Nastech Pharmaceutical Company Inc and Pharmacia Corporation have formed an agreement for the development and marketing of Nastech's proprietary nasally administered apomorphine product for the treatment of erectile dysfunction (ED) and female sexual dysfunction (FSD).

Apomorphine is a potent dopamine agonist that promotes erectile function by stimulating the D1/D2 class of dopamine receptors in the brain that are responsible for the initiation of the erectile response. Nastech's proprietary nasal formulation is designed to maximize the rapid onset, therapeutic effect and overall safety of apomorphine.

Under terms of the agreement, Pharmacia receives exclusive, worldwide rights to develop and market nasally administered apomorphine for the treatment of male and female sexual dysfunction and will manage and fund all future development in these indications. Nastech retains certain development rights in other therapeutic areas.

Nastech will receive $48 million in an upfront payment at signing of $3.0 million and, upon satisfaction of certain future conditions, development and sales milestones totaling that total an additional $45.0 million. Certain additional costs incurred by Nastech of up to $3.4 million are reimbursable. Less than half of the milestone payments will be based on achievement of certain sales levels. Pharmacia will also purchase 250,000 shares of Nastech common stock for $5.0 million.

Upon commercialization, Nastech will receive significant royalties on product sales that escalate based on sales levels. For the first five years following launch, Nastech will manufacture certain quantities of nasally administered apomorphine and will receive transfer payments from Pharmacia. Nastech also receives minimum royalties during a portion of the term of the agreement.

Nastech has conducted Phase II safety and efficacy studies in men with ED and is currently conducting a Phase II study in women with FSD.

The transaction is subject to a number of conditions to closing set forth in the agreement, including making necessary antitrust filings and expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended.