April 20, 2010

ISIS PHARMACEUTICALS, INC.

1896 Rutherford Road

Carlsbad, CA 92008

NOTICE OF

2010 ANNUAL MEETING OF STOCKHOLDERS

AND PROXY STATEMENT

Dear Stockholders,

I am pleased to invite you to Isis Pharmaceuticals’ 2010 Annual Meeting of Stockholders.  We will host the meeting at our offices in Carlsbad, California on Wednesday, June 2, 2010 at 2:00 p.m. Pacific Time.  In addition to covering the formal items on the agenda, we will review the major developments of the past year and our plans for 2010, and answer your questions.

This booklet includes the agenda for this year’s Annual Meeting and the Proxy Statement.  The Proxy Statement explains the matters we will discuss in the meeting and provides additional information about Isis.

Your vote is very important.  Whether or not you plan to attend the meeting, please be sure to vote your shares as soon as possible to ensure your representation at the meeting.  We are distributing our Notice of Annual Meeting and Proxy Materials using the Notice and Access procedures established by the United States Securities and Exchange Commission (the “SEC”).  As a result, you will receive in the mail a notice regarding the availability of proxy materials.  This notice is important because it contains a control number and instructions that will allow you to access our proxy materials and vote electronically by the Internet or request printed proxy materials so you may vote by telephone or mail.

If you are a stockholder of record (that is, if your stock is registered with us in your own name), you may also vote by telephone, or electronically through the Internet, by following the instructions included with your proxy card.  If your shares are registered in the name of a broker or other nominee, your nominee may be participating in a program provided through Broadridge Financial Solutions, Inc. that also allows you to vote by phone or through the Internet.  If so, the voting form your nominee sends you will provide telephone and Internet instructions.

If you plan to attend the meeting and prefer to vote in person, you may still do so even if you have already returned your proxy.  If you are unable to attend, please note that a webcast of the presentation will be available at www.isispharm.com.(1)  In this document, the words “Isis,” “we,” “our” and “us” refer only to Isis Pharmaceuticals, Inc. and its subsidiaries, including Regulus Therapeutics Inc., and not any other person or entity.

PLEASE NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE HOLDS YOUR SHARES OF RECORD AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE BROKER, BANK OR OTHER NOMINEE.

We look forward to seeing you at the meeting.

(1)          Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

ISIS PHARMACEUTICALS, INC.

1896 Rutherford Road

Carlsbad, CA 92008

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

Dear Stockholders,

At our 2010 Annual Meeting, we will ask you to:

·                  elect Stanley T. Crooke, Joseph Klein, III and John C. Reed to serve as a Director for a three-year term;

·                  approve an amendment to the 2002 Non-Employee Directors’ Stock Option Plan to increase the shares reserved for issuance from 850,000 shares to 1,000,000 shares and to extend the term from May 30, 2012 to June 1, 2020;

·                  approve an increase in shares reserved for issuance under the 1989 Stock Option Plan from 16,700,000 shares to 20,000,000 shares;

·                  ratify the Audit Committee’s selection of Ernst & Young LLP as independent auditors for our 2010 fiscal year; and

·                  transact any other business that may be properly presented at the Annual Meeting.

The foregoing items of business are more fully described in the enclosed Proxy Statement.

If you were an Isis stockholder of record at the close of business on April 6, 2010 you may vote at the Annual Meeting.

Carlsbad, California

April 20, 2010

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE BY PHONE OR INTERNET BY FOLLOWING THE INSTRUCTIONS INCLUDED IN THIS PROXY STATEMENT AND YOUR NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS OR PROXY CARD.  ALTERNATIVELY, YOU MAY REQUEST A WRITTEN PROXY STATEMENT, AND COMPLETE, DATE, SIGN AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING.  IF YOU RECEIVE YOUR PROXY MATERIALS BY MAIL, WE WILL INCLUDE A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) FOR THAT PURPOSE.  EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.  PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE BROKER, BANK OR OTHER NOMINEE A PROXY ISSUED IN YOUR NAME.

ISIS PHARMACEUTICALS, INC.

1896 Rutherford Road

Carlsbad, CA  92008

PROXY STATEMENT

INFORMATION ABOUT THE 2010 ANNUAL MEETING AND VOTING

General

The enclosed proxy materials have been provided to you by the Board of Directors of Isis Pharmaceuticals, Inc., a Delaware corporation, for use at the 2010 Annual Meeting of Stockholders to be held on Wednesday, June 2, 2010, at 2:00 p.m. Pacific Time, or at any adjournment or postponement of the meeting, for the purposes stated in this document.  The Annual Meeting will be held at Isis’ offices at 1896 Rutherford Road, Carlsbad, California 92008.  This Proxy Statement summarizes the information you will need to vote in an informed manner.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 2, 2010.

We are distributing our Notice of Annual Meeting and proxy materials using the Notice and Access procedures established by the SEC.  As a result, you will receive in the mail a notice regarding the availability of proxy materials.  This notice is important because it contains a control number and instructions that will allow you to access our proxy materials and vote electronically by the Internet or request printed proxy materials so you may vote by telephone or mail.

This Proxy Statement and the accompanying Annual Report are available at www.proxyvote.com where you may vote your shares.

Among other things, the Proxy Statement contains information regarding:

·                  the date, time and location of the meeting;

·                  a list of the matters being submitted to the stockholders; and

·                  information concerning voting in person.

Electronic Delivery of Isis Pharmaceuticals, Inc. Stockholder Communications

We are pleased to offer to our stockholders the benefits and convenience of electronic delivery of Annual Meeting materials, including:

·                  delivering the Proxy Statement, Annual Report and related materials by email to our stockholders;

·                  stockholder voting online;

·                  helping the environment by decreasing the use of paper documents;

·                  reducing the amount of bulky documents stockholders receive; and

·                  reducing our printing and mailing costs associated with more traditional delivery methods.

We encourage you to conserve natural resources and to reduce printing and mailing costs by signing up for electronic delivery of our stockholder communications after you place your current vote at www.proxyvote.com.

Voting Rights, Outstanding Shares and Quorum

We will make this Proxy Statement and the accompanying proxy card available on or about April 20, 2010 to all stockholders who are entitled to vote.  Only stockholders who owned our common stock at the close of business on April 6, 2010 are entitled to vote at the Annual Meeting.  On this record date, we had 99,079,656 shares of our common stock outstanding.

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A quorum of stockholders is necessary to hold a valid meeting.  A quorum will be present at the meeting if at least a majority of the outstanding shares are represented in person or by proxy.  We will count your shares towards the quorum only if you submit a valid proxy vote or vote at the meeting.  We will count abstentions and broker non-votes towards the quorum requirement.

Each share of our common stock that you own entitles you to one vote.  Your notice of availability of proxy materials and proxy card indicates the number of shares of our common stock that you owned at the close of business on April 6, 2010.  The inspector of election will count votes for the meeting, and will separately count “For” and “Against” votes, abstentions and broker non-votes.  With respect to the election of Directors, stockholders do not affirmatively vote “Against” Directors.  Instead, if you do not want to elect a particular Director, you may simply withhold your “For” vote.  The inspector of elections will count abstentions towards the vote total for each proposal, and abstentions will have the same effect as “Against” votes.  Broker non-votes have no effect and the inspector of elections will not count them towards the vote total for any proposal.

If your broker holds your shares as your nominee, that is, in “street name,” you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker to vote your shares.  If you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items.  Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which a broker may vote shares held in street name in the absence of your voting instructions.  The proposal to ratify Ernst & Young LLP as independent auditors is a discretionary item.  Proposal 1, Proposal 2 and Proposal 3 regarding the election of Directors and our stock option plans are non-discretionary items.  If you do not give your broker instructions for a non-discretionary item, the inspector of elections will treat your shares as broker non-votes.

You may vote in one of the following ways:

·                  vote through the Internet by following the instructions included with your notice of availability of proxy materials or proxy card;

·                  if you have received proxy materials electronically or by mail, you may vote by phone by following the instructions included with your proxy card;

·                  complete, sign, date and return your proxy card in the postage paid envelope provided; or

·                  attend the 2010 Annual Meeting and vote in person.

If you receive more than one notice of availability of proxy materials or proxy cards, your shares are registered in more than one name or are registered in different amounts.  Please complete, sign and date and return each separate proxy card or vote by phone or through the internet by following the instructions included with each notice or proxy card to properly vote your shares.

We will announce preliminary voting results at the Annual Meeting.  In addition, we will publish final voting results in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting.  If final voting results are not available to us in time to file a Form 8-K within four business days after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after we know the final results, file an additional Form 8-K to publish final results.

Solicitation

Our Board of Directors is soliciting your proxy to vote at the Annual Meeting.  We will bear the entire cost of soliciting proxies, including preparing, assembling, making available on the Internet and printing and mailing this Proxy Statement, the proxy card and any additional information furnished to stockholders.  We will furnish copies of solicitation materials to banks, brokerage houses, fiduciaries and custodians holding in their name shares of our common stock beneficially owned by others to forward to such beneficial owners.  We may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners.  Our Directors, officers or other employees may supplement original solicitation of proxies by telephone, electronic mail or personal solicitation.  We will not pay our Directors and employees any additional compensation for soliciting proxies, but we expect to pay Georgeson Shareholder Communications Inc. its customary fee, estimated to be about $12,000, for rendering solicitation services.

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General Information for all Shares Voted by Phone or Through the Internet

If you plan to submit your vote by phone or through the Internet we must receive it by 11:59 p.m., Eastern Time, on June 1, 2010.  Submitting your proxy by phone or through the Internet will not affect your right to vote in person should you decide to attend the Annual Meeting.

We provide Internet proxy voting to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions.  However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers or telephone companies.

For Shares Registered in Your Name

If you are a stockholder of record, you may go to www.proxyvote.com to vote your shares through the Internet.  The votes represented by your proxy will be generated on the computer screen and you will be prompted to submit or revise your votes as desired.

To vote your shares by phone, you must first request that we send proxy materials to you by following the instructions included in your notice regarding availability of proxy materials.  Once you have received your proxy materials, you may vote using a touch-tone telephone by calling 1-800-690-6903 and following the recorded instructions.  Please have your proxy card available at the time you vote.

For Shares Registered in the Name of a Broker or Bank

If you hold your Isis stock in street name, you should receive instructions for voting your shares from your bank, broker or other agent, rather than from our proxy card.

A number of brokers and banks are participating in a program provided by Broadridge Financial Solutions, Inc. which allows proxies to vote shares by means of the telephone and Internet.  If your shares are held in an account with a broker or bank participating in the Broadridge program, you may vote your shares by phone or through the Internet by having the voting form in hand and calling the number or going to the website indicated on the form and following the instructions.

A broker non-vote occurs when a broker, bank or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically referred to as being held in “street name”) submits a proxy for the Annual Meeting, but does not vote on a particular proposal because that holder does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Abstentions and broker non-votes have no effect on the determination of whether a nominee or the proposal has received the vote of a majority of the shares of common stock present or represented by proxy and voting at the Annual Meeting.  Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote those shares on routine matters, but not on non-routine matters. Routine matters include ratification of independent public accountants. Non-routine matters include the election of directors and actions on stock plans.

Revocability of Proxies

Once you have submitted your proxy by mail, Internet or telephone, you may revoke it at any time before we exercise it at the Annual Meeting.  You may revoke your proxy by any one of the following four ways:

·                  you may mail another proxy marked with a later date;

·                  you may revoke it through the Internet;

·                  you may notify our Secretary in writing that you wish to revoke your proxy before the Annual Meeting takes place; or

·                  you may vote in person at the Annual Meeting.  Attendance at the meeting will not, by itself, revoke a proxy.

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Stockholder Proposals

If you have a proposal or Director nomination that you would like us to include in our Proxy Statement and form of proxy for, or to present at the 2011 Annual Meeting of Stockholders, you must send the proposal to us by no later than December 21, 2010.  Stockholders wishing to submit proposals or Director nominations that are not to be included in such Proxy Statement and proxy must do so no later than the close of business on February 2, 2011.  Stockholders should also review our Bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and Director nominations.

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PROPOSAL 1

ELECTION OF DIRECTORS

Information about our Board of Directors

The Board is divided into three classes, each consisting of approximately one third of our total number of Directors.  Presently, the Board has eight members with two classes consisting of three Directors each and one class consisting of two Directors.  Each class serves a three-year term and we hold elections each year at the Annual Meeting to elect the Directors whose terms are expiring.

In addition, the Board may elect a new Director to fill any vacant spot, including a vacancy caused by an increase in the size of the Board.  However, the Board believes it is important for our stockholders to ratify any member of the Board who has been appointed by the Board.  As a result, whenever the Board appoints a new member, the Board will submit such new member’s directorship for approval at the next regularly scheduled Annual Meeting of Stockholders.  If elected by the stockholders, the Board member will serve the remaining term of the class of Directors to which he or she was elected.

The Board represents the interests of our stockholders by overseeing the Chief Executive Officer and other members of senior management in our operation.  The Board’s goal is to optimize long-term value by providing guidance and strategic oversight to us on our stockholders’ behalf.

Information about the 2010 Elections

The Board has nominated three Directors for election at the 2010 Annual Meeting.  Each of the nominees currently serves as one of our Directors.  Drs. Crooke, Reed and Mr. Klein have served as a Director since: January 1989 and Chairman of the Board since February 1991; February 2002; and December 2005, respectively, and have been re-elected by our stockholders each successive term.  If re-elected, Drs. Crooke, Reed and Mr. Klein will serve until the 2013 Annual Meeting or, in each case, until his successor is elected and has qualified, or until his death, resignation or removal.

Our stockholders elect Directors by a plurality of the votes of the shares represented in person or by proxy at the meeting and entitled to vote in the election of Directors.  As a result, the three nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected.  Abstentions and broker non-votes have no effect on the vote.

The Nominating, Governance and Review Committee made its report to the Board on February 26, 2010.  Following that report, the Board determined it would be in the best interests of Isis and its stockholders to nominate Stanley T. Crooke, John C. Reed and Joseph Klein, III as Directors to be elected at the Annual Meeting.  We provide below a short biography of each of the nominees and of each Director whose term of office will continue after the Annual Meeting.  Each person nominated for election has agreed to serve if elected, and we have no reason to believe that any of the nominees will be unable to serve.  However, if any nominee cannot serve, we may vote your proxy for another nominee proposed by the Board, or the Board may reduce the number of authorized Directors.

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Biographies of Nominees for Election for a Three-year Term Expiring at the 2013 Annual Meeting

Stanley T. Crooke, M.D., Ph.D., age 65, is a founder of Isis and has been Chief Executive Officer and a Director since January 1989.  He was elected Chairman of the Board in February 1991.  Prior to founding Isis, from 1980 until January 1989, Dr. Crooke worked for SmithKline Beckman Corporation, a pharmaceutical company, where his titles included President of Research and Development of SmithKline and French Laboratories.  Within the last five years, Dr. Crooke formerly served as a Director of Antisense Therapeutics Ltd., a biopharmaceutical company, and EPIX Pharmaceuticals, Inc., a developer of magnetic resonance imaging contrast agents.

The Board believes Dr. Crooke is uniquely suited to serve on the Board primarily because as the Chief Executive Officer and founder of Isis he has dedicated over 20 years to the discovery and development of antisense, our technology platform.  He is the named inventor on some of the key patents in the field of RNA targeted therapeutics, and has over 30 years of drug discovery and development experience.

Joseph Klein, III, age 49, has served as a Director of Isis since December 2005.  Mr. Klein is currently Managing Director of Gauss Capital Advisors, LLC, a financial consulting and investment advisory firm focused on biopharmaceuticals, which he founded in March 1998.  From September 2003 to December 2008, Mr. Klein also served as a Venture Partner of Red Abbey Venture Partners, L.P., a life science private equity fund.  From September 2001 to September 2002, Mr. Klein was a Venture Partner of MPM Capital, a healthcare venture capital firm.  From June 1999 to September 2000 when it merged with WebMD Corporation, Mr. Klein served as Vice President, Strategy, for Medical Manager Corporation, a leading developer of physician office management information systems.  For over nine years from 1989 to 1998, Mr. Klein was a health care investment analyst at T. Rowe Price Associates, Inc., where he was the founding portfolio manager of the T. Rowe Price Health Sciences Fund, Inc.  Mr. Klein serves on the board of directors of three other publicly—traded biotechnology companies:  OSI Pharmaceuticals, Inc. since July 2006; PDL BioPharma, Inc. since July 2007; and Savient Pharmaceuticals, Inc. since May 2006.  Mr. Klein serves on the board of directors of The Prospector Funds, Inc., an SEC Registered Investment Company that manages two no-load mutual funds.  Mr. Klein also serves on the boards of private and non-profit entities.  Within the last five years, Mr. Klein formerly served on the board of directors of five publicly held biotechnology companies:  BioMarin Pharmaceutical Inc., Clinical Data, Inc., Genaissance Pharmaceuticals, Inc., Guilford Pharmaceuticals, Inc., and NPS Pharmaceuticals, Inc.

The Board believes that Mr. Klein is uniquely suited to serve on the Board and the Audit Committee because he is a Chartered Financial Analyst (CFA), and because he has extensive venture capital, Board and financial advisory experience in the life sciences industry.

John C. Reed, M.D., Ph.D., age 51, has served as a Director of Isis since February 2002.  Dr. Reed has been the President and Chief Executive Officer of Sanford-Burnham Medical Research Institute, an independent, nonprofit, public benefit organization dedicated to basic biomedical research, since January 2002.  Dr. Reed has been with Sanford-Burnham Medical Research Institute for the past sixteen years, serving as the Deputy Director of the Cancer Center beginning in 1994, as Scientific Director of the Institute beginning in 1995, and as Cancer Center Director in 2002.  He also currently serves as an adjunct professor in the medical schools at University of California San Diego School of Medicine and San Diego State University’s Biology department.  Dr. Reed was recognized as the world’s most highly cited scientist in the field of cell biology for the decade 1995-2005.  He is the author of over 725 scientific and medical journal publications.  Within the last five years, Dr. Reed formerly served as a director of Stratagene, Inc. and Repros Therapeutics Inc., both biopharmaceutical companies, Pharmion Corporation, a publicly-traded specialty pharmaceutical company focused on oncology, and appointed to the Independent Citizen’s Oversight Committee of the California Institute for Regenerative Medicine.

The Board believes Dr. Reed is uniquely suited to serve on the Board primarily because his scientific background and experience as the Chief Medical Officer of the prestigious Sanford-Burnham Medical Research Institute, as well as his extraordinary expertise reflected in his significant scientific and medical journal publications, help us evaluate our drug discovery and development opportunities.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE ABOVE NOMINEES

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Biographies of Directors Whose Terms Expire at the 2011 Annual Meeting

Spencer R. Berthelsen, M.D., age 58, has served as a Director of Isis since May 2002.  Since 1980, he has practiced Internal Medicine with the Kelsey Seybold Clinic, a 350 physician medical group based in the Texas Medical Center in Houston.  Dr. Berthelsen has served in various senior leadership positions at Kelsey Seybold, including Chairman of the Department of Internal Medicine, Medical Director and Managing Director.  He has been Chairman of their Board of Directors since October 2001.  He is a Clinical Professor of Medicine at Baylor College of Medicine.  Dr. Berthelsen has served on the Board of the Texas Academy of Internal Medicine in the past and the Caremark National Pharmacy and Therapeutics Committee from 1999 through 2005.

The Board believes Dr. Berthelsen is uniquely suited to serve on the Board because of his current position managing a large multispeciality group practice and 30 years of experience as a practicing physician.

B. Lynne Parshall, age 55, has served as a Director of Isis since September 2000.  She has been our Chief Operating Officer since December 2007 and previously served as our Executive Vice President since December 1995.  She has served as our Chief Financial Officer since June 1994, and our Secretary since November 1991.  From February 1993 to December 1995, she was a Senior Vice President of Isis, and from November 1991 to February 1993, she was a Vice President of Isis.  Prior to joining Isis, Ms. Parshall practiced law at Cooley Godward LLP (now Cooley Godward Kronish LLP), outside counsel to Isis, where she was a partner from 1986 to 1991.  Ms. Parshall is a member of the American, California and San Diego bar associations.  Within the last five years, Ms. Parshall formerly served as a Director of CardioDynamics International Corporation and Corautus Genetics Inc., both biopharmaceutical companies.

The Board believes Ms. Parshall is uniquely suited to serve on the Board primarily because, as the Chief Operating Officer and an executive of the Company for nearly 20 years, she has valuable company-specific experience and expertise.  In addition, Ms. Parshall has over 25 years of experience structuring and negotiating strategic licensing and financing transactions in the life sciences field.

Joseph H. Wender, age 65, has served as a Director of Isis since January 1994.  Mr. Wender began with Goldman, Sachs & Co. in 1971 and became a General Partner of that firm in 1982, where he headed the Financial Institutions Group for over a decade.  Mr. Wender worked at GSC Group from 2005 through 2007 where he was a Senior Managing Director, member of the Management Committee, and Chairman of the Finance Committee.  Since January 2008, he has been a Senior Consultant to Goldman Sachs & Co.  He is also an Independent Trustee of the Schwab Family of Funds.  Within the last five years, Mr. Wender formerly served on the Board of First Coastal Bancshares, a bank holding company, Neurome, a biopharmaceutical company, and Chairman of GSC Capital Corporation, a Real Estate Investment Trust (REIT).

The Board believes Mr. Wender is uniquely suited to serve on the Board primarily because with over 35 years of experience as an investment banker with Goldman, Sachs & Co., he provides us important advice regarding our financial reporting, corporate finance matters, strategic transactions, and compensation matters; Mr. Wender is also highly qualified to serve on the Audit Committee.

Biographies of Directors Whose Terms Expire at the 2012 Annual Meeting

Richard D. DiMarchi, Ph.D., age 57, has served as a Director of Isis since December 2004.  Dr. DiMarchi has been a Professor and the Jack and Linda Gill Distinguished Chair in Biomolecular Science at Indiana University, Bloomington, Indiana since August 2003.  He previously served as Chairman of the Chemistry Department, and is a co-founder of Marcadia Biotech and Ambrx, Inc., privately held biotechnology companies.  Prior to joining Indiana University, Dr. DiMarchi worked for 22 years at Eli Lilly and Company in several senior management positions, including Group Vice President, Biotechnology and Product Development, from 1996 to 2003, and Vice President, Endocrine Research and Clinical Investigation, from 1992 to 1996.

The Board believes Dr. DiMarchi is uniquely suited to serve on the Board primarily because with his current position as a Professor and Chair in Biomolecular Science at Indiana University, as well as his over 22 years of drug development experience at Eli Lilly and Company, he brings specialized experience, and talent to help us evaluate our drug discovery and development opportunities.

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Frederick T. Muto, age 56, has served as a Director of Isis since March 2001.  Mr. Muto joined the law firm of Cooley Godward Kronish LLP, outside counsel to Isis, in 1980 and became a partner in 1986.  He is a founding partner of Cooley Godward Kronish LLP’s San Diego office and serves as the partner in charge of that office.  Mr. Muto also serves on that firm’s executive, management and compensation committees.

The Board believes Mr. Muto is uniquely suited to serve on the Board primarily because with over 30 years experience at one of the country’s leading law firms focused on life sciences and technology companies, he provides us important advice regarding our strategic transactions, corporate governance and compensation matters.

Independence of the Board of Directors

As required under The Nasdaq Global Select Market (“Nasdaq”) listing standards, a majority of the members of a listed Company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Nominating, Governance and Review Committee of the Board of Directors.  The Nominating, Governance and Review Committee consults with our legal counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in the Nasdaq listing standards, as in effect from time to time.

Consistent with these considerations, after review of all relevant transactions or relationships between each Director, or any of his or her family members, and Isis, its senior management and its independent auditors, the Board affirmatively has determined that all of our Directors are independent Directors within the meaning of the applicable Nasdaq listing standards, except for Dr. Crooke and Ms. Parshall, our Chief Executive Officer and Chief Operating Officer, respectively.  In making this determination, the Board found that none of these Directors or nominees for Director had a material or other disqualifying relationship with us.  With respect to Mr. Muto who is a partner of Cooley Godward Kronish LLP, our outside legal counsel, and Dr. DiMarchi who had a consulting agreement with us that was terminated in 2008, each is independent for purposes other than serving on the Audit Committee, of which neither is a member.

Information Regarding the Board of Directors and its Committees

Board Committees and Leadership Structure

The Board has three committees:  an Audit Committee, a Compensation Committee, and a Nominating, Governance and Review Committee.  Below is a description of each committee of our Board.  Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities.  The Board has determined that each member of each committee:

·                  meets the applicable rules and regulations regarding “independence,” including, but not limited to, Rule 5605(a)(2) of the Nasdaq listing standards;

·                  is not an officer or employee of Isis; and

·                  is free of any relationship that would interfere with his individual exercise of independent judgment with regard to Isis.

Our Chief Executive Officer is the Chairman of the Board.  The Board believes that Isis’ CEO is best situated to serve as Chairman because he has served as CEO since Isis was formed (over 20 years) and he is the Director most familiar with our business and industry.  Because of that experience, he is the Director most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy.  Independent Directors and management have different perspectives and roles in strategy development.  Our independent Directors bring experience, oversight and expertise from outside the company and industry, while the CEO brings company-specific experience and expertise.  The Board believes that the combined role of Chairman and CEO promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

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One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of the established strategy.  As part of each Board meeting, our independent Directors meet in executive session without the presence of our employee Directors.  We do not formally have a “lead independent director.”  Instead the Chairpersons of the Audit Committee, the Compensation Committee, and the Nominating, Governance and Review Committee each preside over at least one executive session.  The Board believes the combined role of Chairman and CEO, together with the executive sessions described above, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

Risk Oversight

Our Board administers its risk oversight function directly and through both its Audit Committee, and its Nominating, Governance and Review Committee.  The Audit Committee oversees management of financial risks and related party transactions.  The Nominating, Governance and Review Committee manages risks associated with the independence of the Board and potential conflicts of interests at the Board level, and periodically reviews our policies and procedures, and makes recommendations when appropriate.  We provide a complete description of each committee and its respective roles and responsibilities on pages 10 and 11.  While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed about such risks through committee reports.

In addition to the formal compliance program, the Board, the Audit Committee and the Nominating, Governance and Review Committee encourage management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations.  Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for Isis.  As a result, the Board, the Audit Committee, and the Nominating, Governance and Review Committee periodically ask our executives to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.

Meetings and Attendance; Committee Members

The Board of Directors met five times in 2009, all regularly scheduled meetings.  During 2009, all Directors attended 100% of the aggregate of the meetings of the Board and the committees on which they served, held during the period for which he or she was a Director or committee member.  We encourage each member of the Board to attend the Annual Meeting of Stockholders.  Last year, Dr. Berthelsen, Dr. Crooke, Mr. Klein, Mr. Muto, Dr. Reed and Ms. Parshall attended our 2009 Annual Meeting of Stockholders.

Board Committee Members

The table below provides membership and meeting information for fiscal 2009 for each of the Board committees and identifies our current Board and Committee members.

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Audit Committee

The Audit Committee of the Board of Directors oversees our corporate accounting and financial reporting process.  For this purpose, the Audit Committee performs several functions.

The Audit Committee:

·                  reviews the annual and quarterly financial statements and oversees the annual and quarterly financial reporting processes;

·                  selects and hires our independent auditors;

·                  oversees the independence of our independent auditors;

·                  evaluates our independent auditors’ performance; and

·                  has the authority to hire its own outside consultants and advisors if necessary.

In addition to the responsibilities listed above, the Audit Committee has the following functions:

·                  reviewing our annual budget with management and, if acceptable, recommending the budget to the Board for approval;

·                  receiving and considering our independent auditors’ comments as to internal controls, adequacy of staff and management performance and procedures in connection with internal controls;

·                  reviewing and, if appropriate, approving related party transactions;

·                  establishing and enforcing procedures for the receipt, retention and treatment of complaints regarding accounting or auditing improprieties; and

·                  pre-approving all audit and non-audit services provided by our independent auditors that are not prohibited by law.

Our Audit Committee charter requires that each member must be independent.  We consider the members to be independent as long as they:

·                  do not accept any consulting, advisory or other compensatory fee from us, except in connection with their service as a Director;

·                  are not an affiliate of Isis or one of its subsidiaries; and

·                  meet all of the other Nasdaq independence requirements.

In addition, all Audit Committee members must be financially literate and at least one member must be a “financial expert,” as defined by SEC regulations.  Our Board has determined that the Audit Committee’s financial expert is Mr. Wender based on, among other things, his over 35 years of experience as an investment banker with Goldman, Sachs & Co.  We provide the Audit Committee with the funding it needs to perform its duties.

In 2009, the Audit Committee met six times and did not act by unanimous written consent.  We have attached our Audit Committee charter to this Proxy Statement as Appendix A and you can find the charter on our corporate website at www.isispharm.com.(2)  Each member meets the membership criteria set forth in the attached Audit Committee charter and as stated above.

Compensation Committee

The Compensation Committee of the Board of Directors reviews, modifies (as needed) and approves our overall compensation strategy and policies.  The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers and other members of senior management; reviews and approves the compensation for our Directors and reviews and approves the compensation

(2)          Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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and other terms of employment of our executive officers, including our Chief Executive Officer; evaluates risks associated with the compensation policies and assesses whether risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on us; and administers our stock option and purchase plans.  We also have a Non-Management Stock Option Committee that, as delegated by the Compensation Committee, may award stock options to employees who are below director level in accordance with guidelines adopted by the Compensation Committee.  The Non-Management Stock Option Committee has one member, Dr. Crooke.

The Compensation Committee met two times in 2009 and acted by unanimous written consent 14 times.  You can find our Compensation Committee charter on our corporate website at www.isispharm.com.(3)

The Compensation Committee reviews with management Isis’ Compensation Discussion and Analysis (“CD&A”) to consider whether to recommend that we include the CD&A in our proxy statements and other filings.

The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel, as well as authority to obtain, at our expense, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.  In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and Director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

Compensation Committee Interlocks and Insider Participation

As noted above, during the fiscal year ended December 31, 2009, our Compensation Committee was composed of Drs. Berthelsen, DiMarchi and Reed.  None of the members of the Compensation Committee has ever been an employee or officer of Isis.  None of our executive officers serves as a member of the Board of Directors or Compensation Committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Nominating, Governance and Review Committee

Role and Responsibilities

The Nominating, Governance and Review Committee of the Board of Directors is responsible for:

·                  interviewing, evaluating, nominating and recommending individuals for membership on our Board of Directors.  As part of this process, the Nominating, Governance and Review Committee will consider nominees recommended by our stockholders;

·                  on an annual basis, reviewing the performance of the Board and its committees, including evaluating the Board’s ability to function as a group and the integrity, independence and competency of the individual Board members;

·                  periodically reviewing our policies and procedures and recommending appropriate changes, if any;

·                  annually reviewing and assessing the adequacy of our corporate governance guidelines and recommending any proposed changes to the Board for approval; and

·                  performing such other functions as may be necessary or convenient for the efficient discharge of the foregoing.

The Nominating, Governance and Review Committee met three times during 2009.  You can find our Nominating, Governance and Review Committee charter on our corporate website at www.isispharm.com(3).

(3)          Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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Director Nominations - Quality Standards

The Nominating, Governance and Review Committee believes that candidates for Director should have certain minimum qualifications.  As a result, the Board adopted membership standards and believes that the Board members should meet the minimum membership requirements listed below.

The minimum membership requirements are as follows:

·                  members must be able to read and understand basic financial statements;

·                  members must demonstrate high personal integrity and ethics;

·                  members cannot serve as a director on the board of more than seven other publicly traded companies;

·                  members cannot serve more than ten consecutive terms on the Board; and

·                  members cannot run for re-election or serve on the Board once they have reached the age of 80 years old.

In addition to these minimum standards, the Nominating, Governance and Review Committee will consider such factors as:

·                  possessing relevant expertise to offer advice and guidance to management;

·                  having sufficient time to devote to the affairs of Isis;

·                  demonstrating excellence in his or her field;

·                  having sound business judgment; and

·                  having commitment to rigorously represent the long-term interests of our stockholders.

Director Nominations - Diversity Discussion

In considering Director nominations, the Nominating Committee evaluates and considers the total mix of competencies represented on the Board as a whole, as well as the competencies each member, or nominee brings to the Board.  In general, the constitution of the Board is diversified across three large categories: (1) investment banking, financial accounting and corporate governance experience; (2) medical and scientific expertise; and (3) employee vs. non-employee directors.  By selecting individuals who have investment banking, financial accounting and corporate governance backgrounds, we gain valuable experience that ensures we are managing our financial resources appropriately, reporting our financial results fairly and accurately, and generally running our business consistent with current good corporate practices.  As a cutting edge drug discovery and development company, we also greatly benefit from Board members who themselves are scientists and medical doctors.  This way we can set and adjust our strategy and objectives based on the results we generate from our research and development efforts.  In different ways, these first two categories allow us to effectively manage our cash and make prudent investments in our technology to achieve the greatest likelihood of success.  As a general rule, we try to evenly balance the Board members across these first two categories.

Regarding the third category, a mix of employee and non-employee directors offers different perspectives for the Board to consider when making decisions.  Employee directors can provide the Board valuable insight regarding our day to day operation, which can help the Board make important management and compensation decisions.  Nonemployee directors can compare the opportunities and challenges presented to Isis against the facts and circumstances these Directors are experiencing outside Isis.  As a rule, we have a significantly higher number of non-employee directors vs. employee directors.  Finally, we do not discriminate against nominees on the basis of race, religion, national origin, sexual orientation, disability or any other basis prohibited by applicable law.

Director Nominations - Process

The Nominating, Governance and Review Committee will consider Director candidates recommended by stockholders.  The Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not a stockholder recommended the candidate.

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The Committee reviews new candidates for Director in the context of the Board’s composition, our operating requirements and our stockholders’ long-term interests.  In conducting this assessment, the Committee considers diversity, maturity, skills, the minimum membership requirements discussed above, and such other factors as it deems appropriate given the current needs of the Board and Isis, to maintain a balance of knowledge, experience and capability.  In the case of incumbent Directors whose terms of office are set to expire, the Nominating, Governance and Review Committee reviews such Directors’ overall service to Isis during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such Directors’ independence.  The Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a paid professional search firm.  The Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board.

The Committee meets to discuss and consider the candidates’ qualifications and determines whether each candidate is independent, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.  Finally, the Committee then selects a nominee for recommendation to the Board by majority vote.  To date, the Nominating, Governance and Review Committee has not paid a fee to any third party to assist in the process of identifying or evaluating Director candidates.

Stockholder Recommendations for Directors

Stockholders who wish to recommend individuals for consideration by the Nominating, Governance and Review Committee to become nominees for election to the Board included in our Proxy Statement may do so by delivering a written recommendation to the Secretary of Isis at the following address: 1896 Rutherford Road, Carlsbad, CA  92008, by December 21, 2010.  Submissions must include:

·                  the name, age, business address and residence address of the nominee;

·                  the principal occupation or employment of the nominee;

·                  the stock ownership in Isis of the nominee;

·                  the stock ownership in Isis of the stockholder making the nomination, including any trading in derivative securities that may disguise ownership occurring within the last 12 months;

·                  the information relating to the nominee that is required to be disclosed in solicitations of proxies under applicable securities laws;

·                  the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

·                  other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence of the proposed nominee; and

·                  any voting commitments the nominee has to third parties.

In addition, the nominee will need to complete a written questionnaire regarding the background and qualifications of the nominee, and the background of any other person or entity on whose behalf the nomination is being made.  The nominee must also agree to comply with all of our applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines.  The description of the requirements for Director nominations set forth above is qualified in its entirety by reference to the full and complete Amended and Restated Bylaws, a copy of which is available by contacting our Corporate Secretary; or as an exhibit to our Current Report on Form 8-K filed with the SEC on June 4, 2009.  You can find our Nominating, Governance and Review Committee charter on our corporate website at www.isispharm.com(4).  To date, the Board has not received or rejected a timely Director nominee for election at the upcoming meeting from a stockholder or stockholders holding more than 5% of our voting stock.

(4)          Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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Stockholder Communications with the Board of Directors

We make every effort to ensure that our Board or individual Directors as applicable, hear the views of stockholders, and provide appropriate responses to stockholders in a timely manner.  Stockholders who wish to communicate with the Board, or individual Directors, may do so by sending written communications addressed to the Secretary of Isis at 1896 Rutherford Road, Carlsbad, CA  92008.  The Secretary will compile the communications and will submit them to the Board or the individual Directors on a periodic basis.  If you wish to communicate with the independent Directors about your concerns or issues, you may address correspondence to a particular Director or to the independent Directors generally.  If you do not name a particular Director, depending on the subject matter, we will forward the letter to the Chair of the Audit, Compensation, or Nominating, Governance and Review Committee.  These communications will be reviewed by one or more of our employees designated by the Board, who will determine whether they should be presented to the Board.  The purpose of this screening is to allow the Board to avoid having to consider irrelevant or inappropriate communications, such as advertisements, solicitations and hostile communications.  All communications directed to the Audit Committee in accordance with our Code of Ethics policy that relates to questionable accounting or auditing matters involving Isis will be promptly and directly forwarded to the Audit Committee.  Other than the processes described above, our Board has not adopted a formal written process for stockholder communications with the Board.  We believe our Board’s responsiveness to stockholder communications has been excellent.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics that applies to all officers, Directors and employees.  We filed the Code of Ethics as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 by incorporating by reference to the Current Report on Form 8-K we filed with the SEC on December 5, 2008.  We also have posted our Code of Ethics on our website.  If we make any substantive amendments to the Code of Ethics or grant any waiver from a provision of the Code of Ethics to any executive officer or Director, we will promptly disclose the nature of the amendment or waiver on our website at www.isispharm.com(5).

Corporate Governance Guidelines

In 2003, the Board of Directors documented the governance practices we follow by adopting corporate governance guidelines to ensure that the Board will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management.  The guidelines are also intended to align our Directors’ and management’s interests with those of our stockholders.  The corporate governance guidelines set forth the practices the Board intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning, and Board committees and compensation.  The Board adopted the corporate governance guidelines to, among other things, reflect changes to the Nasdaq listing standards and SEC rules adopted to implement provisions of the Sarbanes-Oxley Act of 2002.  You may view our corporate governance guidelines, as well as the charters for each committee of the Board, at www.isispharm.com(5).

(5)          Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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PROPOSAL 2

APPROVAL OF AN AMENDMENT TO THE 2002

NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN

In this Proposal 2, we are requesting our stockholders approve an amendment to the 2002 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) which the Board of Directors adopted on February 26, 2010, subject to stockholder approval.  The amendment to the Directors’ Plan is to:

·                  increase the total number of shares authorized for issuance under the Directors’ Plan by 150,000 shares, from 850,000 shares to 1,000,000 shares, which will enable us to continue to grant awards to deserving individuals and remain competitive with our industry peers; and

·                  extend the term of the Directors’ Plan from May 30, 2012 to June 1, 2020.

Background for the Current Request and Expected Future Grant Practices

Our request to increase the authorized shares by 150,000 shares considers the following:

·                  If we do not increase the authorized shares at our 2010 Annual Meeting, we anticipate the share reserve balance will be 37,000 shares at the time of our 2011 annual meeting.  This low balance would limit our opportunities to attract unique and highly qualified talent because it would reduce our flexibility and ability to award stock options to a new Director.

·                  If our stockholders approve our request for 150,000 additional shares at the 2010 Annual Meeting, we do not intend to make the next request for additional shares until the 2013 annual meeting.

·                  If our stockholders do not approve the extension of the Directors’ Plan, the plan will terminate on May 30, 2012.  If the Directors’ Plan terminates without replacement, our ability to attract and retain high quality Directors will be severely harmed.

The affirmative vote of a majority of the votes cast at the Annual Meeting, at which a quorum is present, either in person or by proxy, is required to approve the proposed amendment to the Directors’ Plan discussed above. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have no effect on the vote.  If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have the authority to vote your shares.  Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of the proposal.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL 2

The following description of the Directors’ Plan is qualified in all respects by the specific terms of the Directors’ Plan, a copy of which was filed with this Proxy Statement.

Purpose

The purpose of the Directors’ Plan is to assist in retaining the services of persons now serving as our non-employee Directors, to attract and retain the services of persons capable of serving on our Board of Directors and to provide incentives for such persons to exert maximum efforts to promote our success.

Administration

Our Board of Directors administers the Directors’ Plan.  Our Board of Directors may not delegate administration of the Directors’ Plan to a committee.  The Board of Directors has the power to construe and interpret the Directors’ Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration.

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Stock Subject To The Directors’ Plan

An aggregate of 1,000,000 shares of common stock were authorized by the Board for issuance under the Directors’ Plan, subject to stockholder approval of this Proposal 2.  Subject to stockholder approval of this Proposal 2, as of March 31, 2010, 277,000 shares of common stock were available for future grant under the Directors’ Plan, there were options to purchase 610,000 shares of common stock issued and outstanding under the Directors’ Plan and Directors had exercised options to purchase 113,000 shares.  However, on July 1, 2010, we expect to grant options to purchase a total of 90,000 shares under the Directors’ Plan, which would leave only 37,000 shares left for future grant under the plan, if our stockholders do not approve this Proposal.

On March 31, 2010 the last reported sales price of our common stock on the Nasdaq Global Select Market was $10.93 per share.

If options granted under the Directors’ Plan expire or otherwise terminate without being exercised, the shares of common stock not acquired pursuant to such options again become available for issuance under the Directors’ Plan.

Eligibility, Option Grants

The Directors’ Plan provides that we may only grant options to a non-employee Director.  A “non-employee Director” is defined in the Directors’ Plan as a Director of Isis or one of our affiliates who is not otherwise an employee of Isis or any affiliate.  Six of our eight current Directors, all except Dr. Crooke and Ms. Parshall, are eligible to participate in the Directors’ Plan.

Options granted under the Directors’ Plan are nonstatutory stock options, meaning they are not intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  Option grants under the Directors’ Plan are non-discretionary.  The Directors’ Plan provides for (i) an initial grant of an option to purchase 30,000 shares of common stock to each person when he or she first becomes a non-employee Director of Isis, and (ii) an annual grant, on July 1, or the next business day should such date be a Saturday, Sunday or holiday, of an option to purchase 15,000 shares of common stock to each non-employee Director.

Terms of Options

Each option under the Directors’ Plan is subject to the following terms and conditions:

Option Exercise.  Options granted under the Directors’ Plan vest in four equal annual installments beginning on the first anniversary of the grant of the option.  Vesting is conditioned upon continued service as a Director or as an employee or consultant of Isis or one of our affiliates.

The Board has the power to accelerate the time during which an option may vest or be exercised.  Options granted under the Directors’ Plan do not permit exercise prior to vesting.

A Director may exercise an option under the Directors’ Plan by written notice to us, specifying the number of full shares of common stock to be purchased accompanied by payment of the purchase price.

Exercise Price; Payment.  The exercise price of options granted under the Directors’ Plan is equal to 100% of the fair market value of the common stock on the date granted; however, an option may be granted with a lower exercise price if the option is granted pursuant to an assumption or substitution for another option in a manner which satisfies the provision of Section 424(a) of the Code.  Optionholders must pay the exercise price of options granted under the Directors’ Plan in cash.  To the extent provided by the terms of an option, an optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by:

·                  a cash payment upon exercise;

·                  authorizing us to withhold a portion of the stock otherwise issuable to the optionholder;

·                  delivering already-owned shares of our common stock; or

·                  a combination of these means.

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Transferability; Term.  Under the Directors’ Plan, an optionholder may not transfer an option, except as determined by the Board and as set forth in the option agreement.  Currently, the Board has determined, and Director option agreements provide, that in addition to the ability to transfer an option by will or the laws of descent and distribution, a Director may transfer part or all of an option to any of the following:

·                  an optionholders’ spouse, children (by birth or adoption), stepchildren, grandchildren, or parents;

·                  a trust or other entity established solely for the optionholders’ benefit or the benefit of the optionholders’ spouse, children (by birth or adoption), stepchildren, grandchildren, or parents for estate planning purposes; or

·                  an organization which is exempt from taxation under Section 501(c)(3) of the Code or to which tax-deductible charitable contributions may be made under Section 170 of the Code.

Furthermore, an optionholder may, by delivering written notice to us, in a form satisfactory to us, designate a third party who, in the event of the optionholder’s death, will thereafter be entitled to exercise the option.

No option granted under the Directors’ Plan is exercisable by any person after the expiration of 10 years from the date the option is granted.

Other Provisions.  The option agreement may contain such other terms, provisions and conditions not inconsistent with the Directors’ Plan as may be determined by the Board.

Adjustment Provisions

If any change is made in, or other event occurs with respect to, the common stock subject to the Directors’ Plan, or subject to any option under the Directors’ Plan, without the receipt of consideration by Isis (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by Isis (each, a “Capitalization Adjustment”), the Directors’ Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Directors’ Plan and issuable pursuant to option grants under the Directors’ Plan, and any outstanding options will be appropriately adjusted in the class(es) and number of securities and exercise price per share of the securities subject to such outstanding options.  The Board of Directors will make such adjustments, and its determination will be final, binding and conclusive.  Under the Directors’ Plan, the conversion of any of our convertible securities is not a transaction “without receipt of consideration” by Isis.

In the event of (i) the sale or other disposition of all or substantially all of our assets, (ii) the sale or other disposition of at least 90% of our outstanding securities, or (iii) certain specified types of merger, consolidation or similar transactions (each, a “Corporate Transaction” as defined more specifically in the Directors’ Plan), any surviving or acquiring corporation may assume options outstanding under the Directors’ Plan or may substitute similar options.  If any surviving or acquiring corporation does not assume the options or substitute similar options, then with respect to options held by optionholders whose service with Isis or an affiliate of Isis has not terminated as of the effective date of the Corporate Transaction, the vesting of such options (and, if applicable, the time during which such options may be exercised) will be accelerated in full and the options will terminate if not exercised (if applicable) at or prior to such effective date.  With respect to options outstanding under the Directors’ Plan that have been neither assumed nor substituted and that are held by optionholders whose continuous service has terminated prior to the effective time of the Corporate Transaction, the vesting of the options, and, if applicable, the time at which such options may be exercised will not be accelerated unless otherwise provided in a written agreement between Isis or any affiliate and the holder of the option, and such options shall terminate if not exercised prior to the effective time of the Corporate Transaction.

In the event of a dissolution or liquidation of Isis, then all outstanding options under the Directors’ Plan will terminate immediately prior to the completion of the dissolution or liquidation.

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In the event of (i) a qualifying merger or consolidation or similar transaction, as described in the Directors’ Plan, whereby following such transaction the stockholders of Isis immediately prior to such transaction do not own outstanding voting securities representing more than 50% of the combined voting power of the entity (or parent of the entity) surviving such transaction, (ii) a qualifying sale, lease, license or other disposition of all or substantially all of our assets, (iii) certain entities reporting under Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) acquire more than 50% of our voting power under certain qualifying circumstances, or (iv) a majority of our Board of Directors is replaced by individuals who are not nominated by members of our current Board of Directors or members nominated by our current Board of Directors or their nominees (each such event, a “Change of Control” for purposes of the Directors’ Plan), the vesting of any outstanding options under the Directors’ Plan held by persons whose continuous service with Isis or an affiliate of Isis has not terminated prior to the effective date of the Change of Control will accelerate in full, and the options will terminate on the earlier of 12 months following the date of the Change of Control or the expiration date set forth in the option grant.

The acceleration of an option in the event of a Corporate Transaction or a Change in Control event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Isis.

Option Repricing Prohibited

The Board cannot, without first obtaining the affirmative vote of a majority of the shares present or represented and entitled to vote at a duly convened meeting of stockholders, (1) reduce the exercise price of any Options under the Directors’ Plan that are currently outstanding; or (2) cancel any outstanding Options under the Directors’ Plan and grant in substitution therefore new Options under the Directors’ Plan at a lower exercise price, including entering into any “6 month and 1 day” cancellation and re-grant program, regardless of whether or not the cancelled Options revert to and again become available for issuance under the Directors’ Plan.

Duration, Amendment and Termination

The Board at any time, and from time to time, may amend the Directors’ Plan.  However, except as relating to Capitalization Adjustments (described above), no amendment will be effective unless approved by our stockholders to the extent stockholder approval is necessary to satisfy the requirements of SEC Rule 16b-3 or any Nasdaq or securities exchange listing requirements or such amendment seeks to amend the prohibition on option repricing.  The Board, in its sole discretion, may submit any other amendment to the Directors’ Plan for stockholder approval.  Rights under any outstanding option granted before amendment of the Directors’ Plan will not be impaired by any amendment of the Directors’ Plan unless we request the consent of the optionholder and the optionholder consents in writing.

Unless sooner terminated and subject to stockholder approval of this Proposal 2, the Directors’ Plan will terminate on June 1, 2020.

Federal Income Tax Information

Nonstatutory stock options granted under the Directors’ Plan generally have the following federal income tax consequences.

There are no tax consequences to the optionholder or us by reason of the grant of a nonstatutory stock option.  Upon exercise of a nonstatutory stock option, the optionholder normally will recognize taxable ordinary income equal to the excess of the stock’s fair market value on the date of exercise over the option exercise price.  In the unlikely event the optionholder becomes an employee, we are required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized.  Subject to the requirement of reasonableness and the satisfaction of a tax reporting obligation, we will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionholder.

Upon disposition of the stock, the optionholder will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option.  Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year.

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New Plan Benefits Table

The following table presents certain information with respect to options we expect to grant under the Directors’ Plan for services rendered during the fiscal year ending December 31, 2010 to our non-employee Directors, assuming stockholder approval of this Proposal 2.  This table assumes that each non-employee Director continues as one of our Directors throughout the year and that we do not elect any additional non-employee Directors.  This information is for illustration only and may not be indicative of grants that are made in the future under the Directors’ Plan.

NEW PLAN BENEFITS

2002 NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN

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PROPOSAL 3

AMENDMENT OF THE 1989 STOCK OPTION PLAN TO INCREASE SHARES

In June 1989, our Board of Directors adopted, and our stockholders subsequently approved, our 1989 Stock Option Plan (the “1989 Plan”).

Below is a high-level summary of the terms of the 1989 Plan.  Please be sure to read the more detailed description of the 1989 Plan contained in this Proposal 3.  The 1989 Plan, among other things:

·      Has a term ending on January 31, 2014;

·      Prohibits the repricing of any option outstanding under the 1989 Plan unless approved by our stockholders;

·      Is limited to the grant of options and does not authorize stock bonuses or restricted stock awards;

·      Limits the term of each newly granted option to 7 years;

·      Requires that each newly granted option not become fully vested until a date at least two years after the date of grant, except in the case of certain corporate events;

·      Limits our ability to accelerate the vesting of stock options to the death, disability, or retirement of the optionee, or a change of control;

·      Requires all options outstanding under the 1989 Plan to have an exercise price of not less than 100% of the fair market value of our common stock on the date of grant;

·      Is administered by our Compensation Committee, which is composed entirely of independent Directors; and

·      Requires that the exercise price for options outstanding under the 1989 Plan can only be paid in cash.

Our management, Board and Compensation Committee believe that stock options are a key aspect of our ability to attract and retain qualified personnel in the face of intense competition for experienced scientists and other personnel among many pharmaceutical and health care companies.  The Board, upon the recommendation of the Compensation Committee, has approved an increase in the aggregate number of shares of common stock authorized for issuance under the 1989 Plan by 3,300,000 shares to an aggregate of 20,000,000 shares, in order to ensure that for a period of at least three years, based on our business plans, we can continue to grant stock options to employees and consultants at appropriate levels as determined by the Compensation Committee.  If our stockholders do not approve this Proposal 3, and as a consequence, we cannot continue to grant options at competitive levels, we believe that it will negatively affect our ability to meet our needs for highly qualified personnel and our ability to manage future growth.  Without these additional shares, management expects that the current shares available for grant under the 1989 Plan will not be sufficient to maintain our option grant practices for new employees or for promotions or merit awards for current employees after January 2011.

In addition, our 2000 Broad-Based Equity Incentive Plan expired in January 2010, so we may no longer grant new options under the 2000 Broad-Based Equity Incentive Plan.

Subject to stockholder approval of this Proposal 3, a total of 20,000,000 shares are authorized for issuance under the 1989 Plan.  As of March 31, 2010, a total of 6,371,807 options were granted and outstanding, 3,494,772 of which were vested and exercisable; and options to purchase a total of 8,623,092 shares had been exercised under the 1989 Plan.  If our stockholders do not approve this Proposal 3, as of March 31, 2010 there would only be 1,705,101 shares available for future grant under the 1989 Plan.

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Required Vote and Board of Directors Recommendation

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the 2010 Annual Meeting will be required to approve the amendment to the 1989 Plan.

Should we not obtain stockholder approval, then we will not implement the increase in the aggregate number of shares of common stock authorized for issuance under the 1989 Plan, and no additional stock options will be granted on the basis of such increase.  However, the 1989 Plan will remain in effect, and we may continue to make stock option grants and other awards pursuant to the current provisions of the 1989 Plan until we deplete the share reserve.

The Board of Directors believes that the proposed amendment of the 1989 Plan is in the best interests of Isis and our stockholders for the reasons stated above.

THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE 1989 PLAN TO INCREASE THE SHARES AUTHORIZED FOR ISSUANCE UNDER THE 1989 PLAN FROM 16,700,000 SHARES TO 20,000,000 SHARES.

The following description of the 1989 Plan, as amended, is qualified in all respects by the specific terms of the 1989 Plan, a copy of which was filed with this Proxy Statement.

Purpose

The 1989 Plan was adopted to provide a means by which we may give our employees (including officers), Directors and consultants an opportunity to benefit from increases in value of our common stock through the granting of incentive and supplemental (or nonstatutory) stock options (collectively, the “Options”).  Incentive stock options granted under the 1989 Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code.  Supplemental stock options granted under the 1989 Plan are intended not to qualify as incentive stock options under the Code.  See “Federal Income Tax Information” below for a discussion of the tax treatment of incentive and supplemental stock options.

Under the 1989 Plan, we cannot grant stock bonuses and restricted stock awards.  We have not granted these types of awards in the past.

Administration

The 1989 Plan authorizes the Compensation Committee to administer the 1989 Plan.  Each person serving on the Compensation Committee is a “non-employee Director” within the meaning of Rule 16b-3 of the Exchange Act, an “outside Director” within the meaning of Section 162(m) of the Code and an “independent Director” within the meaning of applicable Nasdaq listing standards.  As used herein with respect to the 1989 Plan, the “Committee” refers to the Compensation Committee and the Non-Management Stock Option Committee.

The Committee has the power to construe and interpret the 1989 Plan and, subject to the provisions of the 1989 Plan, to:

·      select the persons to whom Options are to be made;

·      designate the number of shares covered by each Option;

·      determine whether an Option is an incentive stock option or a supplemental stock option; and

·      establish vesting schedules, to specify the exercise price and, subject to certain restrictions, specify any other terms.

We believe limiting administration to the Compensation Committee is important because the Compensation Committee must be composed entirely of independent Directors.

The Compensation Committee has delegated to the Non-Management Stock Option Committee the power to grant options, on predefined terms, to our employees who are below the level of director.

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Eligibility

We may only grant incentive stock options under the 1989 Plan to our key employees, including officers.  In addition, key employees, including officers, Directors and consultants are eligible to receive supplemental or nonstatutory options.  As of March 31, 2010, we had approximately 300 employees and eight Directors who were eligible to receive options under the 1989 Plan.

We cannot grant an incentive stock option under the 1989 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock representing more than 10% of the total combined voting power of all classes of our stock, unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the option does not exceed five years from the date of grant.  In addition, the aggregate fair market value, determined at the time of grant, of the shares of common stock that an optionee may exercise under such incentive options during any calendar year may not exceed $100,000.  Further, the 1989 Plan contains a per-employee, per-calendar year grant limitation equal to 294,873 shares.

Stock Subject to the 1989 Plan

Subject to stockholder approval of this Proposal 3, a total of 20,000,000 shares of our Common Stock are authorized for issuance under the 1989 Plan.  If Options granted under the 1989 Plan expire or otherwise terminate without being exercised, the common stock not purchased pursuant to such Options again becomes available for issuance under the 1989 Plan.

Option Budget and Potential Dilution

Each year the Compensation Committee approves a budget that sets the number of stock options we can grant to our employees for that year.  We do not grant options that exceed the budget without the Compensation Committee’s approval.  The options we grant in any year primarily represent options for new hires and annual merit grants for our existing employees.  Over the past five years, the average option budget set by the Compensation Committee has been 1.6% of our outstanding common stock on an issued and outstanding basis.  The option budget is a “net” budget, which means that if options expire or otherwise terminate without being exercised, the common stock not purchased pursuant to such options is added to the budget.  Since cancelled or terminated options already counted against the budget for the year in which we granted such options, it makes sense to add them to the current budget to avoid double counting.  We believe the option budget is an important tool to balance our equity compensation objectives with stockholder interests.  Since the option budget has historically been 1.6% of our outstanding common stock on an issued and outstanding basis, we believe we have administered our stock option plans in a way that minimizes the potential dilution to our stockholders.

Terms of Options

The following is a description of the permissible terms of Options under the 1989 Plan.  Individual option grants may be more restrictive as to any or all of the permissible terms described below.

Exercise Price; Payment.  The exercise price of Options under the 1989 Plan may not be less than the fair market value of the common stock subject to the Option on the date of the option grant, and in some cases may not be less than 110% of such fair market value (see “Eligibility” above).  At March 31, 2010, the closing price of our common stock as reported on the Nasdaq Global Select Market was $10.93 per share.

An optionholder must pay the exercise price of Options granted under the 1989 Plan either: in cash at the time of exercise or pursuant to a “same-day sale” program developed pursuant to Regulation T of the Federal Reserve Board.

Transferability.  Under the 1989 Plan, an optionee may not transfer an incentive stock option other than by will or by the laws of descent and distribution.  Optionees may transfer supplemental stock options for limited estate planning purposes or by will or the laws of descent and distribution.

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Option Exercise.  Options granted under the 1989 Plan may become exercisable in cumulative increments, or “vest,” as determined by the Compensation Committee.  Shares covered by currently outstanding options under the 1989 Plan typically vest at the rate of 25% per year after year one and 2.08% per month thereafter for three years, as long as the optionee’s employment or service as a consultant or Director continues.  We may set different vesting terms for future options we grant under the 1989 Plan.  However, no Option granted to an employee will, unless otherwise provided by the 1989 Plan in very limited circumstances (see Effect of Certain Corporate Events below), become fully vested in a period of less than two years after the grant of such Option.

Limitation on Accelerated Vesting.  The Compensation Committee has the power to accelerate the time during which an option may be exercised only in the case of the death, disability, or retirement of the optionee, or upon a change of control.

Term.  The maximum term of options under the 1989 Plan is seven years, except that in certain cases the maximum term is five years (see “Eligibility”).  With certain exceptions, options under the 1989 Plan terminate three months after the optionee ceases to render services to us.

Prohibition of Option Repricing

The 1989 Plan expressly provides that, without the approval of a majority of votes cast in person or by proxy at a meeting of stockholders, we cannot cancel outstanding options in exchange for granting new options at a lower exercise price or amend outstanding options to reduce the exercise price.

Adjustment Provisions

If there is any change in our common stock (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the 1989 Plan and the Options outstanding thereunder will be appropriately adjusted as to the class and the maximum number of shares, the maximum number of shares which may be granted to an employee during a calendar year and price per share of stock subject to the 1989 Plan and such Options.

Effect of Certain Corporate Events

The 1989 Plan provides that, in the event of our dissolution or liquidation, or of a specified type of merger or other corporate reorganization, to the extent permitted by law, any surviving corporation will be required to either assume any Options outstanding under the 1989 Plan or substitute similar Options for those outstanding under the 1989 Plan.  If any surviving corporation declines to assume or continue the Options outstanding under the 1989 Plan, or to substitute similar Options, then, with respect to Options held by persons then performing services as employees or as consultants or Directors for us, the vesting of such Options will accelerate and the Options will terminate if not exercised during such time.

Duration, Amendment and Termination

The Compensation Committee may suspend or terminate the 1989 Plan without stockholder approval or ratification at any time or from time to time.  Unless sooner terminated, the 1989 Plan will terminate on January 31, 2014.

The Compensation Committee may also amend the 1989 Plan at any time or from time to time.  However, no amendment will be effective unless approved by our stockholders within 12 months before or after its adoption by the Compensation Committee if such amendment (i) increases the maximum aggregate number of shares of our common stock that may be issued pursuant to Options granted under the 1989 Plan, or (ii) requires stockholder approval in order to comply with SEC Rule 16b-3, Section 422(b) of the Code or any Nasdaq or securities exchange requirements.

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No Evergreen

The 1989 Plan does not include any automatic share reserve increase provision (i.e. an evergreen provision).

Federal Income Tax Information

Incentive Stock Options.  Incentive stock options under the 1989 Plan are intended to be eligible for the favorable federal income tax treatment accorded “incentive stock options” under the Code.

There generally are no federal income tax consequences to the participant or us by reason of the grant or exercise of an incentive stock option.  However, the exercise of an incentive stock option may increase the participant’s alternative minimum tax liability, if any.

If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option is granted and more than one year from the date on which the shares are transferred to the participant upon exercise of the option, any gain or loss on a disposition of such stock will be a long-term capital gain or loss.

Generally, if the participant disposes of the stock before the expiration of either of these holding periods (a “disqualifying disposition”), then at the time of disposition the participant will realize taxable ordinary income equal to the lesser of (i) the excess of the stock’s fair market value on the date of exercise over the exercise price, or (ii) the participant’s actual gain, if any, on the purchase and sale.  The participant’s additional gain or any loss upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year.

To the extent the participant recognizes ordinary income by reason of a disqualifying disposition, we will generally be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs.

Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options or whose stock is subject to forfeiture under Section 16(b) of the Exchange Act.

Supplemental Stock Options.  Supplemental stock options granted under the 1989 Plan generally have the following federal income tax consequences:

There are no tax consequences to the optionee or us by reason of the grant of a supplemental stock option.  Upon exercise of a supplemental stock option, the optionee normally will recognize taxable ordinary income equal to the excess of the stock’s fair market value on the date of exercise over the option exercise price.  Generally, with respect to employees, we are required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized.  Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax-reporting obligation, we will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionee.  Upon disposition of the stock, the optionee will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option.  Such gain or loss will be long-term, if the stock was held for more than one year.  Otherwise, it will be short-term capital gain.  Slightly different rules apply to optionees who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act.

Potential Limitation on Company Deductions. Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain employees in a taxable year to the extent that compensation exceeds $1 million for such employee.  It is possible that compensation attributable to stock options, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year.

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Certain kinds of compensation, including qualified “performance-based compensation,” are disregarded for purposes of the deduction limitation.  In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock options will qualify as performance-based compensation if the award is granted by a compensation committee comprised solely of “outside Directors” and either (i) the plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, the per-employee limitation is approved by the stockholders, and the exercise price of the award is no less than the fair market value of the stock on the date of grant, or (ii) the award is granted (or exercisable) only upon the achievement (as certified in writing by the compensation committee) of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain, the committee of outside directors certifies in writing prior to the granting (or vesting or settlement) of the award that the performance goal has been satisfied, and the stockholders have approved the material terms of the award (including the class of employees eligible for the award, the business criteria on which the performance goal is based, and the maximum amount, or formula used to calculate the maximum amount, payable upon attainment of the performance goal.)

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New Plan Benefits

The following table presents certain information with respect to merit-based options granted during the fiscal year ended December 31, 2009 to (i) each executive officer named in the Summary Compensation Table under “Executive Compensation—Compensation of Executive Officers”, (ii) all executive officers as a group, (iii) all non-employee Directors as a group, and (iv) all non-executive officer employees as a group.  This information regarding grants for the fiscal year ended December 31, 2009 is for illustration only and may not be indicative of grants that are made in the future under the 1989 Plan.

NEW PLAN BENEFITS

1989 STOCK OPTION PLAN

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Equity Compensation Plan Information

The following table sets forth information regarding outstanding options and shares reserved for future issuance under our equity compensation plans as of December 31, 2009.

(a)                                  Consists of three Isis plans: 1989 Stock Option Plan, 2002 Non-Employee Directors’ Stock Option Plan and Employee Stock Purchase Plan.

(b)                                 Consists of the 2000 Broad-Based Equity Incentive Plan, more fully described below.  The 2000 Broad-Based Equity Incentive Plan expired on January 5, 2010.

(c)                                  Of these shares, 98,769 remained available for purchase under the Employee Stock Purchase Plan as of December 31, 2009. The Employee Stock Purchase Plan incorporates an evergreen formula pursuant to which on January 1 of each year, we automatically increase the aggregate number of shares reserved for issuance under the plan by 150,000 shares.

Description of 2000 Broad-Based Equity Incentive Plan (Expired on January 5, 2010)

We adopted the 2000 Broad-Based Equity Incentive Plan, or the 2000 Plan, to provide our employees, officers, Directors and consultants an opportunity to benefit from increases in the value of our common stock through the granting of non-statutory stock options, stock bonuses and rights to purchase restricted stock. At the time we adopted the 2000 Plan, we were not required to seek the approval of our stockholders. The Board delegated administration of the 2000 Plan to the Compensation Committee of the Board, and the Compensation Committee delegated administration of the 2000 Plan to the Non-Management Stock Option Committee with respect to certain option grants to employees who do not have a position at the level of director or above. The Board has the power to construe and interpret the 2000 Plan and, subject to the provisions of the 2000 Plan, to select the persons who receive stock awards, designate the number of shares covered by each stock award, establish vesting schedules, and specify the exercise price and the type of consideration we will receive upon exercise or purchase.

As of December 31, 2009, the 2000 Plan had 5,990,000 shares authorized for issuance, options to purchase an aggregate of 3,046,910 shares had been granted and were outstanding under the 2000 Plan, options to purchase an aggregate of 2,937,524 shares had been exercised under the 2000 Plan, and 5,566 shares remained available for grant thereunder. The 2000 Plan expired on January 5, 2010, so we may no longer grant new options under the 2000 Plan.

Options granted under the 2000 Plan generally have a term of seven or ten years, have an exercise price equal to the fair market value at the time of grant, can only be exercised with a cash payment and vest at the rate of 25 percent per year after the first year and then at the rate of 2.08 percent per month thereafter during the option holder’s employment or service as a consultant, employee or director.  If any change is made in the common stock subject to the 2000 Plan, or subject to any stock award, without the receipt of consideration by us (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by us), we will adjust the 2000 Plan appropriately in the class(es) and maximum number of securities subject to the 2000 Plan, and we will adjust the outstanding stock awards appropriately in the class(es) and number of securities and price per share of common stock subject to such outstanding stock awards. Our Board will make the adjustments, and its determination will be final, binding and conclusive. We will not treat the conversion of any of our convertible securities as a transaction without receipt of consideration.

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In the event of our dissolution or liquidation, all outstanding stock awards will terminate immediately prior to such event.

In the event of:

·                  a sale, lease or other disposition of all or substantially all of our assets;

·                  a merger or consolidation in which we are not the surviving corporation; or

·                  reverse merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise;

then any surviving corporation or acquiring corporation will assume any stock awards outstanding under the 2000 Plan or will substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction for those outstanding under the 2000 Plan). If any surviving corporation or acquiring corporation refuses to assume such stock awards or to substitute similar stock awards for those outstanding under the 2000 Plan, then with respect to stock awards held by participants whose continuous service has not terminated, we will accelerate the vesting of such stock awards in full and the stock awards will terminate if not exercised (if applicable) at or prior to such event.

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PROPOSAL 4

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors has selected Ernst & Young LLP as our independent registered public accounting firm for our 2010 fiscal year, and has requested management to ask for stockholder ratification at the Annual Meeting.  Ernst & Young LLP has audited our financial statements since we were founded in 1989.  Representatives of Ernst & Young LLP will be at the 2010 Annual Meeting to answer any questions and make a statement should they desire to do so.

Although our Bylaws do not require stockholders to approve our independent registered public accounting firm, the Audit Committee of the Board would like our stockholders’ opinion as a matter of good corporate practice.  If the stockholders vote against Ernst & Young LLP, the Audit Committee of the Board will reconsider whether to keep the firm.  However, even if the stockholders ratify the selection, the Audit Committee of the Board may choose to appoint a different independent accounting firm at any time during the year if it believes that a change would be in the best interests of our stockholders and Isis.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the 2010 Annual Meeting will be required to ratify the selection of Ernst & Young LLP.

As of December 31, 2009, none of our finance or accounting employees had been employed by Ernst & Young LLP during the past six years.

Independent Auditors’ Fees:

The Audit Committee has adopted a policy and procedures for the pre-approval of audit and permissible non-audit services rendered by our independent registered public accounting firm, Ernst & Young LLP.  The policy generally pre-approves specific services in the defined categories of audit services, audit-related services, and tax services up to pre-determined amounts.  The Audit Committee may pre-approve services as part of its approval of the scope of the engagement of the independent auditor or on an individual explicit case-by-case basis before the Audit Committee engages the independent registered public accounting firm to provide each service.  As an additional measure to ensure auditor independence, beginning in 2004, the Audit Committee engaged Deloitte Tax LLP as our primary tax advisor.  The Audit Committee pre-approved the fees described below.

Audit Fees:

For the fiscal years ended December 31, 2009 and 2008, the fees billed by Ernst & Young LLP related primarily to the integrated audit of our financial statements and reviews of our interim financial statements for such fiscal years were $513,000 and $506,000, respectively.  In addition, Ernst & Young LLP billed us $28,000 and $44,000 in 2009 and 2008, respectively, primarily related to accounting consultations for implementing new accounting standards.  Furthermore, in 2009 and 2008, Ernst & Young LLP billed us $86,000 and $93,000, respectively, for the audit of our subsidiary, Regulus Therapeutics Inc.

Audit Related Fees:

For the years ended December 31, 2009 and 2008, there were no audit related fees billed by Ernst & Young LLP that were reasonably related to the performance of the audit or review of our financial statements that are not included under “Audit Fees” above.

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Tax Fees:

For the years ended December 31, 2009 and 2008, there were no tax fees billed by Ernst & Young LLP for tax related matters that were not part of the integrated audit fees.  In 2009 and 2008, we utilized Deloitte Tax LLP for the majority of our tax services.

Financial Information Systems Design and Implementation Fees:

During the fiscal years ended December 31, 2009 and 2008, there were no fees billed by Ernst & Young LLP for information technology consulting.

All Other Fees:

During the fiscal years ended December 31, 2009 and 2008, all other fees billed by Ernst & Young LLP were $2,000 in each year.  These fees were for a subscription to an online accounting and tax information service.

The Audit Committee has determined that the rendering of all non-audit services by Ernst & Young LLP is compatible with maintaining the auditor’s independence.

During the fiscal year ended December 31, 2009, none of the total hours expended on our financial audit by Ernst & Young LLP were provided by persons other than Ernst & Young LLP’s full-time permanent employees.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL 4

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This table outlines the ownership of our common stock as of March 31, 2010 by:

·                  each Director and nominee for Director;

·                  each executive officer named in the Summary Compensation Table under “Executive Compensation—Compensation of Executive Officers”;

·                  all Directors and executive officers as a group; and

·                  every entity that we know beneficially owns more than five percent of our common stock.

*Less than one percent.

(1)       We base this table upon information supplied by officers, Directors, principal stockholders and Form 3s, Schedules 13D and 13G filed with the SEC.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

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(2)       Applicable percentages are based on 99,077,428 shares of common stock outstanding on March 31, 2010, adjusted as required by rules promulgated by the SEC.

(3)       Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 14,757,143 shares as a result of acting as investment adviser to various investment companies.  The ownership of one investment company, Fidelity Growth Company Fund, amounted to 9,832,981 shares.  Edward C. Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 14,757,143 shares owned by the Funds.

(4)       Represents shares of our common stock formerly beneficially owned by Barclays Global Investors (Deutschland) AG.  On December 1, 2009, BlackRock completed its acquisition of Barclays Global Investors from Barclays Bank PLC.

(5)       On January 7, 2008 we entered into a Stock Purchase Agreement with Genzyme Corporation pursuant to which we issued and sold to Genzyme 5,000,000 shares of common stock for an aggregate purchase price of $150,000,000, representing a per share purchase price of $30.

(6)       Includes 70 shares owned by Dr. Berthelsen’s daughter for which he disclaims beneficial ownership.  Includes 79,375 shares of common stock issuable upon exercise of options held by Dr. Berthelsen that are exercisable on or before May 30, 2010.

(7)       Includes 740,549 shares of common stock issuable upon exercise of options held by Dr. Crooke that are exercisable on or before May 30, 2010.  Also includes 43,418 shares of common stock issuable upon exercise of options held by Rosanne Crooke, Dr. Crooke’s wife, that are exercisable on or before May 30, 2010.  Dr. Crooke disclaims beneficial ownership of the shares of common stock owned and issuable upon exercise of options held by his wife.

(8)       Includes 49,375 shares of common stock issuable upon exercise of options held by Dr. DiMarchi that are exercisable on or before May 30, 2010.

(9)       Includes 39,375 shares of common stock issuable upon exercise of options held by Mr. Klein that are exercisable on or before May 30, 2010 and 100 shares of common stock indirectly beneficially owned by Mr. Klein’s son.

(10)     Includes 1,500 shares of common stock indirectly beneficially owned through the Cooley Godward Kronish LLP Salary Deferral and Profit Sharing Plan and 81,375 shares of common stock issuable upon exercise of options held by Mr. Muto that are exercisable on or before May 30, 2010.

(11)     Includes 315,177 shares of common stock issuable upon exercise of options held by Ms. Parshall that are exercisable on or before May 30, 2010, and an aggregate of 40,000 shares of common stock issuable upon exercise of options which Ms. Parshall transferred to her two daughters that are exercisable on or before May 30, 2010.

(12)     Includes 89,375 shares of common stock issuable upon exercise of options held by Dr. Reed that are exercisable on or before May 30, 2010.

(13)     Includes 67,375 shares of common stock issuable upon exercise of options held by Mr. Wender that are exercisable on or before May 30, 2010.

(14)     Includes 184,718 shares of common stock issuable upon exercise of options held by Dr. Bennett that are exercisable on or before May 30, 2010.

(15)     Includes 88,988 shares of common stock issuable upon exercise of options held by Dr. Geary that are exercisable on or before May 30, 2010.

(16)     Includes an aggregate of 1,819,100 shares issuable upon exercise of options held by all current Directors and executive officers as a group that are exercisable on or before May 30, 2010.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our Directors, executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.  Officers, Directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2009, all Section 16(a) filing requirements applicable to our officers, Directors and greater than ten percent beneficial owners were complied with.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Compensation Overview and the Role of the Compensation Committee

We have designed our executive compensation to attract and retain executives who can help us meet our business objectives and to motivate them to enhance long-term stockholder value.  The Compensation Committee of the Board of Directors manages and oversees our executive compensation program.  At the end of each year, and as otherwise required, the Compensation Committee approves the total compensation for each of our executive officers.  In addition, the full Board of Directors reviews and approves the Compensation Committee’s recommendations regarding the compensation of executive officers.

The Compensation Committee’s responsibilities include:

·                  overall compensation strategy;

·                  reviewing and approving corporate performance goals and objectives relevant to the compensation of our executive officers;

·                  evaluating and recommending to the Board the compensation plans and programs advisable for Isis, as well as modifying or terminating existing plans and programs;

·                  establishing policies with respect to equity compensation arrangements;

·                  reviewing and approving compensation arrangements for our executive officers, including our Chief Executive Officer;

·                  reviewing and approving compensation arrangements for our Directors;

·                  administering our benefit plans, including stock option and employee stock purchase plans;

·                  evaluating risks associated with the compensation policies and assessing whether risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on us;

·                  performing other functions as may be necessary or convenient in the efficient discharge of the foregoing; and

·                  reporting to the Board of Directors from time to time, or whenever it shall be called upon to do so.

Compensation Philosophy & Objectives

We created a compensation system that is simple and supports the characteristics and behaviors that we feel will make us successful: individual excellence, effective collaboration and teamwork, willingness to take prudent risks, and honesty and openness.  Our system is designed to be fair and reward individuals based on their contributions.  As a result, we do not institute artificial limits on rewards.  In order to attract and retain individuals that perform in the top 25% we consistently try to target actual total annual cash compensation at the 75th percentile of the biotech market for our size company.  Although we do not necessarily recruit at the 75th percentile, we do expect that top performers will earn at or above that level.  This basic tenet of our compensation practices allows us to recruit and retain top talent, and reflects Isis’ position among biotech companies.  We recognize achievements in many ways including salary increases, promotions, cash bonus opportunities and stock options.  We designed our compensation philosophy to encourage ownership in Isis and its ideals by all employees.

We believe our compensation system focuses our organization on achieving critical objectives.  We ensure that these objectives are aggressive and we define excellent performance as a year in which we have met most of the objectives.  At Isis, we expect people to achieve very complicated tasks and understand that we are doing science which is difficult to predict.  We reward for that success; our compensation system also reinforces desired behaviors.  We expect outstanding performance from every individual and we expect every person at Isis to accept responsibility for making Isis a great place to work.  We expect everyone to behave respectfully and supportively to each other and to never forget our commitment to the patients we serve and our obligations to stockholders.

We incorporate a number of features into our compensation philosophy and objectives to mitigate the risk that our compensation policies and practices could encourage unnecessary or imprudent business risk taking.  We use a

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combination of compensation vehicles that provide a balanced mix of fixed and variable cash incentives, and long-term equity incentives.  Our cash bonuses are not guaranteed (i.e. are 100% at risk) and include a multiplier based on Isis’ performance.  Therefore, if Isis does not perform well, the cash bonus can be, and has been, zero.  When setting our Company objectives, which then become our CEO’s individual objectives, we structure the objectives so that they are results driven rather than task driven.  For example, we typically include a number of objectives based on positive clinical trial data, such as in 2009 we had a Company objective of achieving a positive mipomersen Phase 3 HoFH trial.  This type of objective only rewards our executives if the data are positive, because we must encourage the prudent spending of stockholder money on development decisions.  In other words, we do not want to structure our objectives to reward “bad bets.”  We also align our Company objectives and individual objectives with the long term strategy of Isis, and use little or no metric-based objectives such as earnings per share.  This way, we avoid the temptation to deviate from Isis’ long-term strategy just to meet a short-term metric.  In addition, all of our equity compensation vests over a period of four years, with no vesting during the first year, and we set the option exercise price at the fair market value of our stock on the date of grant.  This practice ensures that our equity compensation does not reward short term imprudent risk taking at the expense of long term stockholder value, because if stockholder value declines over time, so too will the value of the equity compensation.  We cover the specific elements of our compensation policy and practices in more detail below.

Elements of Executive Compensation

Employees in our organization do not share either accountability or responsibility equally for strategic and/or tactical decisions.  It is well ingrained in our culture that not everyone should share the same level of risk/reward for the consequences of these decisions.  As a result, we have structured the various components of our compensation systems to reflect accountability both for the successes or failures (both long-term and short-term) of Isis and of individuals.  Our senior management team is paid for results and their use of judgment in executing the strategies they have established; therefore, the more senior the person, the greater percentage of “at risk” cash compensation.  The more junior employees are compensated for accomplishing their work well and therefore have a lower “at risk” portion to their cash compensation.

The executive officers’ annual compensation consists of three elements: base salary, a cash incentive bonus, no portion of which is guaranteed, and stock option grants.  The cash incentive bonus is the only element of these three that does not apply to all employees; it is available to employees at the director level and above.  We provide all other benefits, including 401(k) matching, to all employees.  We describe these benefits in more detail later.

We consider many factors in determining the amounts we grant to our executives for each of these three elements.  These considerations may include:

·                  The Compensation Committee’s performance assessment of the CEO and executive officers;

·                  Competitive compensation practices;

·                  Individual performance and contributions to Isis’ objectives;

·                  Increased efficiencies and process improvements;

·                  Effective collaboration and teamwork;

·                  Individual expertise, skills and knowledge;

·                  The need to retain and motivate; and

·                  The magnitude of the impact a judgment by the individual can have on Isis’ success or failure.

A large degree of discretion is allowed in setting the appropriate increases based on these and other possible factors.  We do not have specific weightings assigned to these performance factors and the importance of each factor can vary among the executive officers.

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Base Salary

The primary component of our compensation is base salary.  We categorize our jobs in a system called broad-banding.  That is to say that there are relatively few job levels within Isis, but the scope of responsibility and accountability which an employee may assume is broad.  We do not have salary ranges, and therefore we do not set salary maximums.  It is therefore possible that someone may be in a lower job level, but his/her salary may reach levels which exceed those of someone in a higher job level.  We have chosen not to have multiple levels and salary limits because years of experience has shown us that these approaches often create unnecessary bureaucracy and a loss of talented individuals.

We determine base compensation levels throughout Isis primarily by market forces.  First, we look externally at what comparable companies in the geographical or recruiting area are paying for comparable jobs.  We use AON’s Radford Biotechnology Survey to obtain this information targeting the 75th percentile and companies of a similar size (150-499 employees).  Examples of companies within this group are:  Alnylam Pharmaceuticals, Arena Pharmaceuticals, Incyte Corporation, Medarex, Inc., and OSI Pharmaceuticals, Inc.  We then look at the salary required to attract a particular candidate.  The third step is to determine whether the scope of job responsibilities and internal equity warrant a given base salary.

Base salary is guaranteed to all employees as wages for hours worked.  It represents consideration for the performance of job responsibilities.  This portion of total cash compensation is not at risk and may increase as a result of how well an individual performs his/her job responsibilities.

Each year our employees are eligible to receive an appropriate merit salary increase.  The Compensation Committee sets a Company-wide merit increase budget percentage based on external factors such as the average merit increase being used by comparable companies, as well as Isis’ performance.  The Company-wide merit increase budget percentage serves as the basis for each individual salary increase.  For the merit increase for all of our employees, including our executive officers, we may increase or decrease the Company-wide merit increase budget percentage depending upon the respective individual’s contribution to Isis.

The Compensation Committee evaluates each executive officer’s performance to set their annual merit increase.  The Compensation Committee considers our senior management’s written evaluation of each individual executive officer, with respect to all executive officers, other than the CEO.  The Compensation Committee shows deference since our senior management team is in the best position to evaluate our executive officers’ day-to-day and overall performance.  The Compensation Committee then meets in executive session and evaluates the CEO’s performance, primarily based upon the CEO’s achievement of set objectives for the year.  At the end of this process, the Compensation Committee determines the CEO’s merit increase and approves or recommends changes to the merit increases for the remaining executive officers.  The CEO has no role in determining his own compensation.

The executive officers’ new salaries for the upcoming year are calculated as follows:

Current Base Salary (x) Merit Increase = Increase to Base Salary

For example, Dr. Crooke’s 2010 salary of $710,995 was calculated as follows:

The average merit increase for all of our other executive officers for 2010 salaries was 4.08%.  The 2009 merit budget approved by the Compensation Committee for the entire Company was 4% of salaries.  This was a 1.0% decrease over the 2008 merit budget of 5.0%.  This decrease was driven by the general decrease we observed in the market balanced against Isis’ strong performance in 2009.  The Compensation Committee believes the level of increase is in line with comparable companies and was deserved based on performance. The Compensation Committee approved this budget based on Isis’ outstanding accomplishments in 2009, as noted in the section entitled “Evaluation of 2009; Business Highlights” below, and competitive information on the planned merit increases provided by other local biotech companies.  Our Executive Director of Human Resources obtained planned merit increases by surveying local companies through the Biotech Employee Development Coalition and by reviewing data provided by AON’s Radford Biotechnology Compensation Survey.

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As part of the approval process, to ensure that the proposed merit increases are reasonable, the Compensation Committee analyzes the impact of the proposed merit increase on the CEO’s salary.  In 2010, Dr. Crooke’s proposed new base salary of $710,995 placed him above the 90th percentile of Radford ($690,000); based on this information further analysis was performed.  The Compensation Committee reviewed a report of peer group companies obtained by utilizing Equilar’s Executive Insight research database, a resource for benchmarking executive compensation and analyzing CEO and executive pay trends.  Using the search criteria of: 1) CEO tenure between 15-26 years; 2) Biotech/Biopharmaceuticals industry; and 3) market capitalization between $1 billion and $5 billion, we identified eight peer group CEOs.(6)  This information illustrated that Dr. Crooke’s base pay was below the CEO average base salary of $746,500 for these eight companies and, as such, the Compensation Committee believed Dr. Crooke’s 4.0% increase was appropriate based on his accomplishments for the year as well as the market data.  The merit increases for all other executives, and their impact, were compared to Radford data only.  The results as a whole showed that we pay our executives, on average, above the 90th percentile.  The Compensation Committee determined that this was reasonable based on the longevity of many of our executive officers, as well as their performance in 2009.  The average tenure of our executive officers, excluding our CEO, is 17.3 years.  The average tenure of our executive officers, including our CEO, is 18 years.

Cash Bonus — At Risk

The next component of an executive officer’s compensation, as well as the compensation of our employees at the director level and above, is a cash bonus through our management by objective (MBO) bonus program.  While we design individual salary to compensate an employee for his or her continued service and performance, we designed our cash bonus portion of total compensation to compensate employees for reaching specific objectives and for the judgment they use in making decisions.  This portion of compensation is not guaranteed and is totally at risk.  As such, a cash bonus represents an opportunity for reward based upon the individual’s level of accountability and depends on the relative success of both Isis and the individual.  Our approach for awarding management by objective bonuses differs from salary increases because, unlike salary increases, market forces do not impact bonus amounts.

The actual amount of each officer’s respective cash bonus is calculated based on the following formula:

Base Salary (x) Target MBO % (x) Company Success Factor (x) Individual Success Factor

The multipliers in this formula ensure that we award bonuses based on Isis’ performance, as well as based on the individual’s performance.  For example, in 1999, the Company Success Factor was 0% due to the failures Isis faced at the time.  This resulted in no cash bonuses for executive officers and director level and above employees.  Conversely, in 2007 Isis had a seminal year and the Company Success Factor was 200%.  This range represents the boundary conditions for our Company Success Factor and ensures that our employees are rewarded proportionately to the success of Isis.

Target MBO percentages are based on position levels within Isis.  The Target MBO percentages are as follows:   Directors 15%; Executive Directors 20%; Vice Presidents 25% or 30%; COO 35% and CEO 40%.  An individual’s Target MBO percentage does not change unless he or she changes position level.

The Compensation Committee sets the Company Success Factor based on Isis’ achievement of set objectives for the year.  At the end of each year, the Compensation Committee meets to evaluate Isis’ overall performance.  The Committee measures Isis’ performance based upon the achievement of goals that were set at the beginning of the year and agreed upon by our Board and upper management.  The Compensation Committee may also consider unexpected accomplishments, as well as failures, that occurred through the year. The committee then reviews the MBO Company Success Factor history/events from all prior years to form a comparison for our current year’s successes and/or failures.

(6) These companies were Cephalon, Inc., Charles River Laboratories International Inc., CV Therapeutics, Inc., Medicis Pharmaceutical Corp., Myriad Genetics, Inc., Onyx Pharmaceuticals, Inc., Regeneron Pharmaceuticals, Inc. and TECHNE Corp.

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Finally, the Compensation Committee approves each officer’s Individual Success Factor based on the same elements it used to evaluate the Individual Success Factor for salary increases.

Once the Compensation Committee has determined all of the elements of the formula above, it applies the formula to each individual officer.  For example, Dr. Crooke’s cash bonus based on his, as well as Isis’ performance in 2009, was calculated as follows and equaled $361,650:

The Compensation Committee reduced the individual success factors for Dr. Crooke and Ms. Parshall because Isis’ stock price did not perform well in 2009.  The average Target MBO percentage and Individual Success Factor for our other executive officers was 31% and 122%, respectively.

The Compensation Committee set the Company Success Factor for the 2009 MBO at 115% due to our strong achievements for the year, including a positive mipomersen HoFH clinical trial balanced against the performance of the stock price.  The section entitled “Evaluation of 2009; Business Highlights” below provides a full review of our accomplishments.  This MBO target reflects a decrease of 15 percentage points from the 2008 Company Success Factor of 130%.  Although the Board did not set a specific stock price objective for the year, the Compensation Committee did note Isis’ stock price did not perform well, and as such was the primary reason for the decrease in the 2009 Company Success Factor.

An executive officer’s salary plus bonus represents the officer’s total cash compensation.  Our philosophy has been to have the CEO’s total cash compensation be between 20-30 times the lowest level compensation.  Dr. Crooke’s total cash compensation is an average of 1.7 times greater than that of our other executive officers and 20.3 times that of the average cash compensation for our lowest level employees.  This falls within industry standards, RiskMetrics Group guidelines, and our philosophy.  For example, RiskMetrics Group has suggested a ratio of CEO to Executive level compensation of between 2 and 5.

Stock Options

We use our stock option program to give all employees, including Isis’ executive officers, an economic interest in the long-term appreciation of our common stock.  We grant existing employees new options on an annual basis to provide a continuing financial incentive and equity in Isis’ growth.

Each year the Compensation Committee approves a budget that sets the number of stock options we can grant our employees for annual merit awards.  We do not grant options that exceed this budget without the Compensation Committee’s approval.  Over the past five years, the average option budget set by the Compensation Committee has been approximately 1.6% of our outstanding common stock on an issued and outstanding basis.  We believe the merit option budget is an important tool to balance our equity compensation objectives with stockholder interests.  For 2009, the Compensation Committee set the option budget at 1.5 million shares, which represented 1.5% of our outstanding common stock on an issued and outstanding basis for that year.  This overall maximum, plus each employee’s position and performance in the previous year, ultimately determines the size of the individual annual option grant.

For each stock option, the Compensation Committee sets a vesting schedule that is typically over a 4-year period at the rate of 25% at the end of the first year and then at the rate of 2.08% per month for 36 months thereafter during the optionee’s employment or services as a consultant or director.  We have historically had low employee turnover, particularly in our management team and the members of our management have historically held their options for a long period of time before exercise.  The low turnover is indicative of our employees’ commitment to Isis and its technology.  As such, we believe our officers see the long term value of our stock and therefore we do not require our employees to own a minimum number of shares of our stock, or hold shares of our stock they acquire for minimum periods of time.

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To help avoid situations where our employees may benefit from transactions that harm our stockholders, our policies specifically prohibit all employees, including our executive officers, from taking a “short” position in our stock and otherwise hedging their position in our stock against a future drop in our stock price.  In addition, we specifically prohibit all of our employees from trading derivative instruments based on our common stock (e.g. put or call options for our stock).

Finally, we have a Rule10b5-1 trading program.  When there is no material non-public information available, our Rule 10b5-1 trading program allows our executive officers, and other select employees, to establish plans that permit prearranged future sales of his or her securities.  Except for purchases of our stock under our ESPP (but not subsequent sales of the stock) we do not allow our executive officers to buy or sell our stock outside of the Rule 10b5-1 trading program.

Perquisites

Isis is committed to using stockholder money responsibly, to building stockholder value and ensuring our processes are entirely transparent.  As a result, Isis’ policies do not provide for perquisites for any employees, including our executive officers.

Retirement & Other Benefits

Isis maintains a highly competitive position with regard to the benefits offered to all regular employees, including our executive officers.  These benefits include medical, dental and vision insurance, basic life insurance, short-term disability/sick pay, vacation, holidays, a 401(k) plan with employer match, an ESPP and Accidental Death & Dismemberment (AD&D) insurance.

Recognizing that health care costs constitute a greater fraction of disposable income for lower paid employees, we have a progressive contribution premium for our health care benefits; the more money an Isis employee makes, the more he or she contributes to the costs of his/her family’s health care.

Retention and Change of Control Agreements

Isis’ retention agreements for our CEO and COO and the related severance compensation provisions are designed to meet the following objectives:

Change in Control:   As part of our normal course of business, we engage in discussions with other biotechnology and pharmaceutical companies about possible collaborations, licensing and/or other ways in which the companies may work together to further our respective long-term objectives.  In addition, many larger established pharmaceutical companies consider companies at similar stages of development to ours as potential acquisition targets.  In certain scenarios, the potential for merger or being acquired may be in the best interests of our stockholders.  As further described on page 46 of this Proxy Statement, we provide a component of severance compensation for our CEO and COO to promote their ability to act in the best interests of our stockholders even though they could be terminated as a result of the transaction.

Termination without Cause:  If we terminate the employment of our COO “without cause” we will pay her the benefits described under “Post-Employment Compensation — Retention and Change of Control Agreements” of this Proxy Statement.  This agreement provides us with more flexibility to make a change in senior management if such a change is in our and our stockholders’ best interests.

Evaluation of 2009; Business Highlights

2009 was a strong year for Isis.  Isis successfully met its objective for mipomersen, most notably the positive Phase 3 study in HoFH patients.  In addition, Isis performed very well financially, where Isis met its operating results guidance and ended 2009 with $574.3 million of cash, cash equivalents and short-term investments significantly in excess of the $550 million projected.  However, as noted above, the Compensation Committee considered that Isis’ stock price did not perform well.

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The Compensation Committee set the Company Success Factors for salary and bonus as described above, based on Isis’ successful achievement of the corporate objectives for the year as well as Isis’ additional achievements, which are highlighted below:

Drug Development Highlights

·                  Mipomersen continued to advance in clinical development and move closer to the market for patients who cannot adequately control their cholesterol levels with current therapies and who need new treatment options.  Isis and Genzyme reported positive data from two Phase 3 studies evaluating mipomersen in patients with FH.

·                  Isis reported positive Phase 2 data on ISIS 113715 in patients with type 2 diabetes on stable doses of sulfonylurea.

·                  Isis reported positive Phase 1 data in which ISIS-GCGRRx produced a significant improvement in glucagon-induced blood glucose levels and was well tolerated.

·                  In addition, Isis and its partners continued to advance the drugs in Isis’ pipeline and reported encouraging clinical results in a broad range of diseases.

·                  Isis and its partners added four new drugs to its pipeline, including ISIS-FXIRx to treat thrombosis, ISIS-SMNRx to treat spinal muscular atrophy, or SMA, ISIS-APOCIIIRx to treat cardiovascular disease, and ACHN-490 to treat severe bacterial infections.

Corporate Highlights

·                  Isis executed its business strategy by successfully selling its Ibis subsidiary to AMI.

·                  Isis benefited financially as its partners advanced drugs in development.

·                  Isis also benefited from its partnerships focused on developing and advancing certain RNA-based therapeutic technologies, receiving nearly $13 million in total.

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Compensation of Executive Officers

The following table shows for the fiscal years ended December 31, 2009, 2008 and 2007 compensation awarded to or paid to, or earned by, our Chief Executive Officer, Chief Financial Officer and our two other most highly compensated executive officers at December 31, 2009 (the “Named Executive Officers”).

In 2009, we did not grant any stock awards or non-equity incentive plan compensation and we do not currently offer pension or non-qualified deferred compensation plans.

Summary Compensation Table for Fiscal 2009, 2008 and 2007

(1)          We present bonuses in the years they were earned, not in the year paid.  Bonuses represent compensation for achievements and are not necessarily paid in the year they are earned; i.e., we paid bonuses for 2009 in January 2010.

(2)          Amounts represent the aggregate expense recognized for financial statement reporting purposes in accordance with FASB Topic ASC 718 (“ASC 718”) for stock options granted to the Named Executive Officers.  ASC 718 expense for the stock options is based on the fair value of the options on the date of grant using the Black-Scholes option-valuation model.  For more information, please see Note 5 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards.

(3)          Includes AD&D, Basic Life, Medical, Dental, Vision, and 401(k) matching contributions which are available to all employees.

(4)          Additional options granted as a result of Ms. Parshall’s promotion to Chief Operating Officer and Dr. Geary’s promotion to Senior Vice President.

(5)          Because Dr. Geary was not a Named Executive Officer in 2007 and did not become an executive officer until August 2008, we are not disclosing compensation for 2007 as permitted by SEC regulations.

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Grants of Plan-Based Awards

The following table shows for the fiscal year ended December 31, 2009, certain information regarding grants of plan-based awards to the Named Executive Officers:

Grants of Plan-Based Awards in Fiscal 2009

(1)          Amounts represent the aggregate expense that will be recognized for financial statement reporting purposes in accordance with ASC 718 for stock options granted to the Named Executive Officers.  ASC 718 expense for the stock options is based on the fair value of the options on the date of grant using the Black-Scholes option-valuation model.  For more information, please see Note 5 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards.

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

The Compensation Committee granted merit non-statutory stock options to the executive officers on January 2, 2009, the same date on which the committee granted stock options to our other employees.

All of these stock options were granted out of our 1989 Plan or 2000 Plan.  The options have a term of seven years and vest at the rate of 25% for the first year and then at the rate of 2.08% per month for 36 months thereafter during the optionee’s employment.

For new hires and promotions for employees who are not executive officers, the Board has pre-approved standing resolutions that set the number of shares to be granted.  The stock option exercise price is equal to 100% of the closing price on the date of grant, which is the date of hire or promotion, as applicable.

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Outstanding Equity Awards at Fiscal Year-End — Executive Officers.

The following table shows for the fiscal year ended December 31, 2009, certain information regarding outstanding option awards at fiscal year-end for the Named Executive Officers.

Other than the options described in the table below, there were no equity incentive plan awards outstanding for the Named Executive Officers at December 31, 2009.  In addition, there were no stock awards outstanding for the individuals named below at December 31, 2009.

Outstanding Option Awards At December 31, 2009