Progress Through Innovation
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PROGRESS THROUGH INNOVATION 2007 ANNUAL REPORT NOTICE OF 2008 ANNUAL MEETING AND PROXY STATEMENT May 2008 To our Shareholders, During 2007, we made substantial progress toward our goal of becoming a premier biotechnology company in the rapidly emerging field of RNA interference, or RNAi, while at the same time experiencing disappointment that our intranasal parathyroid hormone (PTH1-34, or PTH) for osteoporosis was returned to us by our partner, Procter & Gamble Pharmaceuticals, Inc., resulting in a rapid and severe decline in our stock price. In order to achieve our objectives in RNAi, advance our most promising intranasal programs, and enhance shareholder value over the long term, we announced a corporate restructuring intended to significantly reduce Shareholder Letter Shareholder our costs and realign our priorities toward our most promising science. The restructuring has essentially been completed and we are well positioned to continue the development of our RNAi programs and complete the current Phase 2 studies in insulin for type 2 diabetes and Peptide YY3-36 (PYY) for obesity. As a result of a comprehensive strategic review, we determined that our business strategy and future R&D investments would best be directed toward the accelerated development, partnering and, ultimately, commer- cialization of our RNAi assets. To demonstrate our commitment to this new direction for our company, we have proposed to change our name to MDRNA, Inc. to reflect our primary focus on our proprietary RNAi technology and the development and partnering of RNAi therapeutics. We believe the application of our molecular biology-based drug delivery technology to the field of RNAi therapeutics, and the success we have experienced to date in terms of technology and intellectual property development, have positioned us to emerge as a strong player in RNAi with the significant upside potential these assets create. Additional information related to our proposed name change is available in our attached proxy statement. Since 2003, we have been actively developing and acquiring novel RNAi technology and intellectual property. We focus on three key areas which can be described as building blocks, cargoes and delivery vehicles. “Building blocks” refers to the chemical structures of which the RNAi is made, for example including Nastech’s proprietary Ribo-Thymidine molecules. “Cargoes” refers to the RNAi sequences them- selves, and include Nastech’s focus on Dicer substrates licensed from City of Hope, and our own meroduplex molecules, which are three-stranded structures rather than the typical two-stranded RNAi structures. “Delivery vehicles” include lipids, peptides and targeting compounds that derive from our extensive work in molecular biology based drug delivery. The result is that MDRNA can now move forward with a matrix of platform technologies that address the delivery and intellectual property opportunities in the field of RNAi therapeutics. In March 2008, we announced the formation of a Scientific Advisory Board for our RNAi technology comprised of four leading scientists and researchers, including two Nobel Laureates. These outstanding individuals will provide valuable advice and support as we seek to enhance shareholder value by capitalizing on RNAi, a highly promising and intensive area of biopharmaceutical research and development. During 2008, we are focusing our resources on the execution of an RNAi business strategy with two components: first, to enhance our patent estate, which already provides access to all 20,000-plus potential human gene targets with freedom to operate for our partners and ourselves; and second, to offer a toolbox of drug delivery solutions featuring proprietary compounds and drug product characteristics that can be tailored to meet our program needs and those of our partners. At present, we are pursuing RNAi partnership opportunities with biopharmaceutical companies in a variety of disease areas, including inflammation, infection, cancer and cardiovascular disease. Even as we advance our RNAi programs, we remain focused on creating value for shareholders from our Phase 2 pipeline of non-invasive, intranasal peptides, including PTH for osteoporosis, insulin for type 2 diabetes and PYY for obesity. Currently, we are completing two Phase 2 trials for insulin. Data from the first group of patients to complete the study are very encouraging and we look forward to presenting the final Phase 2 insulin data at the American Diabetes Association’s 68th Annual Scientific Sessions meeting on June 7. We are also completing a six month PYY weight loss study. Data from this study will be submitted to a major obesity conference in the third quarter of 2008. We are currently in discussions with potential partners for the remaining development and commercialization of insulin, PYY and PTH. Shareholder Letter Shareholder In addition to our Phase 2 programs, we also have an ongoing collaboration with Amylin Pharmaceuticals for a nasal spray dosage form of exenatide. Amylin, in partnership with Eli Lilly, markets an injected form of exenatide, BYETTA», an FDA approved drug for treatment of type 2 diabetes. 2007 was a challenging year for us. We have restructured the company, reduced our headcount by approximately 60 percent and reduced program spending while preserving our key clinical-stage programs and further developing our RNAi assets. As part of the restructuring of the company, we are strengthening the RNAi expertise on our Board of Directors through the addition of three outstanding individuals. I wish to thank those directors who are retiring from our Board of Directors for their commitment and long service to our company and our shareholders and I welcome our new directors whose experience and guidance will be invaluable to shaping our future. On behalf of our Board of Directors and management, I would like to thank you, our shareholders, employees and other stakeholders, for your continued confidence and support. We enthusiastically look forward to positive developments in 2008 and beyond. Sincerely, Steven C. Quay, M.D., Ph.D. Chairman and Chief Executive Officer 3830 Monte Villa Parkway Bothell, Washington 98021 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held Tuesday, June 10, 2008 at 9:00 A.M. (Eastern Daylight Time) TO THE STOCKHOLDERS OF NASTECH PHARMACEUTICAL COMPANY INC.: Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”) of NASTECH PHARMACEUTICAL COMPANY INC. will be held on Tuesday, June 10, 2008, at 9:00 A.M., Eastern Daylight Time, at The University Club, 1 West 54th Street, New York, New York 10019 to consider and vote Statement Proxy on the following proposals: 1. To elect eight (8) persons to our Board of Directors, each to hold office until the 2009 annual meeting of stockholders and until their respective successors shall have been duly elected or appointed and qualify; 2. To consider and vote upon a proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the ensuing year; 3. To consider and vote upon a proposal to change our capital structure by increasing the number of authorized shares of common stock from 50,000,000 to 90,000,000; 4. To consider and vote upon a proposal to adopt the Company’s 2008 Stock Incentive Plan; and 5. To consider and vote upon a proposed amendment to our certificate of incorporation to change the name of the Company to “MDRNA, Inc.” The enclosed Proxy Statement includes information relating to these proposals. Additional purposes of the Annual Meeting are to receive reports of officers (without taking action thereon) and to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Only stockholders of record as of the close of business on April 11, 2008 are entitled to notice of and to vote at the Annual Meeting. The holders of at least a majority of our outstanding shares of common stock present in person or by proxy are required for a quorum. You may vote electronically through the Internet or by telephone. The instructions on your proxy card describe how to use these convenient services. Of course, if you prefer, you can vote by mail by completing your proxy card and returning it to us in the enclosed envelope. By Order of the Board of Directors, Bruce R. York Secretary and CFO May 5, 2008 Bothell, Washington OUR BOARD OF DIRECTORS APPRECIATES AND ENCOURAGES YOUR PARTICIPATION IN OUR ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEET- ING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED. ACCORDINGLY, PLEASE AUTHORIZE A PROXY TO VOTE YOUR SHARES BY INTERNET, TELEPHONE OR MAIL. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY WITHDRAW YOUR PROXY, IF YOU WISH, AND VOTE IN PERSON. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PRO- CEDURES SET FORTH IN THIS PROXY STATEMENT. 3830 Monte Villa Parkway Bothell, Washington 98021 PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS To be held Tuesday, June 10, 2008 at 9:00 A.M. (Eastern Daylight Time) ANNUAL MEETING AND PROXY SOLICITATION INFORMATION General Statement Proxy This Proxy Statement is furnished in connection with the solicitation of proxies by the board of directors (the “Board of Directors”) of NASTECH PHARMACEUTICAL COMPANY INC., a Delaware corporation, for use at the Annual Meeting of Stockholders to be held on Tuesday, June 10, 2008, at 9:00 A.M., Eastern Daylight Time, at The University Club, 1 West 54th Street, New York, New York 10019, and at any postponements or adjournments thereof (the “Annual Meeting”). This Proxy Statement, the Notice of Annual Meeting of Stockholders and the accompanying proxy card, are being mailed to stockholders on or about May 5, 2008. Solicitation and Voting Procedures Solicitation. The solicitation of proxies will be conducted by mail, and we will bear all attendant costs. These costs will include the expense of preparing and mailing proxy materials for the Annual Meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation materials regarding the Annual Meeting to beneficial owners of our common stock, par value $0.006 per share (the “Common Stock”).