to Company the rights to distribute the Product in
that country in the Territory; or


7 8


4.7.2 Distributor will pay to Company the difference between thirty-two
percent (32%) of the Average Price for the Product in that country
and the equivalent of thirteen US Dollars ($13.00) per unit for each
unit of the Products sold in that country in the Territory.


5 Payment


5.1 Payment Unless otherwise determined by the Company the Distributor
shall open a confirmed irrevocable documentary letter of credit in
favor of the Company for the amount of each shipment inclusive of all
costs. All amounts owing by Distributor to Company for the Product
shall be paid within ninety (90) days of the date of shipment of the
Product. Distributor shall make all payments to Company for the
Product in US dollars by transfer to such bank account as Company may
from time to time designate in writing.


5.2 Late Payment Fee/Collection Costs Any amounts not paid by Distributor
when due will be subject to a late payment fee computed daily at a
rate equal to one and one half percent (1.5%) per month or at the
highest rate permitted under applicable usury law, whichever is the
lower. In addition, Distributor shall be liable to Company for all
costs incurred by Company in its collection of any amounts owing by
Distributor which are not paid when due, including reasonable
attorneys' fees, regardless of whether actual suit is brought.


5.3 Change in Payment Terms If Distributor fails to make any payment at
the time required pursuant to the terms of this Agreement, Company
shall have the right to withhold shipment of Product until all late
payment has been made or to revoke or alter the above credit terms by
delivery of written notice to Distributor.


6 Delivery, Shipment and Inspection


6.1 Certificate of Analysis and Shipping Company shall include batch
documentation and a certificate of analysis with each batch of
Product shipped and shall ensure that any cartons in which the
Product is transported bear on the outside the batch number and the
expiry date of the Product.


6.2 Delivery Dates Company shall make deliveries of the Product on the
dates set forth in the Distributor's orders.


6.3 QC/QA Release. Distributor shall request that its third party Quality
Assurance contractor provide a similar service for Meda AB at
Nastech's request.


7 Quota


7.1 Save as provided below Distributor agrees to order, accept delivery
of and make payment in full for the number of units of the Product
during the period(s) set forth on Exhibit D attached hereto (the
"Quota"). The number of units set forth in the Quota for the first
three (3) years of this Agreement following the grant of pricing and
reimbursement approval for the sale of the Product in all EU
countries in the


8 9


Territory shall be indications of likely sales only and there shall
be no liability or penalty under this contract for failure to order,
take delivery of and make payment in full for those units. In the
third ...