UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

Commission file number 0-19125

Isis Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

1896 Rutherford Road, Carlsbad, CA 92008

(Address of principal executive offices, including zip code)

760-931-9200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x  No o

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

The approximate aggregate market value of the voting common stock held by non-affiliates of the Registrant, based upon the last sale price of the common stock reported on The NASDAQ Global Select Market was $779,460,375 as of June 30, 2010.*

The number of shares of voting common stock outstanding as of February 22, 2011 was 99,578,748.

DOCUMENTS INCORPORATED BY REFERENCE

(To the extent indicated herein)

Portions of the Registrant’s definitive Proxy Statement to be filed on or about April 28, 2011 with the Securities and Exchange Commission in connection with the Registrant’s annual meeting of stockholders to be held on June 16, 2011 are incorporated by reference into Part III of this Report. The Exhibit Index (Item No. 15) located on pages 70 to 74 incorporates several documents by reference as indicated therein.

*                 Excludes 17,665,397 shares of common stock held by directors and officers and by stockholders whose beneficial ownership is known by the Registrant to exceed 10% of the common stock outstanding at June 30, 2010. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

FORWARD-LOOKING STATEMENTS

This report on Form 10-K and the information incorporated herein by reference includes forward-looking statements regarding our business, the therapeutic and commercial potential of our technologies and products in development, and the financial position of Isis Pharmaceuticals, Inc. and Regulus Therapeutics, our jointly owned subsidiary. Any statement describing our goals, expectations, financial or other projections, intentions or beliefs is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human thera peutics, and in the endeavor of building a business around such drugs. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report on Form 10-K, including those identified in Item 1A entitled “Risk Factors”.  Although our forward-looking statements reflect the good faith judgment of our management, these statements are based only on facts and factors currently known by us. As a result, you are cautioned not to rely on these forward-looking statements.

In this report, unless the context requires otherwise, “Isis,” “Company,” “we,” “our,” and “us” refers to Isis Pharmaceuticals and its subsidiaries.

TRADEMARKS

Isis Pharmaceuticals® is a registered trademark of Isis Pharmaceuticals, Inc.

Regulus Therapeutics™ is a trademark of Regulus Therapeutics Inc.

Ibis T5000™ is a trademark of Ibis Biosciences, Inc.

Vitravene® is a registered trademark of Novartis AG.

CORPORATE INFORMATION

We incorporated in California in 1989, and in January 1991 we changed our state of incorporation to Delaware. Our principal offices are in Carlsbad, California. We make available, free of charge, on our website, www.isispharm.com, our reports on forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that we include on or link to our Internet site is not a part of this report or any registration statement that incorporates this report by reference. You may also read and copy our filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information sta tements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

PART I

Item 1.  Business

Overview

We are the leading company in antisense technology, exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class drugs. Antisense technology is a direct route from genomics to drugs.  With our highly efficient and prolific drug discovery platform we can expand our drug pipeline and our partners’ pipelines with antisense drugs that address significant unmet medical needs.   Our business strategy is to do what we do best—to discover unique antisense drugs and develop these drugs to key clinical value inflection points.  In this way, our organization remains small and focused.  We discover and conduct early development of new drugs, outlicense our drugs to partners and build a broad base of license fees, milestone payments and royalty income. We maximize the value of the drugs we discover by putting them in the hands of qua lity partners with late-stage development and commercialization expertise.  For example, we partner with leading pharmaceutical companies that have late-stage development, commercialization and marketing expertise, such as Bristol-Myers Squibb, Genzyme Corporation, GlaxoSmithKline, or GSK, and Eli Lilly and Company.  We also work with a consortium of smaller companies that can exploit our technology outside our primary areas of focus using their expertise in specific disease areas. We call these smaller companies our satellite companies.  In addition to our cutting edge antisense programs, we maintain technology leadership through collaborations with Alnylam

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Pharmaceuticals, Inc., or Alnylam, and Regulus Therapeutics Inc., or Regulus, a company we established and jointly own focused on microRNA therapeutics. We also exploit our inventions with other therapeutic opportunities such as through collaborations with Achaogen, Inc., or Achaogen, and Archemix Corp., or Archemix, Beyond human therapeutics, we benefit from the commercialization of products incorporating our technology by other companies that are better positioned to maximize the commercial potential of these inventions, such as when we sold our subsidiary Ibis Biosciences, Inc. to Abbott Molecular Inc., or AMI, a wholly owned subsidiary of Abbott Laboratories.  All of these different types of relationships are part of our unique business model and create current and future shareholder value.

Through the power and efficiency of our technology, we can add new antisense drugs to our development pipeline each year.  Over the past two years, we have added six new drugs to our pipeline, including drugs in each of our core therapeutic areas.  These drugs offer new approaches to treat disease and broaden our therapeutic focus.  For example, the new drugs we added to our cardiovascular franchise expand our cardiovascular approach beyond managing cholesterol and other atherogenic lipids to reducing inflammatory and thrombotic factors, which can contribute significantly to cardiovascular disease.  Because we can discover more drugs than we can develop ourselves, our partnership strategy allows us to focus on our key therapeutic areas while also creating an expansive pipeline with multiple partnerships.   We focus our research and development efforts primarily in cardiovascular, metabolic, severe and rare, and neurodegenerative diseases, and cancer while our partners are developing antisense drugs in these and other areas, including inflammatory disease.

The clinical success of mipomersen, the lead drug in our cardiovascular franchise, is a clear example of the power of our RNA-based technology.  We and Genzyme reported positive data from four Phase 3 studies demonstrating consistent and robust lowering of low-density lipoprotein cholesterol, or LDL-C, and other atherogenic lipids. Across these four studies, treatment with mipomersen reduced LDL-C in patients who have persistently high LDL-C levels despite being treated on maximally tolerated lipid-lowering therapy.  Mipomersen also reduced many other atherogenic lipids, including triglycerides, lipoprotein a, or Lp(a), and non-high-density lipoprotein cholesterol, or non HDL-C, due to its unique mechanism of action.  We believe the safety profile of mipomersen supports our initial market opportunity in patients who cannot currently reach their recommended LDL-C goal.  The m ipomersen data from all four of our Phase 3 studies support the profile of the drug as a novel treatment to reduce LDL-C in patients with very high cholesterol, at high cardiovascular risk and who cannot reduce their LDL-C sufficiently with currently available lipid-lowering therapies.

Our clinical experience with mipomersen demonstrates that antisense drugs work in man.  With mipomersen we have additional evidence, as we have shown with other antisense drugs, that we can predict the activity of our drugs in man from the preclinical successes we observe in animals. We believe mipomersen’s success has validated our technology platform and increased the value of our drugs.

In addition to mipomersen, many of the other drugs in our pipeline are demonstrating encouraging therapeutic activity in a variety of diseases.  Over the past couple of years, we and our partners have reported positive data from five Phase 2 studies and seven Phase 1 studies.  For example, we reported data from a positive Phase 2 study from our protein tyrosine phosphatase 1B, or PTP-1B, drug showing consistent and statistically significant reductions in short and intermediate measures of glucose control, reductions in LDL-C and a tendency toward weight loss.  We believe these characteristics create an encouraging profile for a new therapy to treat type 2 diabetics.  Many of our partnered drugs are also showing encouraging activity in numerous diseases.  Our partner, Excaliard Pharmaceuticals, Inc., or Excaliard, reported data from three Phase 2 studies showing tha t treatment with EXC 001, a locally administered antisense drug, significantly reduced scarring in patients.  These data highlight the broad therapeutic activity of antisense drugs and the power of our antisense technology platform to generate drugs that address significant medical needs.

The clinical successes of the drugs in our pipeline continue to result in new partnering opportunities.  Since 2007, our partnerships have generated an aggregate of more than $830 million in payments from licensing fees, equity purchase payments, milestone payments and research and development funding.  In addition, for our current partnered programs we have the potential to earn more than $3.5 billion in future milestone payments. We also will share in the future commercial success of our inventions and drugs resulting from these partnerships through earn out, profit sharing, and/or royalty arrangements. Our strong financial position is a result of the persistent execution of our business strategy and our inventive and focused research and development capabilities.

Beyond drug development, we create significant shareholder value through products that incorporate our inventions that other companies are developing and commercializing.  For example, together with Alnylam, we created and jointly own Regulus.  Regulus takes advantage of the technology, expertise and intellectual property of its founding companies to lead the field of microRNA therapeutics.  We have the opportunity to share in Regulus’ successes as Regulus advances its partnered drug programs forward and to benefit from the appreciation in the value of our investment in Regulus.

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We protect our proprietary RNA-based technologies and products through our substantial patent estate. As an innovator in RNA-based drug discovery and development, we design and execute our patent strategy to provide us with extensive protection for our drugs and our technology.  With our ongoing research and development, our patent portfolio continues to grow. The patents not only protect our key assets—our technology and our drugs—they also form the basis for lucrative licensing and partnering arrangements.

Below is a list of some of our key accomplishments for 2010 and early 2011.

2010 and Early 2011 Business Highlights

Drug Development Highlights

·      Mipomersen continues to advance in clinical development and move closer to the market for patients with very high cholesterol, at high cardiovascular risk and who cannot reduce their LDL-C sufficiently with currently available lipid-lowering therapies. We and Genzyme successfully completed four Phase 3 studies that the companies plan to include in the initial United States and European filings for marketing approval for mipomersen.  These filings will seek approval for the treatment of patients with homozygous familial hypercholesterolemia, or hoFH, in the United States and Europe.  The European filing may also include patients with severe heterozygous familial hypercholesterolemia, or severe heFH.  Genzyme is also preparing for filings in markets beyond the United States and Europe.

·                  The table below briefly summarizes the results of these trials.  In all four studies, all primary, secondary and tertiary endpoints were met.

·                  In all studies, frequently observed adverse events were injection site reactions, flu-like symptoms and elevations in liver transaminases, as seen in previous studies.

·                  In all studies, patients maintained a regimen of maximally tolerated lipid-lowering therapy.

·                  We and our partners continued to advance the drugs in our pipeline and reported clinical results in a broad range of diseases, including positive clinical Phase 1 data on six drugs.  We added three new drugs to our pipeline.

·                  We and our partners initiated Phase 1 clinical studies on four drugs, initiated seven Phase 2 studies on four drugs, and initiated two Phase 3 studies on OGX-011.

Corporate Highlights

·     We formed a new strategic alliance worth up to nearly $1.5 billion with GSK to develop antisense drugs to treat rare and infectious diseases.  We received a $35 million upfront payment and a $5 million milestone payment related to the identification of ISIS-GSK1Rx , the first drug selected as part of our collaboration with GSK.

·                  We and Bristol-Myers Squibb extended our collaboration by two years to discover a more potent PCSK9 drug to move forward in development.

·                  Regulus formed a new alliance with sanofi-aventis worth potentially over $750 million to develop and commercialize microRNA therapeutics, including Regulus’ leading fibrosis program targeting miR-21. We received $1.9 million, which represents 7.5 percent of the $25 million upfront payment Regulus received from sanofi-aventis.

·                  sanofi-aventis invested $10 million in Regulus, valuing Regulus at more than $130 million.  From this investment sanofi-aventis acquired less than 10 percent ownership of Regulus, leaving us with 46 percent ownership.

·                 Regulus and GSK established a new collaboration to develop and commercialize microRNA therapeutics targeting microRNA 122, or miR-122, for hepatitis C viral infection.

·                  We earned in excess of $15 million in milestone payments and sublicensing fees in 2010 as our partners advanced drugs in development.

Drug Discovery and Development

Introduction to Drug Discovery

Proteins are essential working molecules in a cell. Almost all human diseases result from inappropriate protein production or improper protein activity. Scientists use traditional drug discovery methods to design drugs to interact with the proteins in the body that are supporting or causing a disease. Antisense drugs are different from traditional small molecule drugs because they interrupt the production of disease-causing proteins by targeting ribonucleic acids, or RNAs. RNAs are naturally occurring molecules in the body that provide the information the cell needs to produce proteins. When our antisense drugs bind to the specific RNAs of a particular gene, they will ultimately inhibit or alter the expression of the protein encoded in the target gene.

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Our Development Projects

We are the leader in the discovery and development of an exciting new class of drugs called antisense drugs. With our proprietary drug discovery platform we can rapidly identify drugs, providing a wealth of potential targets to treat a broad range of diseases. We focus our efforts in therapeutic areas where our drugs will work best, efficiently screening many targets in parallel and carefully selecting the best drugs. When we combine this efficiency with our rational approach to selecting disease targets we can build a large and diverse portfolio of drugs designed to treat a variety of health conditions, including cardiovascular, metabolic, inflammatory, ocular, severe and rare, and neurodegenerative diseases, and cancer.  We also continue to improve our scientific understanding of our drugs and other disease targets, including the biological processes our disease targets use and the impac t of our drugs on these processes.

With our expertise in discovering and characterizing novel antisense inhibitors, our scientists can optimize the properties of our antisense drugs for use with particular targets. Our scientists have made significant advances in chemistries, which we call our second-generation antisense drugs. Second-generation antisense drugs may have increased potency, stability, oral bioavailability and an improved side effect profile.  In 2010, we selected our generation 2.5 chemistry, an advancement that we believe will increase the potency of our drugs and make oral administration commercially feasible.  We expect that these generation 2.5 drugs will constitute some of our future drugs and may serve as follow-on drugs to some of our current drugs in development.

Our scientists have utilized our chemistry advancements to expand the therapeutic and commercial opportunities of our pipeline. These advancements along with shared manufacturing and analytical processes, shorten our timeline from initial concept to the first human dose when compared to small molecules.

We and our partners are developing antisense drugs for systemic, intrathecal and local delivery. We expect to continue to bring new drugs into our pipeline, creating opportunities for future licensing transactions, and building a broad proprietary portfolio of drugs that are applicable to many disease targets.

The following table lists our approved product and each of our and our partners’ drug development projects, their targets, disease indications and the development status of each. Prior to Phase 2 studies, we identify our drugs by the party responsible for development and the target, such as BMS-PCSK9Rx or ISIS-SGLT2Rx, except when our partners refer to a drug by the partner’s own compound number, such as EXC 001 or iCo-007.  As our drugs advance in clinical development, we will adopt nonproprietary names given to each drug from the United States Adopted Names Council.  For example, mipomersen is a nonproprietary name that we obt ained for ISIS 301012 in 2007.

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Cardiovascular Franchise

Cardiovascular disease is the leading cause of death in the United States. A common cause of cardiovascular disease is atherosclerosis, or hardening of the arteries, that occurs when cholesterol and inflammatory cells accumulate in blood vessels. Researchers have shown a strong correlation between high cholesterol levels and subsequent cardiovascular diseases. Lowering cholesterol is a key component in preventing and managing cardiovascular disease. Another independent risk factor for cardiovascular disease is high levels of C-reactive protein, or CRP, which clinicians associate with significantly worse outcomes in patients with cardiovascular disease.

Cardiovascular disease is an area of focus for us.  We believe that antisense drugs could have a significant impact in patients with high cardiovascular risk.  These are patients who are on a regimen of cardiovascular disease therapies and who are still at high risk for a cardiac event or death.  The liver is an ideal target organ for cardiovascular disease therapies, and antisense drugs in particular, because there are many liver-produced targets that affect the production of cholesterol particles, clotting factors and other factors that contribute to the inflammatory components of cardiovascular disease.  Our antisense drugs distribute to the liver and inhibit the production of many targets associated with cardiovascular risk, creating an opportunity for us to develop many complementary and effective antisense drugs for cardiovascular disease.

Mipomersen — Mipomersen is a novel first-in-class apo-B synthesis inhibitor in development. Mipomersen is a second-generation antisense drug we discovered and licensed to Genzyme in 2008.  Mipomersen acts by decreasing the production of apolipoprotein-B, or apo-B.  Apo-B provides the structural core for all atherogenic lipids, including LDL-C, which carry cholesterol through the bloodstream.  Mipomersen reduces LDL-C and other atherogenic lipids linked to cardiovascular disease by preventing their formation.

Mipomersen is being developed to treat patients with very high cholesterol, at high cardiovascular risk and who cannot reduce their LDL-C sufficiently with currently available lipid-lowering therapies.  These patients can be diagnosed as having familial hypercholesterolemia, or FH.  FH is a genetic disease in which patients cannot properly metabolize LDL-C, resulting in elevated LDL-C levels.  HoFH is a rare form of FH.  HoFH patients can have LDL-C levels greater than 600 mg/dL and are at very high risk for early coronary events and sudden death.  Severe heFH patients comprise a small subset of heterozygous FH patients, a more common form of the disorder.  Severe heFH patients have LDL-C levels greater than 200 mg/dL with coronary artery disease or more than 300 mg/dL without coronary artery disease despite maintaining a regimen of maximally tolerated lipid-loweri ng therapy. Patients with untreated FH have a 50 percent mortality rate by age 60.

Together with Genzyme, we have evaluated mipomersen in four positive Phase 3 studies in which all primary, secondary and tertiary endpoints were met.  In all four Phase 3 studies, treatment with mipomersen lowered LDL-C and reduced other atherogenic lipids, including apo-B, Lp(a), triglycerides and very-low density lipoprotein, or VLDL.  Many of these lipids are generally accepted risk factors for cardiovascular disease.  In all studies, frequently observed adverse events were injection site reactions, flu-like symptoms and elevations in liver transaminases, as seen in previous studies.

Genzyme will initially seek marketing approval for mipomersen for the treatment of patients with hoFH in the United States and Europe.  The European filing may also include patients with severe heFH.  Due to the size of the severe heFH population, the FDA provided guidance for additional 12 month exposure data before the mipomersen filing for severe heFH in the United States.  The Genzyme team will work with the FDA to further define the study required.  The FDA acknowledged that an outcome study may not be feasible in severe heFH patients due to the size of the population. Genzyme is also preparing for filings in markets beyond the United States and Europe.  Two of our Phase 3 studies evaluated mipomersen in patients with hoFH and severe hypercholesterolemia who were on substantial lipid lowering therapy.  In both of these studies, the average reduction of LDL-C w as greater than 100 mg/dL.

Together with Genzyme, we also evaluated mipomersen in two additional phase 3 studies in patients with heterozygous FH and in patients with high cholesterol at high risk for coronary heart disease who were on substantial lipid lowering therapy.  As with the two previous studies, all primary, secondary and tertiary endpoints were met, including reduction in apo-B, Lp(a), triglycerides, total cholesterol, non HDL-C and VLDL.

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In addition to observing LDL-C lowering, we believe the emerging safety profile of mipomersen will support our initial plan for mipomersen to be used in patients who, despite being treated with maximally tolerated lipid-lowering therapies, are far from their recommended LDL-C goal.  These are patients who are in the greatest need and who have had one or more major cardiovascular events.

Genzyme is developing a comprehensive plan to address this new commercial market that consists of patients who are in desperate need of new treatment options.  A key to Genzyme’s strategy is to increase awareness of FH, an under-diagnosed, condition.  Genzyme plans to concentrate marketing and sales efforts on lipid specialists and physicians who refer patients to these specialists, using its expertise in identifying unique and underserved patients.  We believe Genzyme has the commercial infrastructure and aptitude to successfully commercialize mipomersen worldwide making the drug available for patients in need.

In summary, the performance of mipomersen has been consistent across the entire Phase 3 program, supporting our initial market focus in patients, who despite being treated with maximally tolerated lipid-lowering therapies, are far from their recommended LDL-C goal and as a result are at high risk of a cardiovascular event or death.  Genzyme plans to file for marketing approval of mipomersen in both the United States and Europe in 2011.

ISIS-CRPRx — ISIS-CRPRx is an antisense drug that targets CRP, a protein produced in the liver. CRP levels increase dramatically during inflammatory disorders, and excessive amounts of CRP have been linked to coronary artery disease. Furthermore, a growing body of evidence from clinical trials implicates CRP in cardiovascular disease progression.&# 160; This evidence suggests that we might help patients who are at risk for coronary events by significantly decreasing their CRP levels. In addition, clinicians have associated elevated CRP levels with a worsening of overall outcomes in conditions such as end-stage renal disease and multiple myeloma, suggesting that lowering CRP could help these patients. CRP elevation is also evident in many other major inflammatory diseases such as Crohn’s disease and rheumatoid arthritis.

In preclinical studies,we observed that our antisense inhibitor of CRP suppressed liver and serum CRP levels. We evaluated ISIS-CRPRx in a Phase 1 blinded, randomized, placebo-controlled, dose-escalation study designed to assess the safety and pharmacokinetic profile of our drug.  In this study, ISIS-CRPRx produced statistically significant reductions in CRP in the cohort of subjects that entered the study with elevated levels of CRP.  In all subjects evaluated, ISIS-CRPRx was well tolerated.   Our Phase 2 plan for ISIS-CRPRx is to evaluate the drug in diseases with elevated CRP that could provide early proof-of-concept.  Initially we plan to evaluate ISIS-CRPRx in patients with multiple myeloma and rheumatoid arthritis before expanding into cardiovascular and other diseases.   The data from these initial Phase 2 studies will inform the development path for ISIS-CRPRx, in which we could expand into other diseases.

BMS-PCSK9Rx — BMS-PCSK9Rx is an antisense drug that specifically targets proprotein convertase subtilisin/kexin type 9, or PCSK9, an important protein involved in the metabolism of cholesterol and LDL. PCSK9’s role is to break down the cell surface receptor that captures LDL particles. Therefore, inhibiting PCSK9 increases the number of receptors available to remove LDL-C from the bloodstream. Genetic studies in humans have demonstrated that elevated PCSK9 can lead to severely high levels of LDL-C, whereas low PCS K9 is associated with low LDL-C levels. These observations suggest that it may be therapeutically beneficial to decrease PCSK9 levels in patients who are at risk for atherosclerosis and cardiovascular disease.  We believe that BMS-PCSK9Rx could offer a new and complementary mechanism to current lipid-lowering therapies to prevent and treat cardiovascular diseases.

In May 2007, we established a collaboration with Bristol-Myers Squibb to identify antisense drugs that target PCSK9. In 2008, Bristol-Myers Squibb selected a drug to advance into clinical development.  In 2010, Bristol-Myers Squibb stopped the Phase 1 study of BMS-PCSK9Rx, and discontinued development of the drug and plans to discover a more potent PCSK9 antisense drug under its extended collaboration with us.

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ISIS-FXIRx — ISIS-FXIRx is an antisense drug designed to treat clotting disorders.  It targets Factor XI, a clotting factor produced in the liver that is an important component of the coagulation pathway.  Because of its role in the intrinsic coagulation pathway, inhibition of Factor XI could offer an effective approach for preventing the formation of blood clots with a lower risk of bleedi ng.  High levels of Factor XI are a risk factor for aberrant blood clot formation, which is the leading cause of morbidity and mortality associated with vascular diseases, including heart attack, deep vein thrombosis and stroke.  Blood clot formation is also a common complication of surgical procedures, especially orthopedic surgeries such as knee or hip replacement.  Most commonly used therapeutics reduce clotting but also produce an unacceptable increase in bleeding risk. In preclinical studies, ISIS-FXIRx demonstrated potent antithrombotic activity with no increase in bleeding compared with standard anti-clotting agents, including low molecular weight heparin, warfarin and Factor Xa inhibitors, all of which increased bleeding.  Furthermore, humans who are deficient in Factor XI have a lower incidence of thromboembolic events with minimal increase in bleed ing risk.  We are currently evaluating ISIS-FXIRx in a Phase 1 study in healthy volunteers.

ISIS-APOCIIIRx — ISIS-APOCIIIRx is an antisense drug designed to lower triglycerides to treat hypertriglyceridemia.  Hypertriglyceridemia is an independent risk factor for cardiovascular disease and is also a hallmark of metabolic syndrome, which occurs in a large percentage of people with type 2 diabetes.  ISIS-APOCIIIRx targets apolipoprotein C-III, or apoC-III, a protein synthesized in the liver that plays a central role in the regulation of serum triglycerides.  Genetic studies in humans have associated lower levels of apoC-III with lower triglycerides levels.  In addition, lower levels of apoC-III appeared to improve health and extend longevity.  In preclinical studies, ISIS-APOCIIIRx mitigated symptoms of metabolic syndrome and reduced atherosclerosis in mice.  We are currently evaluating ISIS-APOCIIIRx in a Phase 1 study.

Cardiovascular research — We continue to build our cardiovascular disease franchise by evaluating potential drug targets that influence the onset and progression of cardiovascular disease, and we intend to expand our franchise with additional drugs to treat various aspects of cardiovascular disease through complementary mechanisms.  Our research efforts include targeting lipoprotein (a), Lp(a), an atherogenic particle and a recognized independent cardiovascular risk factor.  Unlike LDL-C or apoB, Lp(a) is not modified by most lipid-lowering therapies currently available, including statins.  We believe that targeting Lp(a) could provide an alternate approach to lipid management complementary to lipid lowering therapies, including mipomersen.

Metabolic Franchise

Metabolic disorders are chronic diseases that affect millions of people.  There is still a significant need for new therapies for these patients. According to the Centers for Disease Control and Prevention, diabetes affects more than 25 million people in the United States, or eight percent of the population, with type 2 diabetes constituting 90 percent to 95 percent of those cases.

Metabolic disease is a very large area of medical need and is another area where we focus our drug discovery efforts.  We are developing antisense drugs that doctors could add to existing therapies to treat diabetes and obesity.  One hurdle for traditional drug development is the selective targeting of a disease-causing protein from closely related proteins.  We design our antisense drugs to target the gene that is responsible for producing the disease-causing protein while avoiding unwanted activity associated with inhibiting a closely related protein.  This design makes antisense drugs significantly more selective than many other therapeutic approaches.  In addition, the liver and fat cells produce many of the most important therapeutic targets for metabolic disease.  Our antisense drugs distribute to the liver and fat cells and inhibit the production of these ke y therapeutic targets.  Our newest drug to enter development, ISIS-FGFR4Rx, is an anti-obesity drug that inhibits the production of FGFR4 in fat cells and offers a new mechanism for weight control that may be complementary to appetite-suppressing therapies currently on the market.

ISIS-PTP1BRx — Our most advanced program in metabolic disease targets protein tyrosine phosphatase-1B, PTP-1B, a phosphatase that negatively regulates insulin receptor signaling.  PTP-1B is responsible for turning off the activated insulin receptor, so reducing PTP-1B enhances insulin activity.  Scientists have long recognized PTP-1B as an attractive target to treat diabetes, but due to structural similarities among closely related proteins, pharmaceutical companies have had difficulty identifying small molecule drugs with sufficient specificity to be safe. Our a ntisense technology allows us to design specific drugs that inhibit PTP-1B without inhibiting other protein family members.  This mechanism makes it possible to reduce PTP-1B activity without affecting other closely related proteins that, when inhibited, could lead to unwanted side effects.

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Our most advanced antisense drug in our PTP-1B program is ISIS 113715.  In two Phase 2 studies, treatment with ISIS 113715 improved glucose control in patients with type 2 diabetes.

·                                          In the first Phase 2 study, we evaluated ISIS 113715 as a single agent in newly diagnosed type 2 diabetic patients.  Treatment with ISIS 113715 resulted in a statistically significant improvement in multiple measures of glucose control.

·                                          In the second Phase 2 study, we evaluated ISIS 113715 in patients with type 2 diabetes who had uncontrolled blood sugar despite treatment with stable doses of sulfonylurea.  Treatment with ISIS 113715 resulted in consistent and statistically significant reductions in multiple short and intermediate measures of glucose control.  In addition to lowering blood glucose, ISIS 113715 caused statistically significant and clinically meaningful reductions in LDL-C.  Furthermore, consistent with the preclinical data with ISIS 113715, we observed a tendency toward weight loss even in this short-term study without strict dietary control. The effect of ISIS 113715 on weight was preceded by a statistically significant increase in circulating adiponectin, a hormone that increases with weight loss.

In both studies, ISIS 113715 demonstrated a favorable safety profile with no exacerbation of sulfonylurea-induced hypoglycemia or other clinically significant adverse effects.

Our preclinical and clinical data demonstrate the broad therapeutic potential of inhibiting PTP-1B.  In addition to glucose control, this profile includes the reduction of LDL-C, a potentially significant benefit for patients with type 2 diabetes who are at high cardiovascular risk, and the potential to reduce weight.  We are currently completing long-term toxicology studies for our PTP-1B program, including evaluating a significantly more potent drug.  Based on the significant potency difference we observed between the newer antisense drug and ISIS 113715, instead of developing ISIS 113715 we plan to begin clinical development on the more potent PTP-1B inhibitor in 2011.

ISIS-GCGRRx — ISIS-GCGRRx is an antisense drug that targets GCGR, or glucagon receptor. Glucagon is a hormone that opposes the action of insulin and stimulates the liver to produce glucose.  In type 2 diabetes, unopposed action of glucagon can lead to increased blood glucose levels. Reducing the expression of GCGR using antisense inhibitors, and thereby reducing excessive liver glucose production, should lower blood glucose and help control type 2 diabetes.

In preclinical studies we observed improved glucose control and reduced levels of blood triglycerides without producing hypoglycemia following treatment with an antisense inhibitor of GCGR. While this is justification enough to pursue GCGR as a therapeutic target, the additional activity of our GCGR drug in increasing circulating glucagon-like peptide, or GLP-1, makes GCGR an even more attractive therapeutic target for development. GLP-1 is a hormone that helps to preserve pancreatic function, enhancing insulin secretion.

We reported Phase 1 data in which our most advanced GCGR drug produced a significant improvement in glucagon-induced blood glucose levels and was well tolerated.  In this study, normal volunteers were administered a glucagon infusion that caused an increase in blood glucose levels. Subjects treated with this drug showed a dose-dependent decrease in blood glucose levels and at a dose of 400 mg/week demonstrated statistically significant decreases in blood glucose following the glucagon infusion (p<0.0001).

In parallel with completing a Phase 1 study for our GCGR drug, we identified a more potent antisense inhibitor to GCGR.  A more potent drug should enhance the therapeutic profile of the GCGR program and provide much greater commercial value. We plan to begin clinical development on this more potent drug in 2011.

ISIS-GCCRRx — ISIS-GCCRRx is an antisense drug that targets GCCR, or glucocorticoid receptor.  Glucocorticoid hormones have a variety of effects throughout the body, including promoting liver glucose production and fat storage.  Although scientists have long recognized inhibiting GCCR as an attractive strategy for developing therapeutics for type 2 diabetes, the side effects associated with systemic GCCR inhibition have challenged developers of traditional drugs.  Antisense inhibitors of GCCR take advantage of the unique tissue distribution of oligonucleotides that allows the antisense drugs to antagonize glucocortocoid action primarily in liver and fat tissue.  Notably, antisense drugs delivered systemically do not reduce GCCR expression in the central nervous system, or CNS, or adrenal glands, which could lead to systemic side effects.

In preclinical studies, we have shown that antisense inhibition of GCCR reduced levels of blood glucose, demonstrated a dramatic and favorable effect on lipid levels including cholesterol and triglycerides, and reduced body fat.  These observations suggest that an antisense drug that inhibits GCCR could have a broad therapeutic profile.  We plan to move a GCCR drug into clinical development in 2011.

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ISIS-SGLT2Rx — ISIS-SGLT2Rx is an antisense drug that targets sodium glucose co-transporter type 2, or SGLT2, which is the major transporter for blood sugar re-absorption in the kidney.  By specifically blocking the production of SGLT2 in the kidney tissue, we can promote blood sugar excretion and reduce blood sugar levels, without negatively affecting a related gene product, SGLT1.

In addition to being our first antisense drug directed at a target in the kidney, ISIS-SGLT2Rx is also unique due to its 12 nucleotide length rather than the more typical 18 to 21 nucleotide sequences that comprise our other drugs.  It is among the most potent antisense drugs that we have evaluated in preclinical models.  In preclinical studies, inhibition of SGLT2 was very potent in reducing blood glucose levels and hemoglobin, or HbA1c, which is a measure of long-term glucose control, without causing low blood sugar, called hypoglycemia. These data are consistent with expectations based on human subjects who have mutations in the SGLT2 gene and have increased urine glucose levels but are otherwise generally healthy.  Therefore, we believe that ISI S-SGLT2Rx could be a potent, highly active drug that will provide significant therapeutic benefits.

We are currently evaluating ISIS-SGLT2Rx in a Phase 1 study designed to assess the safety and activity of the drug in healthy volunteers by measuring the effect on glucose excretion in urine.  We plan to complete the ongoing Phase 1 study of ISIS-SGLT2Rx and initiate a Phase 2 study in 2011.

ISIS-FGFR4Rx — ISIS-FGFR4Rx is an antisense drug that targets fibroblast growth factor receptor 4, or FGFR4, in the liver and fat tissue.  FGFR4 helps regulate energy expenditure and body weight.  We designed ISIS-FGFR4Rx to treat obesity by increasing metabolism, particularly by increasing lipid and fat burn ing.  ISIS-FGFR4Rx should not reduce FGFR4 expression in the CNS or heart, thereby avoiding the CNS and cardiovascular side effects associated with many obesity drugs in development.

In preclinical studies, antisense inhibition of FGFR4 lowered body weight when administered as a single agent and in the presence or absence of a calorie-restricted diet.   Additionally, inhibition of FGFR4 produced a decrease in body weight when administered in combination with an appetite-suppressing drug.  In addition to the reduction in body weight, inhibiting FGFR 4 demonstrated an improvement in insulin sensitivity. ISIS-FGFR4Rx was safe and well tolerated in multiple species.  ISIS-FGFR4Rx utilizes technology we in-licensed from Verva Pharmaceuticals.  ISIS-FGFR4Rx is the first drug in our metabolic franchise to treat obesity.  We plan to begin investigational new drug enabling, or IND-enabling, studies on ISIS-FGFR4Rx in the first half of 2011.

Cancer Franchise

We are pursuing the discovery and development of antisense drugs to treat cancers both internally and through our partnerships with Eli Lilly and Company and OncoGenex Technologies Inc.  Cancer is an area of significant unmet medical need and an area where our antisense technology provides us with unique advantages in discovering new drugs.   Cancer is an extremely complex disease that involves a large number of targets.  Our technology allows us to evaluate a very broad and diverse range of targets and identify their involvement in different types of cancers.  The information we gain early in development on each of these targets allows us to make informed development decisions and quickly determine the targets that would be most effective for an anti-cancer drug.  In addition, we select anti-cancer targets that provide a multi-faceted approach to treating can cer.  We develop drugs to targets that are directly involved in cancer growth, migration or survival, such as our STAT3 drug.  We also evaluate drugs to targets that are indirectly linked to cancer growth, such as inflammatory processes.  For example, in patients with multiple myeloma, elevated levels of the inflammatory marker, CRP, are predictive of worse outcomes.  We have an inhibitor to CRP that we plan to evaluate in multiple myeloma and other diseases.

Our cancer pipeline consists of anti-cancer antisense drugs that act upon biological targets associated with cancer progression and/or treatment resistance.  In late 2010, we initiated a Phase 2 program for our anti-cancer drug, ISIS-EIF4ERx in patients with non-small cell lung cancer, or NSCLC, and prostate cancer.  Because eIF-4E, or eukaryotic initiation factor-4E,  is a target that is involved in many cellular processes critical to tumor cell growth and survival, we believe that inhibiting eIF-4E could provide therapeutic benefit in numerous cancers.  In addition to ISIS-EIF4ERx our current portfolio consists of four an tisense drugs.  Over the past couple of years, our partners presented encouraging clinical data on a number of antisense drugs, including positive Phase 2 overall median survival data for OGX-011 and positive Phase 1 data on LY2181308 and OGX-427.  We discovered or co-discovered these antisense drugs and licensed them to our partners to treat multiple types of cancer.

We believe the favorable tolerability and early evidence of clinical benefit of the anti-cancer drugs in our pipeline demonstrate how uniquely suited our technology is to create novel cancer therapeutics.  Because of these observations, cancer is one of our core therapeutic areas and an area in which we continue to expand our efforts to include new targets and new treatments.

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OGX-011 — OGX-011, now under license to Teva Pharmaceutical Industries Ltd., is a second-generation antisense drug that targets clusterin, a secreted protein that acts as a cell-survival protein and is over-expressed in response to anti-cancer agents.  We and OncoGenex jointly discovered and conducted the initial development of OGX-011.  Teva is studying OGX-011 for use as an adjunct therapy to enhance the effectiveness of chemotherapy.  OGX-011 has shown promising results in combination with currently available chemotherapies in several tumor types.  The FDA granted OGX-011 two Fast Track Designations as a treatment in combination with first-line and second-line docetaxel for progressive metastatic prostate cancer.   In December 2009, OncoGenex licensed OGX-0 11 to Teva as part of a global license and collaboration agreement to develop and commercialize OGX-011.

OncoGenex evaluated OGX-011 in five Phase 2 studies in combination with various cancer therapies for prostate, NSCLC and breast cancer. OncoGenex reported results from a randomized Phase 2 study of OGX-011 in patients with advanced metastatic castrate resistant prostate cancer, or CRPC.  In this study, OncoGenex reported a median overall survival of 23.8 months in patients treated with OGX-011 plus docetaxel compared to 16.9 months for patients treated with docetaxel alone. In addition, OncoGenex reported that the unadjusted hazard ratio, a measure used to determine the difference in survival between treatment groups, was 0.61, representing a 39 percent reduction in the rate of death for patients treated with OGX-011. OncoGenex also reported that treatment with OGX-011 was well tolerated in combination with docetaxel.

OncoGenex has also evaluated OGX-011 in a Phase 1/2 combination study in patients with NSCLC.  In February 2009, OncoGenex reported data showing that after two years, 30 percent of patients who had received OGX-011 with first-line chemotherapy were still alive.  Previously, OncoGenex reported a median survival of 14.1 months and a one-year survival rate of 54 percent.

Teva and OncoGenex will collaborate on a global Phase 3 clinical program in patients with advanced prostate cancer and advanced NSCLC.  In 2010, OncoGenex and Teva initiated two Phase 3 clinical studies of OGX-011 in patients with prostate cancer.   These studies include a Phase 3 study for second-line chemotherapy in patients with CRPC and a Phase 3 study for first-line chemotherapy in patients with metastatic CRPC. OncoGenex also announced that, together with Teva, it intends to initiate an additional Phase 3 study as first-line treatment in patients with advanced, inoperable NSCLC in 2011.

LY2181308 — LY2181308 is an antisense drug that targets survivin, which plays a role in cancer cell death and is one of the most commonly over expressed proteins in cancers. We licensed our anti-cancer drug, LY2181308, to Eli Lilly and Company as part of the companies’ antisense drug discovery research collaboration in cancer. The researchers involved in this collaboration have shown that inhibiting the expression of survivin by LY2181308 inhibits the growth of cancer cells. Since normal cells in the body do not express survivin, we expect that this drug may have fewer side effects than traditional chemotherapy. Eli Lilly and Company completed its Phase 1 study of LY2181308 and presented first-in-human data from this study confirming that LY2181308 penetrates tumor tissue and reduces survi vin messenger RNA, or mRNA, and protein levels in tumor cells.

Eli Lilly and Company is evaluating LY2181308 as a combination therapy in two separate randomized Phase 2 studies: one, in patients with advanced/metastatic NSCLC who failed first line chemotherapy treatment; second, in patients with hormone refractory prostate cancer who receive docetaxel for first line chemotherapy.  In addition, Eli Lilly and Company has completed a proof-of-concept Phase 2a study in patients with refractory acute myeloid leukemia.

ISIS-EIF4ERx — ISIS-EIF4ERx targets the gene that is responsible for producing the protein eIF-4E, which is over-expressed in a variety of cancers, including prostate, lung, ovarian, liver, breast, head and neck, bladder, colon, thyroid and lymphoma.  eIF-4E facilitates the synthesis of factors in the body that support the development, growth, progression and survival of cancer.  In preclinical studies, we and collaborators demonstrate d marked anti-cancer activity in a broad range of animal models of cancer and provided the first in vivo evidence that tumor growth may be more susceptible to eIF-4E inhibition than growth of normal tissue.  Targeting eIF-4E has been of great interest to the pharmaceutical industry and the oncology community, however the pharmaceutical industry considers eIF-4E a difficult protein to target with traditional pharmaceutical approaches.

Eli Lilly and Company completed a Phase 1 study of ISIS-EIF4ERx in patients with cancer that showed that the drug was well tolerated at doses up to 1200 mg per week. Eli Lilly and Company has rights to license ISIS-EIF4ERx from us on predefined terms.  In 2010, we initiated a Phase 2 program of ISIS-EIF4ERx in patients with NSCLC and prostate cancer.

OGX-427 — OGX-427 is a second-generation antisense drug targeting heat shock protein 27, or Hsp27, which is a cell survival protein that is over-produced in response to many cancer treatments, including hormone ablation therapy, chemotherapy and radiation therapy. Studies have shown that increased Hsp27 production is prevalent in many human cancers, including prostate, NSCLC, breast, ovarian, bladder, renal, pancreatic, multiple myeloma and liver cancers. Studies have also linked increased Hsp27 production to faster rates of cancer progression, treatment resistance and shorter survival duration.

OncoGenex is evaluating OGX-427 in patients with cancer.  In June 2010, OncoGenex reported preliminary results from a Phase 1 study of OGX-427 in patients with a variety of cancers.  In this study, treatment with OGX-427 was well tolerated as a monotherapy as well as in combination with docetaxel.  In addition, OGX-427, when used as a single agent, demonstrated declines in circulating tumor cells at all doses and in all diseases evaluated, as well as evidence of reduction in tumor markers defined as declines of prostate-specific antigen, or PSA, levels in prostate cancer and cancer-antigen-125 levels in ovarian cancer.

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OncoGenex is evaluating OGX-427 in a Phase 1 study in patients with bladder cancer and a Phase 2 study in men with metastatic prostate cancer.  OncoGenex announced that it plans to initiate a Phase 2 study evaluating OGX-427 as a first-line treatment for metastatic bladder cancer in 2011.

ISIS-STAT3Rx — We designed ISIS-STAT3Rx to treat cancer by inhibiting the production of a gene critical for tumor cell growth and survival.  Signal transducer and activator of transcription 3, or STAT3, is over-active in a variety of cancers, including brain, lung, breast, bone, liver and multiple myeloma and promotes tumor cell growth and prevents cell death.  In preclinical studies, ISIS-STAT3Rx demonstrated antitumor activity in animal models of human cancer with an attractive safety profile.  We will evaluate ISIS-STAT3Rx in a variety of cancers where scientists believe STAT3 plays a key role, such as liver cancers and multiple myeloma.  We plan to initiate IND-enabling studies on ISIS-STAT3Rx in 2011.

Severe & Rare / Neurodegenerative Franchise

We are pursuing the discovery and development of antisense drugs for severe and rare diseases in which there is a need for new treatment options.  According to the National Institutes of Health, or NIH, there are approximately 5,000 to 8,000 rare diseases, many life-threatening or fatal.  Unfortunately there are few effective therapeutics available to treat many of these severe and rare diseases.  Most of these diseases are genetic or have a genetic component.  In some cases, the onset of disease is characterized by the presence of a protein that, through a genetic defect, cannot function properly in the cell.  In order to treat these diseases, we can discover and develop antisense drugs that selectively inhibit the production of only the disease-causing protein.  In other cases, alternative splicing can result in the omission of proteins that are critical for norm al cellular function.  Using antisense technology, we can direct alternate splicing to potentially correct for a genetic defect.  For example, our drug, ISIS-SMNRx, increases the production of a protein that is necessary for normal motor function but that is absent in disease.

Many neurodegenerative diseases are characterized as severe and rare diseases.  Our most advanced neurodegenerative drug is ISIS-SOD1Rx, an antisense drug to treat amyotrophic lateral sclerosis, or ALS, also known as Lou Gehrig’s disease.

ISIS-SOD1Rx — ISIS-SOD1Rx is an antisense drug that targets superoxide dismutase, or SOD1, a molecule associated with an inherited, aggressive form of ALS. The FDA granted ISIS-SOD1Rx Orphan Drug designation for the treatment of ALS. Because antisense drugs do not cross the blood-brain barrier, a small pump administers the drug directly into the CNS infusing the drug into the cerebral spinal fluid. Clinicians call th is type of administration intrathecal infusion.

Researchers reported in the Journal of Clinical Investigation that treatment with ISIS-SOD1Rx prolonged life in rats that showed many symptoms of ALS. By delivering our drug directly to the fluid that circulates within the CNS, we and our collaborators lowered production of the mutant protein in neurons and surrounding cells.

The ALS Association and the Muscular Dystrophy Association are providing funding for ISIS-SOD1Rx. Additionally, as part of our alliance with Genzyme, Genzyme has a right of first negotiation to license ISIS-SOD1Rx from us. We are evaluating ISIS-SOD1Rx in a Phase 1 study in patients with the familial form of ALS.

ISIS-SMNRx — ISIS-SMNRx is an antisense drug designed to treat spinal muscular atrophy, or SMA, a neuromuscular disorder and the leading genetic cause of infant mortality.  The incidence of SMA is 1 in 6,000 to 10,000 births, and most infants born with the most severe form of SMA, Type 1, die within two years according to the NIH’s National Institute of Neurological Disorders and Stroke.  A genetic deleti on of the survival motor neuron 1, or SMN1, gene is responsible for SMA.  ISIS-SMNRx increases the production of the SMN protein by modulating the splicing of a closely related pre-mRNA, SMN2.  Normal motor function is associated with normal levels of SMN.  By altering splicing to produce SMN, ISIS-SMNRx may compensate for the underlying genetic defect.

We and researchers from Cold Spring Harbor published data that demonstrated the feasibility of using our antisense technology to control splicing.  Our collaborative work with Cold Spring Harbor led to the discovery of ISIS-SMNRx.  ISIS-SMNRx  utilizes technology we in-licensed from the University of Massachusetts.  We plan to begin clinical development with ISIS-SMNRx in 2011.

ISIS-GSK1Rx — ISIS-GSK1Rx is an antisense drug designed to treat an undisclosed serious and rare disease. ISIS-GSK1Rx is the first drug to enter development under our partnership with GSK. We receive milestone payments from GSK as ISIS-GSK1Rx advances in development, and we are responsible f or development of the drug up to Phase 2 proof-of-concept, at which time GSK has the option to license ISIS-GSK1Rx from us.  We plan to begin clinical development with ISIS-GSK1Rx in 2011.

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Other Drugs in Development

The broad applicability of our antisense technology allows us to create promising drugs in a variety of disease areas.  We have successfully developed novel drugs and licensed them to highly focused satellite companies that have the specific expertise and resources to continue developing these drugs.  Together with our partners we continue to advance drugs in clinical development that are outside of our core therapeutic areas.  For instance, our partner, Excaliard, presented data from three Phase 2 studies demonstrating that EXC 001 reduced scarring in patients.

ACHN-490 — ACHN-490 is a next-generation aminoglycoside, or neoglycoside, drug that Achaogen is developing for the treatment of multi-drug resistant gram-negative bacterial infections.  Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis and that clinicians use to treat serious bacterial infections. ACHN-490 incorporates aminoglycoside technology that we licensed to Achaogen.  In earlier studies, ACHN-490 displayed broad-spectrum activity against multi-drug resistant gram-negative bacteria that cause systemic infections, including E. coli and methicillin-resistant staphylococcus aureus, or MRSA. In preclinical studies, ACHN-490 demonstrated an acceptable safety profile and the potential for once-daily dosing.  Achaogen reported the successful compl etion of a Phase 1 study on ACHN-490 and initiated a Phase 2 study on ACHN-490.

Alicaforsen — Now under license to Atlantic Pharmaceuticals Limited, alicaforsen is an antisense drug that targets intercellular adhesion molecule 1, or ICAM-1.  ICAM-1 is over-expressed in a wide variety of inflammatory disorders, including ulcerative colitis and pouchitis. Ulcerative colitis, or UC, is an inflammatory bowel disease, or IBD, of the colon, a part of the large intestine, and pouchitis is an inflammation of the surgically constructed internal pouch created in UC patients who have had their diseased colons removed.  In 2007, we licensed alicaforsen to Atlantic Pharmaceuticals for pouchitis, UC and other inflammatory diseases. The FDA and European Medicines Agency, or EMEA, have since granted alicaforsen Orphan Drug Designation for the treatment of pouchitis in the United States and Europe respectively.  Atlantic Pharmaceuticals currently supplies alicaforsen in response to physicians’ requests under international Named Patient Supply regulations for patients with IBD.  Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen.

ATL1102 — ATL1102 is an antisense drug that Antisense Therapeutics Limited, or ATL, is developing for the treatment of multiple sclerosis, or MS.  ATL1102 inhibits CD49d, a subunit of Very Late Antigen-4, or VLA-4. Studies in animal models have demonstrated that inhibiting VLA-4 positively affects a number of inflammatory diseases, including MS.  We licensed ATL1102 to ATL in December 2001 and in February 2008, ATL licensed ATL1102 to Teva.  In 2008,  ATL and Teva reported Phase 2a results of ATL1102 showing significantly reduced disease activity in patients with relapsing remitting MS.  In 2010, Teva terminated its agreement with ATL and returned ri ghts to ATL1102 back to ATL.  ATL is seeking a partner to continue the development of ATL1102 in patients with MS.

ATL1103 — ATL1103 is an antisense drug that targets the growth hormone receptor, or GHr, a receptor that, when inhibited, reduces the level of circulating insulin-like growth factor-1, or IGF-1, produced in the liver. IGF-1 is a hormone that contributes to various diseases including acromegaly, which is characterized by abnormal growth of organs, face, hands and feet, as well as diabetic retinopathy, a common disease of the eye and a leading cause of blindness. In preclinical studies, ATL1103 demonstrated significant reductions in IGF-1 levels in the blood.  ATL has completed pre-clinical toxicology studies on the compound and plans to begin clinical development for ATL1103 in 2011.

EXC 001 — EXC 001 is an antisense drug that targets connective tissue growth factor, or CTGF, a growth factor that is over-expressed in damaged skin or tissue following a traumatic event.  We co-discovered EXC 001 and licensed it to Excaliard for the local treatment of fibrotic diseases, including scarring.  Fibrosis represents a significant and expanding area of unmet medical need where antisense drugs could offer a unique advantage for anti-fibrotic agents.

Excaliard reported the successful completion of three Phase 2 studies.  In one Phase 2 study, treatment with EXC 001 produced a significant improvement in the appearance of scarring in patients who had revision surgery for excessive scarring.  In another Phase 2 study, treatment with EXC 001 also reduced the severity of fine line scars and accelerated resolution of scarring compared to placebo.  In a third Phase 2 study, treatment with EXC 001 produced a dose-dependent reduction in CTGF and inhibition of CTGF-induced collagen and other pro-fibrotic genes.  In all three studies, Excaliard reported that treatment with EXC 001 produced statistically significant reductions in scar severity compared to placebo and EXC 001 was well tolerated with no important drug related adverse effects observed.

iCo-007 — iCo-007 is an antisense drug that targets c-Raf kinase.  In preclinical studies, antisense inhibition of c-Raf kinase was associated with a reduction in the formation and leakage of new blood vessels in the eye, suggesting inhibiting c-Raf kinase can improve treatment for both diabetic macular edema and diabetic retinopathy. Diabetic retinopathy is one of the leading causes of blindness in people in the U.S., and nearly 100 percent of type 1 diabetics by age 20 have evidence of retinopathy. Additionally up to 21 percent of people with type 2 diabetes have retinopathy when they are first diagnosed with diabetes, and most will eventually develop some degree of retinopathy. We discovered iCo-007 and licensed it to iCo Therapeutics Inc., or iCo, for the treatment of various eye diseases that occur as complications of diabetes.

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In May 2010, iCo and its investigators presented positive results from the Phase 1 study evaluating iCo-007 in patients with diffuse diabetic macular edema which showed that treatment with iCo-007 was well tolerated.  In July 2010, iCo received approval to initiate a Phase 2 study on iCo-007 in patients with diabetic macular edema and plans to initiate Phase 2 studies of iCo-007 in 2011.

Vitravene, or fomivirsen — In August 1998, the FDA approved Vitravene, an antisense drug that we discovered and developed, to treat cytomegalovirus, or CMV, retinitis in AIDS patients. Novartis Ophthalmics AG, our worldwide distribution partner for this drug, launched Vitravene in November 1998. New anti-HIV drugs, particularly protease inhibitors and combination treatment regimens, have prolonged survival in HIV-infected individuals. This has resulted in a decline in mortality from AIDS, accompanied by a decline in the incidence of many opportunistic infections, including CMV retinitis. As a result, Novartis no longer markets Vitravene. Vitravene demonstrates that we can meet FDA and European regulatory requirements for s afety and efficacy, and for the commercial manufacture of antisense drugs.

Antisense Technology

Our core technology programs can support multiple target-based antisense research programs without significantly increasing costs. We can design our antisense drugs to target a broad range of diseases, efficiently producing a proprietary portfolio of drugs that can interrupt the production of disease-causing proteins without disrupting other proteins that are necessary for the body’s normal functions. We are currently pursuing antisense drug discovery programs focused on various cardiovascular, metabolic, severe and rare/neurodegenerative, and other diseases as well as cancer.

Genes contain the information necessary to produce proteins. A gene is made up of nucleoside bases: Adenine, Thymine, Guanine, and Cytosine, commonly known as A, T, G and C, which are linked together to form a two-stranded structure that resembles a twisted ladder, known as deoxyribonucleic acid, or DNA. The nucleotides on one side of the ladder bind weakly to complementary nucleotides on the other strand according to specific rules; for example, A pairs with T and G pairs with C, creating the ladder’s rungs. This highly specific nucleotide pairing is called hybridization. The sequence or order of these nucleotides establishes the cell’s recipes for making proteins. Each protein’s instructions reside in a corresponding segment of DNA known as a gene.

When a cell transcribes information from a DNA gene into mRNA, the two complementary strands of the DNA partly uncoil. One strand acts as a template and information stored in the DNA strand is copied into a complementary mRNA. mRNA then carries the information to cellular structures called ribosomes, the cell’s factories for manufacturing proteins. The ribosome reads the encoded information, the mRNA’s nucleotide sequence, and in so doing, strings together amino acids to form a specific protein. This process is called translation. Antisense technology interrupts the cell’s protein production process by preventing the RNA instructions from reaching the ribosome, thus inhibiting the synthesis of the protein. The mRNA sequence of nucleotides that carries the information for protein production is called the “sense” strand. The complementary nucleotide chain that binds speci fically to the sense strand is called the “antisense” strand. We use the information contained in mRNA to design chemical structures, called antisense oligonucleotides or antisense drugs, which resemble DNA and RNA and are the complement of mRNA. These potent antisense drugs inhibit the production of disease-causing proteins. Specifically, almost all of our antisense drugs in development cause a cellular enzyme called ribonuclease H1, or RNase H1, to degrade the target mRNA. The drug itself remains intact during this process, so it can remain active against additional target mRNA molecules and repeatedly trigger their degradation. Our antisense drugs can selectively bind to a mRNA that codes for a specific protein and will not bind to closely related RNAs, providing a level of specificity that is better than traditional drugs. As a result, we can design antisense drugs that selectively inhibit the disease-causing member of the group without interfering with those members of the group necessary for normal bodily functions. This unique specificity means that antisense drugs may be less toxic than traditional drugs because we can design them to minimize the impact on unintended targets.

Further, the design of antisense compounds is less complex, more rapid and more efficient than traditional drug design directed at protein targets. Traditional drug design requires companies to identify a small molecule that will interact with protein structures to affect the disease-causing process. Since predicting which small molecules will do this has proven to be difficult, traditional drug discovery involves testing hundreds of thousands of small molecules for their ability to interfere with protein function. As a result, traditional drug discovery is a labor intensive, low probability endeavor. In contrast, we design our antisense compounds to bind to mRNA through well understood processes. We can design prototype antisense drugs as soon as we identify the sequence for the target mRNA.

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Using proprietary antisense oligonucleotides to identify what a gene does, called gene functionalization, and then determining whether a specific gene is a good target for drug discovery, called target validation, are the first steps in our drug discovery process. We use our proprietary antisense technology to generate information about the function of genes and to determine the value of genes as drug discovery targets. Furthermore, because of the nature of antisense drugs, the very molecules we design for gene functionalization and target validation experiments may become our lead drug candidates. This efficiency is a unique advantage of our antisense drug discovery. Antisense core technology is the function within Isis that is responsible for advancing antisense technology. Through the efforts of our scientists in the antisense core technology group, we have produced second generation antisen se drugs that have increased potency and stability.  We combine our core technology programs in medicinal chemistry, RNA biochemistry, and molecular and cellular biology with molecular target-focused drug discovery efforts to design drugs. The goal of our target-based research programs is to identify antisense drugs to treat diseases for which there are substantial markets and for which there is a need for better drugs.  In addition, our research programs focus on the planned advancement of our technology for future antisense drugs.  In 2010, we selected our generation 2.5 chemistry, an advancement that we believe will increase the potency of our drugs and make oral administration commercially feasible.  We expect that these generation 2.5 drugs will constitute some of our future drugs and serve as follow-on compounds to some of our current drugs in development.

Other Antisense Mechanisms

RNAi

In addition to advancing our RNase H mediated antisense drugs and core chemistries, we are also working to better understand the therapeutic utility of other antisense mechanisms, including RNA interference, or RNAi. For some of this research we work with satellite and partner companies, including Alnylam.

RNAi is an antisense mechanism that uses small interfering RNA, or siRNA, to target mRNA sequences. Most companies approach siRNA using double stranded oligonucleotides which exploit a cellular protein complex called the RNA-induced silencing complex, or RISC, to bind to the mRNA and to prevent the production of a disease-causing protein. We have a strong and growing intellectual property position in RNAi methodology and oligonucleotide chemistry for siRNA therapeutics. We have licensed these patents to Alnylam for double-stranded siRNA therapeutics.

At present, the double-stranded siRNA drugs in development by others are either administered locally or, if administered systemically require complex formulations to achieve sufficient delivery.  We have recently identified the critical drug design elements required to achieve RNAi activity with a single stranded RNAi drug.  We have also begun to chemically optimize these design elements to ensure that they survive long enough under physiological conditions to produce the desired activity in animals.  As a result, we have created single stranded RNAi compounds that, when administered systemically, distribute in a manner similar to our second generation RNase H antisense drugs, without requiring the complex formulation or delivery vehicle typically necessary for double stranded RNAi oligonucleotides.  These new single stranded RNAi drug designs are an exciting advance in RNAi technology.

Splicing

Splicing is a normal cellular mechanism that the cell uses to produce many different, but closely related proteins from a single gene by varying the processing of the RNA.  Scientists estimate that because of the approximately 25,000 genes in the human genome, 40 percent to 60 percent have alternative splice forms.  In some cases, alternative splicing of proteins can produce altered proteins that are involved in disease.  In other cases, alternative splicing can omit proteins that are critical for normal cellular function which can lead to disease.  Using antisense technology, we can direct alternate splicing to produce a protein critical for normal cellular function, and potentially correct for a genetic defect.  Examples of applications of antisense modulation of splicing to treat genetic disease include, SMA, thalessemia, cystic fibrosis and Duchenne’s muscular dystrophy.

In 2009, we advanced into development our first antisense drug, ISIS-SMNRx, that modulates splicing. We designed ISIS-SMNRx to treat the splicing disease, SMA, which is a neuromuscular disorder and the leading genetic cause of infant mortality. The discovery of ISIS-SMNRx resulted from a joint research collaboration between scientists at Isis and Cold Spring Harbor. In earlier published research, we and our collaborators at Cold Spring Harbor demonstrated the feasibility of using our antisense technology to control splicin g for the treatment of SMA.

Our progress in controlling splicing to treat disease demonstrates the diversity of our technology and the potential to utilize many different antisense approaches to treat disease.

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New Antisense Targets

MicroRNAs

There are many different types of RNA that exist within the body, including pre-mRNAs and mRNAs.  Our antisense technology is not limited to RNA sequences that translate into proteins, but rather we can apply the principals of our technology to develop drugs that target other RNAs, such as microRNAs. MicroRNAs are small, RNA molecules, typically 20 to 25 nucleotides in length, that do not encode proteins but instead work as natural antisense sequences that scientists believe regulate the expression of approximately one-third of all human genes.  To date, scientists have identified more than 700 microRNAs in the human genome, and have shown that the absence or presence of specific microRNAs in various cells are associated with specific human diseases, including cancer, viral infection, metabolic disorders and inflammatory disease.  MicroRNAs themselves may be drug targets.  F or instance, if a single microRNA can change the expression of a protein that may be involved in disease, then inhibiting this microRNA could provide a therapeutic benefit.  Alternately, microRNAs could be used as drugs themselves, where increasing the cell concentration of a particular microRNA could modulate the expression of a particular protein.  To fully exploit the therapeutic opportunities of targeting microRNAs, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-based therapeutics.

Other Oligonucleotide Opportunities

Scientists can also design oligonucleotide molecules to directly target and bind to proteins to treat diseases. Aptamers are oligonucleotide molecules that form a three-dimensional shape that specifically binds to a protein molecule of interest for disease treatment. Aptamers differ from antisense inhibitors because they do not bind to an RNA sequence to inhibit protein formation, but rather they modify the function of a protein by binding directly to the protein. However, our patented chemical toolbox can greatly improve the chance that an aptamer will succeed as a drug. For example, we entered into a collaboration with Archemix to leverage aspects of our oligonucleotide chemistries, including manufacturing, for the development of aptamer drugs. As part of the agreement, Archemix gained access to part of our significant intellectual property estate relating to oligonucleotide chemical modifica tions in exchange for equity, milestone payments and royalties on aptamer drugs Archemix develops using our technology.

Regulus Therapeutics

In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development, and commercialization of microRNA-targeted therapeutics.  Regulus combines the strengths and assets of our and Alnylam’s technologies, know-how, and intellectual property relating to microRNA-based therapeutics.  In addition, Regulus has assembled a strong leadership team with corporate management, business and scientific expertise, a board of directors that includes industry leaders in drug discovery and development, and a scientific advisory board that consists of world-class scientists including some of the foremost authorities in the field of microRNA research.

Regulus Business

We and Alnylam granted Regulus exclusive licenses to our intellectual property for microRNA therapeutic applications, and Alnylam made an initial investment in Regulus of $10 million in 2007 to balance both companies’ ownership.  In early 2009, Regulus raised $20 million in a Series A preferred stock financing in which we and Alnylam were sole and equal investors in the financing.  In October 2010, sanofi-aventis invested $10 million in Regulus, valuing Regulus at more than $130 million.  From this investment sanofi-aventis acquired less than 10 percent ownership of Regulus, leaving us with 46 percent ownership.  Alnylam owns the remaining equity.  We and Alnylam retain rights to develop and commercialize, on pre-negotiated terms, microRNA therapeutic products that Regulus decides not to develop either itself or with a partner.

We and Alnylam currently provide Regulus with select general and administrative services under the terms of a services agreement and in accordance with an operating plan mutually agreed upon by us, Alnylam, and Regulus.  As Regulus continues to mature, we will provide Regulus fewer services under the agreement.

Regulus exclusively controls many of the early fundamental patent portfolios in the microRNA field, including the “Tuschl III”, “Sarnow” and “Esau” patent series.  Our “Crooke” patent estate provides Regulus exclusive rights to RNA-based product compositions and methods of treatment in the field of microRNA-based therapeutics.  The Regulus patent estate also includes claims to specific microRNA compositions that are optimized for therapeutic use, as well as therapeutic uses of these microRNA compositions, and exclusive rights to Isis’ and Alnylam’s chemical modification intellectual property estates for microRNA applications.  In total, Regulus’ intellectual property portfolio includes early fundamental intellectual property in the field of microRNA, as well as over 900 filed patent applications pertaining to chemical modific ations of oligonucleotides for therapeutic applications, of which over 600 patents have been issued.

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In April 2008, Regulus entered into a strategic alliance with GSK to discover, develop and commercialize microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and IBD, and in February 2010, Regulus and GSK expanded this alliance to include microRNA therapeutics targeting miR-122 for the treatment of hepatitis C virus infection, or HCV.  This alliance utilizes Regulus’ expertise and intellectual property position in the discovery and development of microRNA-targeted therapeutics and provides GSK with an option to license drug candidates directed at four different microRNA targets, including miR-122 for HCV.  In May 2009, Regulus achieved the first milestone in this collaboration.

In June 2010, Regulus established a new collaboration with sanofi-aventis to discover, develop and commercialize microRNA therapeutics, initially focused on fibrosis.  The alliance represents the largest microRNA partnership formed to date, valued at potentially over $750 million.  As part of the agreement, sanofi-aventis retains an option to enter into a technology alliance worth up to $50 million to Regulus that could provide sanofi-aventis with access to Regulus’ microRNA platform and a limited number of product licenses.

Beginning in the first quarter of 2010, as a result of a new accounting standard, we no longer included Regulus’ revenue and operating expenses in our operating results and no longer included Regulus’ cash which at December 31, 2009 was $30.7 million in our consolidated cash balance.  See Note 1, Organization and Significant Accounting Policies, for a more detailed explanation of this change.

Regulus Therapeutic Programs

Regulus is addressing therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs may act as master regulators of the genome, affecting the expression of multiple genes in a disease pathway, microRNA therapeutics define a new platform for drug discovery and development and microRNAs may also prove to be an attractive new diagnostic tool for characterizing diseases.

Regulus benefits from ours and Alnylam’s microRNA research programs, which the companies combined to form Regulus. Regulus is addressing fundamental scientific questions regarding microRNAs and oligonucleotides and is utilizing this information to advance its platform technology and better understand the consequences of modulating microRNAs in tissues. Regulus also leverages its extensive network of leading academic collaborators to discover new microRNAs and support discovery efforts.  Regulus combines leading biology with proprietary chemistry and bioinformatics to discover and develop microRNA therapeutics in key disease areas of high unmet medical need.

Regulus has a program for HCV, focused on targeting the microRNA, miR-122, which is now part of its alliance with GSK.  Regulus and scientists demonstrated that an oligonucleotide-based molecule targeting miR-122, anti-miR-122, reduced cholesterol levels in blood and reversed hepatic steatosis, or fatty liver, in obese mice.  Researchers also reported that miR-122 is essential for replication of HCV, suggesting that an anti-miR-122 drug may reduce HCV infection and improve HCV-associated pathologies like fatty liver.  Regulus is advancing anti-miR-122 toward clinical studies for HCV.

Regulus is also advancing a program for fibrotic diseases targeting miR-21.  Regulus and collaborators demonstrated that anti-miR-21 can reverse fibrosis and significantly improve cardiac function in mice with failing hearts.  Regulus’ research and development efforts are also focused on other therapeutic areas, including cardiovascular, oncology, immune-inflammatory, and metabolic disease.  As part of its alliance with GSK, Regulus has a research program in inflammation, where GSK has an option to license drugs developed from the program.

Collaborative Arrangements and Licensing Agreements

Partnership Strategy

Overview

Our partnership strategy has allowed us to build a development pipeline of 24 drugs, to create a broad base of potential license fees, milestone payments, royalties, profit sharing and earn out payments and to control our drug development expenses. In this way, we remain a focused and efficient research and development organization that can continue to discover new drugs and expand ours and our partners’ pipelines. In order to maximize the value of our antisense technology and our drug discovery platform, we pursue several different categories of partnerships, including traditional pharmaceutical alliances and licenses, drug discovery and development satellite companies and technology development satellite companies. Our partnership strategy allows us to minimize our risk in discovering and developing antisense drugs in new and underserved disease areas.

We concentrate on developing antisense drugs in our core therapeutic areas of cardiovascular, metabolic and neurodegenerative diseases and cancer. Many of the diseases we focus on present large market opportunities, where we can quickly obtain clinical proof of concept. We generally license drugs from our core therapeutic franchises to traditional pharmaceutical partners after Phase 2 proof-of-concept and prior to the start of large Phase 3 programs.

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Through the efficiency of our drug discovery platform we can develop drugs to almost any gene target. However, we focus on disease areas that are uniquely suited for antisense drugs. We license our drugs to pharmaceutical companies and to focused drug discovery and development satellite companies that dedicate themselves to advancing our drugs. Through this strategy we can expand the therapeutic range of antisense drugs into disease areas that need new and innovative treatment options.

Outside of our product pipeline, we also continue to enhance our core technology and intellectual property portfolios to maintain technology leadership in RNA-based therapeutics. By leveraging our dominant intellectual property estate and our own investments in our core antisense technology, we benefit from our partners’ successes in other RNA-based therapeutics.

Our partnerships fall into several categories, including traditional pharmaceutical alliances and licenses, drug discovery and development satellite companies, technology development satellite companies, external project funding alliances, and technology and intellectual property sales and licensing.  We discuss each of these categories in more detail below, along with the relevant partnerships.

Traditional Pharmaceutical Alliances and Licensing

                We have a strong history of establishing alliances with pharmaceutical industry leaders.  These collaborations provide funding to advance our antisense drug discovery efforts and clinical development programs, and to continually enhance our technologies.  We license our drugs to pharmaceutical partners for further development and commercialization and these partnerships benefit us, our drugs, and our partners. With the resources and experience of our pharmaceutical partners guiding drug development, our drugs should advance more rapidly and access larger markets than if we developed them on our own. Our partnering activity coupled with our efficient drug discovery technology enables us to develop the majority of our drugs that are in our core therapeutic areas through early proof-of-concept ourselves prior to li censing.

GlaxoSmithKline

In March 2010, we entered into a strategic alliance with GSK, which covers up to six programs,  in which we use our antisense drug discovery platform to seek out and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness.  This alliance allows us to maintain control over the discovery and early development of the new drugs while still being eligible to receive milestone payments as we advance these drugs in clinical development.  We have already moved the first drug from this collaboration into development.

We received $40 million from GSK, including a $35 million upfront payment and a $5 million milestone payment.  During 2010, we recognized revenue of $10.3 million from our relationship with GSK.  We are also eligible to receive milestone payments per program up to Phase 2 proof-of-concept.  GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and will be responsible for all further development and commercialization.  We are eligible to receive license fees and milestone payments, totaling up to nearly $1.5 billion, if all six programs are successfully developed for one or more indications and commercialized through pre-agreed sales targets. In addition, we will receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance.

Genzyme Corporation

In January 2008, we entered into a strategic alliance with Genzyme focused on the licensing of mipomersen and a research relationship. The transaction, which closed in June 2008, included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock at $30 per share, over $1.5 billion in potential milestone payments and a share of profits on mipomersen and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales.  Under this alliance, Genzyme is responsible for the commercialization of mipomersen.  We will contribute up to the first $125 million in funding for the development costs of mipomersen, which we expect to meet in 2011. Thereafter, we and Genzyme will share development costs equally.  Our initial development funding commitment and the shared funding will end when the p rogram is profitable.  As part of our alliance, Genzyme has a first right of negotiation for ISIS-SOD1Rx.

Genzyme has agreed that it will not sell the Isis stock that it purchased in February 2008 until the earlier of four years from the date of our mipomersen License and Co-Development Agreement, the first commercial sale of mipomersen or the termination of our mipomersen License and Co-Development Agreement. Thereafter, Genzyme will be subject to monthly limits on the number of shares it can sell. In addition, Genzyme has agreed that until the earlier of the 10 year anniversary of the mipomersen License and Co-Development Agreement or the date Genzyme holds less than two percent of our issued and outstanding common stock, Genzyme will not acquire any additional shares of our common stock without our consent.

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During 2010, 2009 and 2008, we recognized revenue of  $66.9 million, $66.4 million and $48.2 million, respectively, primarily related to the upfront payments we received from Genzyme, which represented 62 percent, 55 percent and 45 percent, respectively, of our total revenue for those years.

Ortho-McNeil-Janssen Pharmaceuticals, Inc., formerly Ortho-McNeil, Inc.

In September 2007, we entered into a collaboration with OMJP to discover, develop and commercialize antisense drugs to treat metabolic diseases, including type 2 diabetes. As part of the collaboration, we granted OMJP worldwide development and commercialization rights to two of our diabetes programs, our GCGR and GCCR programs. The collaboration ended and we regained the rights to drugs from both of these programs.  We intend to move forward a more potent inhibitor for our GCGR program, which we identified as part of our collaboration with OMJP.  We also intend to move forward the GCCR program.

During 2009 and 2008, we recognized revenue of $18.4 million and $31.9 million, respectively, related to the $45 million upfront licensing fee, the $5 million milestone payment and the annual research and development funding under this collaboration, which represented 15 percent and 30 percent, respectively, of our total revenue for those years.  During 2010, we did not recognize any revenue from our relationship with OMJP.

Bristol-Myers Squibb

In May 2007, we entered into a collaboration agreement with Bristol-Myers Squibb to discover, develop and commercialize novel antisense drugs targeting PCSK9.  Under the terms of the agreement, we received a $15 million upfront licensing fee and Bristol-Myers Squibb agreed to provide us with at least $9 million in research funding over an initial period of three years.  We finished amortizing the $15 million upfront fee into revenue when our period of performance under the original agreement ended in April 2010.  Under the agreement, we will also receive up to $170 million for the achievement of pre-specified development and regulatory milestones for the first drug to reach the milestone, as well as additional milestone payments associated with development of follow-on compounds.  Bristol-Myers Squibb will also pay us royalties on sales of products resulting from the collabo ration.

In April 2008, Bristol-Myers Squibb designated the first development candidate, BMS-PCSK9Rx, resulting from the collaboration for which we earned a $2 million milestone payment.  In March 2010, we earned a $6 million milestone payment from the initiation of clinical studies.  In 2010, Bristol-Myers Squibb stopped the Phase 1 study of BMS-PCSK9Rx and discontinued development of the drug.  In July 2010, we and Bristol-Myers Squibb extended our collaboration and license agreement by two years and will work together to discover a more potent PCSK9 antisense drug to move into development.

During 2010, 2009 and 2008, we recognized revenue of $12.2 million, $9.1 million and $12.0 million, respectively, related to the upfront licensing fee, milestone payment and the research funding from Bristol-Myers Squibb, which represented 11 percent, 8 percent and 11 percent, respectively, of our total revenue for those years.

Eli Lilly and Company

In August 2001, we formed a broad strategic relationship with Eli Lilly and Company, which included a joint research collaboration.  As part of the collaboration, Eli Lilly and Company licensed LY2181308, an antisense inhibitor of survivin and LY2275796, an antisense inhibitor of eIF-4E.  Eli Lilly and Company is responsible for the preclinical and clinical development of LY2181308.  As of December 31, 2010, we had earned $4.1 million in license fees and milestone payments related to the continued development of LY2181308. We will receive additional milestone payments aggregating up to $25 million if LY2181308 achieves specified regulatory and commercial milestones, and in addition, royalties on future product sales of this drug.

In December 2009, we reacquired LY2275796, renamed ISIS-EIF4ERx, and we are continuing to develop the drug.  Eli Lilly and Company has the right to reacquire ISIS-EIF4ERx on predefined terms prior to the initiation of Phase 3 development.  However, if we publicly disclose the results from a Phase 2 clinical study of ISIS-EIF4ERx, and Eli Lilly and Company elects not to license ISIS-EIF4ERx on the predefined terms, then we may license ISIS-EIF4ERx to another partner so long as the licensing terms we reach with the new partner are better than terms offered by Eli Lilly and Company and we have not publicly disclosed any results from a new clinical study of ISIS-EIF4ERx prior to reaching the agreement with the new partner.

During 2009 and 2008, we earned revenue from our relationship with Eli Lilly and Company totaling $75,000 and $156,000, respectively.  During 2010, we did not recognize any revenue from our relationship with Eli Lilly and Company.

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Drug Discovery and Development Satellite Company Collaborations

Through our drug discovery and development satellite company collaborations, we continue to expand the reach and potential of RNA-based therapeutics into disease areas that are outside of our core focus.  We refer to these companies as our drug discovery and development satellite companies, and this strategy as our satellite company strategy.  Using this strategy we can create and support a much broader pipeline of drugs than we could develop on our own.  These relationships provide us with partners who are focused in a particular disease area and who share the common goal of advancing our drugs.  In these partnerships, we typically own equity in the company, often as part of the licensing agreement and we also retain the potential to earn milestone payments and royalties.

The value of this strategy is evident in the broad pipeline of drugs we and our partners are developing to treat a large range of diseases.  Using their resources and their expertise, our partners are instrumental in driving the development of antisense drugs that we discovered or co-discovered but fall outside our main areas of focus.  For example, our satellite company partner, Altair, was developing an inhaled antisense drug, AIR645, we licensed to them for the treatment of asthma.  We discovered AIR645 while evaluating targets involved in various inflammatory pathways.  In our preclinical studies, AIR645 potently reduced target RNA and protein levels and demonstrated activity in mouse models of asthma.  Altair evaluated AIR645 in patients with asthma in a Phase 2 study.  In this study, treatment with AIR645 reduced its intended target and patients tolerated the drug well.  However, reducing the target did not produce enough therapeutic benefit to warrant continued development, and Altair discontinued the program.  While we were disappointed with these results, we gained significant insight from Altair’s efforts with our first inhaled antisense drug.  We will use the information from the work that Altair conducted to inform our future efforts if we discover and develop additional inhaled antisense drugs.

Another example of our satellite company strategy is our partner Excaliard.  Like Altair, Excaliard licensed a drug, EXC 001, from us.  Excaliard advanced EXC 001 into clinical development and recently completed three Phase 2 studies.  In these studies, local administration of EXC 001 significantly reduced scar severity in patients.  Excaliard intends to conduct additional clinical studies on EXC 001.  We will benefit from the success of EXC 001 through our equity ownership, milestone payments and royalties on EXC 001.  As with AIR645, we also gain information and experience by working closely with our satellite company partners in these disease areas.  In summary, we believe that our satellite company strategy allows us to realize opportunities outside of our core focus while our committed and knowledgeable drug development partner incurs the cost of developm ent and assumes the risk.

Achaogen, Inc.

In January 2006, we licensed our proprietary aminoglycosides program to Achaogen, a biotechnology company pursuing unique strategies to combat drug-resistant pathogens. Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis and that clinicians use to treat serious bacterial infections. In exchange for the exclusive, worldwide license to our aminoglycoside program, Achaogen issued to us $1.5 million of Achaogen Series A Preferred Stock.  In January 2009, we received a $1 million milestone payment from Achaogen, consisting of $500,000 in cash and $500,000 in Achaogen securities, as a result of the filing of an IND for Achaogen’s aminoglycoside drug, ACHN-490.  In 2010, we received a $2 million milestone payment from Achaogen as a result of the initiation of a Phase 2 study of ACHN-490.  At December 31, 2010 and 2009, we owned less than 10 percent o f Achaogen’s equity.  In addition, assuming Achaogen successfully develops and commercializes the first drug, we will receive milestone payments totaling up to $36.5 million for the achievement of key clinical, regulatory and sales milestones. We will also receive royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development of the aminoglycoside program and products.  During 2010 and 2009, we recognized $2 million and $500,000, respectively, in revenue from our relationship with Achaogen, which does not include any revenue from the equity we received from Achaogen.  During 2008, we did not recognize any revenue from our relationship with Achaogen.

Altair Therapeutics Inc.

In October 2007, we licensed AIR645 to Altair, a biotechnology company that was focused on the discovery, development and commercialization of novel therapeutics to treat human respiratory diseases. We granted an exclusive worldwide license to Altair for the development and commercialization of AIR645, an antisense drug for the treatment of asthma.  Altair evaluated AIR645 in patients with asthma in a Phase 2 study.  In this study, treatment with AIR645 reduced its intended target and patients tolerated the drug well.  However, reducing the target did not produce enough therapeutic benefit to warrant continued development and Altair discontinued the program.  In December 2010, we and Altair terminated our collaboration and license agreement and we reacquired AIR645 as well as Altair’s assets related to AIR645.  Altair distributed cash to its preferred shareholders in December 2010, and we received $408,000 from that distribution.  Our ownership of Altair was less than 10 percent at December 31, 2010 and 2009.  During 2010, 2009 and 2008, we recognized revenue of $17,000, $79,000 and $207,000, respectively, from our relationship with Altair, which does not include any revenue from the equity we received from Altair.

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Antisense Therapeutics Limited

In December 2001, we licensed ATL1102 to ATL, an Australian company publicly traded on the Australian Stock Exchange and in February 2008, ATL licensed ATL1102 to Teva.  ATL and Teva reported encouraging data from a Phase 2a study on ATL1102 in patients with relapsing and remitting MS.  When Teva decided to continue the development of ATL1102, we earned $1.4 million of sublicense revenue, which we included in revenue in 2008.  In 2009, we earned $2.0 million from Teva for manufacturing ATL1102 drug product.  In March 2010, Teva terminated the licensing agreement for ATL1102 and returned to ATL rights to ATL1102.

In addition to ATL1102, ATL is currently developing ATL1103 for growth and sight disorders. ATL1103 is a product of our joint antisense drug discovery and development collaboration.  In December 2010, ATL completed a successful offering and raised approximately $2.4 million that it will use to advance ATL1103.  ATL pays us for access to our antisense expertise and for research and manufacturing services we may provide to ATL.  In October 2009 we agreed to manufacture ATL1103 drug product for ATL in return for 18.5 million shares of ATL’s common stock.  Additionally, ATL will pay royalties to us on sales of ATL1102 and ATL1103.  We may also receive a portion of the fees ATL receives if it licenses ATL1102 or ATL1103.

At December 31, 2010 and 2009, we owned less than 10 percent of ATL’s equity.  During 2010, we recorded revenue of $35,000 related to this collaboration compared to $401,000 and $1.6 million for 2009 and 2008, respectively.

Atlantic Pharmaceuticals Limited, formerly Atlantic Healthcare (UK) Limited

In March 2007, we licensed alicaforsen to Atlantic Pharmaceuticals, a UK-based specialty pharmaceutical company founded in 2006, which is developing alicaforsen for the treatment of UC and other inflammatory diseases. Atlantic Pharmaceuticals is initially developing alicaforsen for pouchitis, a UC indication, followed by UC and other inflammatory diseases. In exchange for the exclusive, worldwide license to alicaforsen, we received a $2 million upfront payment from Atlantic Pharmaceuticals in the form of equity.  In September 2010, we participated in Atlantic Pharmaceuticals’ financing by agreeing to sell to Atlantic Pharmaceuticals alicaforsen drug substance in return for shares of Atlantic Pharmaceuticals’ common stock.  At December 31, 2010 we owned approximately 12 percent of Atlantic Pharmaceuticals’ equity compared with approximately 13 percent at D ecember 31, 2009.  In addition, assuming Atlantic Pharmaceuticals successfully develops and commercializes alicaforsen, we will receive milestone payments and royalties on future product sales of alicaforsen. Atlantic Pharmaceuticals is solely responsible for the continued development of alicaforsen.  In 2010, Atlantic Pharmaceuticals announced that in response to requests received from healthcare professionals, it was to supply alicaforsen under international Named Patient Supply regulations for patients with IBD.  Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen.

During 2010, 2009 and 2008, we did not recognize any revenue from our relationship with Atlantic Pharmaceuticals. Because realization of the upfront equity payment is uncertain, we recorded a full valuation allowance.

Excaliard Pharmaceuticals, Inc.

In November 2007, we entered into a collaboration with Excaliard to discover and develop antisense drugs for the local treatment of fibrotic diseases, including scarring. We granted Excaliard an exclusive worldwide license for the development and commercialization of certain antisense drugs. Excaliard made an upfront payment to us in the form of equity and paid us $1 million in cash for the licensing of a particular gene target. At December 31, 2010 and 2009, we owned less than 10 percent of Excaliard’s equity and we have no remaining performance obligations.

In 2010 and 2011, we participated in Excaliard’s financings at nominal amounts to maintain our ownership percentage.  In addition, assuming Excaliard successfully develops and commercializes its first drug, we will receive milestone payments totaling up to $10.5 million for the achievement of key clinical and regulatory milestones, and royalties on antisense drugs that Excaliard develops.  We may also receive a portion of the fees Excaliard receives if it licenses drugs from our collaboration.  During 2010, 2009 and 2008, we recognized revenue of $3,000, $290,000 and $384,000, respectively, which does not include any revenue from the equity we received from Excaliard.

iCo Therapeutics Inc.

In August 2005, we granted a license to iCo for the development and commercialization of iCo-007, a second-generation antisense drug.  iCo is initially developing iCo-007 for the treatment of various eye diseases caused by the formation and leakage of new blood vessels such as diabetic macular edema and diabetic retinopathy.  iCo paid us a $500,000 upfront fee and will pay us milestone payments totaling up to $22 million for the achievement of clinical and regulatory milestones. In addition, we will receive royalties on any product sales of this drug. Under the terms of the agreement, iCo is solely responsible for the clinical development and commercialization of the drug. In December 2006, iCo filed an IND application with the FDA for iCo-007 for which we earned a $200,000 milestone payment. In September 2007, iCo initiated Phase 1 clinical trials for iCo-007 and we ea rned a milestone payment of $1.25 million in the form of 936,875 shares of iCo’s common stock.

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Over the course of our relationship, iCo has paid us in a combination of cash and equity instruments, which included common stock and convertible notes.  In February 2009, iCo completed a CAD $1.3 million financing to fund the completion of its Phase 1 clinical study of iCo-007.  We participated in the financing at a nominal amount to maintain our ownership percentage.  As a result, our ownership in iCo was approximately 10 percent at December 31, 2009.  In January 2010, we exercised the warrants we held to purchase 1.1 million shares of iCo’s common stock and as a result our ownership in iCo at December 31, 2010 was approximately 12 percent.  During 2010, 2009 and 2008 we recognized revenue of $7,000, $14,000 and $7,000, respectively, from our relationship with iCo.

OncoGenex Technologies Inc., a subsidiary of OncoGenex Pharmaceuticals Inc.

In November 2001, we established a drug development collaboration with OncoGenex, a biotechnology company committed to the development of cancer therapeutics for patients with drug resistant and metastatic cancers, to co-develop and commercialize OGX-011, an anti-cancer antisense drug that targets clusterin.  In December 2009, OncoGenex licensed OGX-011 to Teva for the treatment of multiple cancer indications for which we received $10 million of the upfront payment OncoGenex received from Teva.  We are also eligible to receive 30 percent of up to $370 million in milestone payments OncoGenex may receive from Teva in addition to up to seven percent royalties on sales of OGX-011.

In August 2003, we and OncoGenex entered into a collaboration and license agreement for the development of a second-generation antisense anti-cancer drug, OGX-225. OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. OncoGenex issued to us $750,000 of OncoGenex securities as payment for an upfront fee. In addition, OncoGenex will pay us milestone payments totaling up to $3.5 million for the achievement of clinical and regulatory milestones, and royalties on product sales. As of December 31, 2010, OncoGenex had not achieved any milestone events related to OGX-225.

In January 2005, we entered into a further agreement with OncoGenex to allow for the development of an additional second-generation antisense anti-cancer drug. Under the terms of the agreement, OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. In April 2005, OncoGenex selected OGX-427 to develop under the collaboration. OncoGenex will pay us milestone payments totaling up to $4.2 million for the achievement of key clinical and regulatory milestones, and royalties on future product sales of the drug. As of December 31, 2010, OncoGenex had not achieved any milestone events related to OGX-427 but in January 2011, we earned a $750,000 milestone payment related to OncoGenex’s phase 2 trial in men with metastatic prostate cancer.

During 2009, we sold all of the common stock of OncoGenex that we owned resulting in net cash proceeds of $2.8 million. As of December 31, 2009, we no longer owned any shares of OncoGenex.  During 2009, we recognized $11.4 million in revenue from our relationship with OncoGenex.  During 2010 and 2008, we did not recognize any revenue from our relationship with OncoGenex.

Xenon Pharmaceuticals Inc.

In November 2010, we established a collaboration with Xenon to discover and develop antisense drugs as novel treatments for the common disease anemia of inflammation, or AI. AI is the second most common form of anemia worldwide and is associated with a wide variety of conditions including infection, cancer and chronic inflammation.  We received an upfront payment in the form of a convertible promissory note from Xenon to discover and develop antisense drugs to the targets hemojuvelin and hepcidin.  In addition to license and option fees, we are eligible to receive development and commercial milestone payments and royalties on sales of drugs licensed to Xenon under the collaboration and a portion of sublicense revenue.  If Xenon identifies a development candidate, Xenon may take an exclusive license for the development and worldwide commercialization for this development cand idate.  During 2010, we did not recognize any revenue from our relationship with Xenon.

Technology Development Satellite Company Collaborations

In addition to our traditional pharmaceutical alliances and drug discovery and development satellite company partnerships, we also have satellite company partnerships focused on developing and advancing certain RNA-based therapeutic technologies. These partnerships take advantage of our dominant intellectual property estate, and leverage our own investments in our core technologies. These collaborations typically involve a cross-license between us and our partner and allow us to participate in newly emerging approaches to RNA-based therapeutics and augment our active programs in these areas.

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Archemix Corp.

In August 2007, we and Archemix entered into a strategic alliance focused on aptamer drug discovery and development. Archemix obtained a license to our technology for aptamer drugs, which take advantage of the three-dimensional structure of oligonucleotides to bind to proteins rather than targeting mRNA. Through this licensing partnership, we are providing access to our oligonucleotide chemistry and other relevant patents to facilitate the discovery and development of aptamer drugs based on Archemix’s technology. In November 2007, we received a $250,000 milestone payment from Archemix associated with the initiation of Phase 2a trials of their aptamer drug. In May 2009, we received a nominal milestone payment from Archemix related to the advancement of their aptamer drug that incorporates our technology.  We will receive a portion of any sublicensing fees Archemix genera tes as well as milestone payments and royalties on Archemix’ drugs that use our technology.  During 2010 we recognized $25,000 in revenue from Archemix compared to $100,000 in 2009.  During 2008, we did not recognize any revenue from our relationship with Archemix.

Alnylam Pharmaceuticals, Inc.

In March 2004, we entered into a strategic alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of the agreement, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees for Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. For each drug Alnylam develops under this alliance, the potential milestone payments from Alnylam total $3.4 million, which Alnylam will pay to us upon the occurrence of specified development and regulatory events. In December 2010, we earned a $375,000 milestone payment from Alnylam for the initiation of a Phase 1 study in their transthyretin, or TTR, program. We retained rights to a limited number of do uble-stranded RNAi therapeutic targets and all rights to single-stranded RNAi therapeutics. We also made a $10 million equity investment in Alnylam at the time of the agreement. During 2007, 2006 and 2005, we sold our holdings of Alnylam stock resulting in aggregate net cash proceeds of $12.2 million and a net gain on investments of $6.2 million. As of December 31, 2010, we no longer own any shares of Alnylam. 

In turn, Alnylam nonexclusively licensed to us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize single-stranded RNAi therapeutics and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of therapeutic targets on a nonexclusive basis. If we develop or commercialize an RNAi-based drug using Alnylam’s technology, we will pay Alnylam milestone payments and royalties. For each drug, the potential milestone payments to Alnylam total $3.4 million, which we will pay upon the occurrence of specified development and regulatory events. As of December 31, 2010, we did not have an RNAi-based drug in clinical development.  Our Alnylam alliance provides us with an opportunity to realize substantial value from our pioneering work in antisense mechanisms and oligonucleotide chemistry and is an example of our strategy to participate in all areas of RNA-based drug discovery.

In April 2009, we and Alnylam amended our strategic collaboration and license agreement to form a new collaboration focused on the development of single-stranded RNAi, or ssRNAi, technology.  Under the terms of the amended collaboration and license agreement, Alnylam paid us an upfront license fee of $11 million plus $2.6 million of research and development funding in 2009 and 2010.  In November 2010, Alnylam terminated the ssRNAi research program and we recognized $4.9 million of revenue from the upfront fee that we were amortizing into revenue over the research term.  As a result, any licenses to ssRNAi products granted by us to Alnylam under the agreement, and any obligation by Alnylam to pay milestone payments, royalties or sublicense payments to us for ssRNAi products under the agreement, terminated.  We continue to advance the development of ssRNAi technolo gy and during the course of the collaboration, we made improvements in the activity of ssRNAi compounds, including increased efficacy and potency as well as enhanced distribution.

As of December 31, 2010, we had earned a total of $37.1 million from Alnylam resulting from sublicenses of our technology for the development of RNAi therapeutics that Alnylam has granted to pharmaceutical partners.

During 2010, 2009 and 2008, we generated revenue from our relationship with Alnylam totaling $10.3 million, $5.0 million and $4.6 million, respectively, representing nine percent, four percent and four percent, respectively, of our total revenue for those years.

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AVI BioPharma, Inc., formerly Ercole Biotech, Inc.

In May 2003, we and Ercole entered an agreement where each party cross-licensed its respective intellectual property related to alternative RNA splicing.  As part of the agreement, we granted Ercole an additional license to some of our chemistry patents.  Assuming Ercole successfully develops and commercializes a drug incorporating the splicing technology or chemistry we licensed to Ercole, we will receive milestone payments totaling up to $21 million for the achievement of key clinical, regulatory and sales milestones. We will also receive royalties on sales of these drugs. Ercole is solely responsible for the continued development of its drugs.

Similarly, if we successfully develop and commercialize a drug incorporating the splicing technology Ercole licensed to us, we will pay milestone payments to Ercole totaling up to $21 million for the achievement of key clinical, regulatory and sales milestones and will also pay royalties to Ercole on sales of these drugs.  We currently do not have a drug incorporating Ercole’s technology in clinical development.

In March 2008, AVI BioPharma, Inc. acquired Ercole’s rights and obligations under the collaboration agreement.  During 2010, 2009 and 2008, we did not recognize any revenue from our relationship with Ercole.

External Project Funding

We are pursuing discovery and development projects that provide us with new therapeutic applications for antisense drugs through, for example, direct delivery to the CNS. These programs represent opportunities for us and our technology.  In some cases, we fund these studies through support from our partners or disease advocacy groups and foundations. For example, we receive external funding support for our ALS and Huntington’s disease programs.

CHDI Foundation, Inc.

In November 2007, we entered into an agreement with CHDI, which provided us funding for the discovery and development of an antisense drug for the treatment of Huntington’s disease.  CHDI’s funding builds upon an earlier successful collaboration between us and CHDI, in which CHDI funded proof-of-concept studies that demonstrated the feasibility of using antisense drugs to treat Huntington’s disease.  If we grant a license to a third party to commercialize our Huntington’s disease program, we and CHDI will evenly split the proceeds from the license until CHDI has recouped its funding together with a return determined at a predefined interest rate.  Thereafter, we will keep the full amount of any additional proceeds.  During 2009 and 2008, we recognized revenue of $1.7 million and $2.7 million, respectively, from our relationship with CHDI.  In 20 10, we did not recognize any revenue from our relationship with CHDI.

ALS Association; The Ludwig Institute; Center for Neurological Studies; Muscular Dystrophy Association

In October 2005, we entered a collaboration agreement with the Ludwig Institute, the Center for Neurological Studies and researchers from these institutions to discover and develop antisense drugs in the areas of ALS and other neurodegenerative diseases. Under this agreement, we agreed to pay the Ludwig Institute and Center for Neurological Studies modest milestone payments and royalties on any antisense drugs resulting from the collaboration.  The researchers from the Ludwig Institute and Center for Neurological Studies, through funding from the ALS Association and the Muscular Dystrophy Association, conducted IND-enabling preclinical studies of ISIS-SOD1Rx.  The ALS Association and the Muscular Dystrophy Association provided funding to offset the costs of the Phase 1 study of ISIS-SOD1Rx.  Except for the funding provided by the ALS Association and the Muscular Dystrophy Association, we control and are responsible for funding the continued development of ISIS-SOD1Rx.

Intellectual Property Sale and Licensing Agreements

We have a broad patent portfolio covering our products and technologies. We believe our patent estate represents the largest and most valuable nucleic acid therapeutics-oriented patent estate in the pharmaceutical industry. While the principal purpose of our intellectual property portfolio is to protect our products and those of our pharmaceutical and satellite company partners described above, our intellectual property is a strategic asset that we are exploiting to generate near-term revenues and that we expect will also provide us with revenue in the future. We have an active intellectual property sales and licensing program in which we sell or license aspects of our intellectual property to companies like AMI, Idera Pharmaceuticals, Inc., Integrated DNA Technologies, Inc., or IDT, Roche Molecular Systems, Silence Therapeutics plc., formerly Atugen AG, and Dharmacon,  Inc., now a part of Thermo Fisher Scientific, Inc. Through this program, we also license our non-antisense patents as we did with Eyetech Pharmaceuticals, Inc. To date, we have generated more than $398 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs.

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Out-Licensing Arrangements; Royalty Sharing Agreements; Sales of IP

Abbott Molecular Inc.

In January 2009, we sold our former subsidiary, Ibis Biosciences, to AMI, pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below.

Under the stock purchase agreement, AMI will pay us earn out payments equal to a percentage of Ibis’ revenue related to sales of Ibis systems, including instruments, assay kits and successor products, from the date of the acquisition closing through December 31, 2025.  The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion.  AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events.

Eyetech Pharmaceuticals, Inc.

In December 2001, we licensed to Eyetech certain of our patents necessary for Eyetech to develop, make and commercialize Macugen, a non-antisense drug for use in the treatment of ophthalmic diseases, that Eyetech is developing and commercializing with Pfizer Inc. Eyetech paid us a $2 million upfront fee and agreed to pay us milestone and royalty payments in exchange for non-exclusive, worldwide rights to the intellectual property licensed from us.  During 2004, we earned $4 million in milestone payments, and our license with Eyetech may also generate additional milestone payments aggregating up to $2.8 million for the achievement of specified regulatory milestones with respect to the use of Macugen for each additional therapeutic indication.  Prior to 2010, we had assigned our rights to receive royalties for Macugen to Drug Royalty Trust 3.  During 2009 and 2008, because of our agreement with Drug Royalty Trust 3, we did not recognize any revenue from our relationship with Eyetech.  In 2010, we recognized $567,000 of revenue related to royalties for Macugen under our license to Eyetech.

Roche Molecular Systems

In October 2000, we licensed some of our novel chemistry patents to Roche Molecular Systems, a business unit of Roche Diagnostics, for use in the production of Roche Molecular Systems’ diagnostic products. The royalty-bearing license grants Roche Molecular Systems non-exclusive worldwide access to some of our proprietary chemistries in exchange for initial and ongoing payments from Roche Molecular Systems to us. During 2010, 2009 and 2008, we recognized revenue of $1.8 million, $1.3 million and $1.2 million, respectively, from our relationship with Roche Molecular Systems.

In-Licensing Arrangements

Idera Pharmaceuticals, Inc., formerly Hybridon, Inc.

We have an agreement with Idera under which we acquired an exclusive license to all of Idera’s antisense chemistry and delivery technology related to our second generation antisense drugs and to double-stranded siRNA therapeutics. Idera retained the right to practice its licensed antisense patent technologies and to sublicense their technologies to collaborators under certain circumstances. In addition, Idera received a non-exclusive license to our suite of RNase H patents.  In 2010 we recognized $20,000 in revenue from our relationship with Idera, compared to $10,000 in 2009.  During 2008 we did not recognize any revenue from our relationship with Idera.

Integrated DNA Technologies, Inc.

In March 1999, we further solidified our intellectual property leadership position in antisense technology by licensing certain antisense patents from IDT, a leading supplier of antisense inhibitors for research. The patents we licensed from IDT are useful in functional genomics and in making our second-generation chemistry.  We expect these patents will expire in February 2013.  Under the license, we paid IDT $4.9 million in license fees in 2001 and we will pay royalties on sales of any drugs utilizing the technology we licensed from IDT until the patents expire.

University of Massachusetts

We have a license agreement with the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to ISIS-SMNRx. If we successfully develop and commercialize a drug incorporating the technology we licensed from the University of Massachusetts, we will pay milestone payments to the University of Massachusetts totaling up to $650,000 for the achievement of key clinical and regulatory milestones.  In addition, we will pay the University of Massachusetts a portion of any sublicense revenue we receive from sublicensing its technology, and a royalty on sales of ISIS-SMNRx in the United States if our product incorporates the technology we licensed from the University of Massachusetts.

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Verva Pharmaceuticals Ltd.

We have a license agreement with Verva under which we acquired an exclusive license to Verva’s antisense patent rights related to ISIS-FGFR4Rx.  If we successfully develop and commercialize a drug incorporating the technology Verva licensed to us, we will pay milestone payments to Verva totaling up to $6.1 million for the achievement of key patent, clinical, and regulatory milestones.  If we convert our license from an exclusive license to a nonexclusive license we could significantly reduce the milestone payments due to Verva.  In addition, we will also pay royalties to Verva on sales of ISIS-FGFR4Rx if our product incorporates the technology we licensed from Verva.

Cold Spring Harbor Laboratory

We have a collaboration and license agreement with the Cold Spring Harbor Laboratory under which we acquired an exclusive license to the Cold Spring Harbor Laboratory’s patent rights related to ISIS-SMNRx. If we successfully develop and commercialize a drug incorporating the technology we licensed from the Cold Spring Harbor Laboratory, we will pay milestone payments to the Cold Spring Harbor Laboratory totaling up to $900,000 for the achievement of key clinical and regulatory milestones.  In addition, we will pay the Cold Spring Harbor Laboratory a portion of any sublicense revenue we receive from sublicensing the Cold Spring Harbor Laboratory’s technology, and a royalty on sales of ISIS-SMNRx if our product incorporates the technology we licensed from the Cold Spring Harbor Laboratory.

Regulus Collaborations

We and Alnylam each granted Regulus exclusive licenses to our respective intellectual property for microRNA therapeutic applications, as well as certain early fundamental patents in the microRNA field, including the “Tuschl III”, “Sarnow” and “Esau” patent series.  Alnylam made an initial investment of $10 million in Regulus to balance both companies’ ownership.  In October 2010, sanofi-aventis invested $10 million in Regulus valuing Regulus at more than $130 million.  From this investment sanofi-aventis acquired less than 10 percent ownership of Regulus, leaving us with 46 percent ownership.  Alnylam owns the remaining outstanding preferred shares.  Regulus operates as an independent company with a separate board of directors, scientific advisory board and management team. We and Alnylam retain rights to develop and commercialize on pre-negotiated terms microRNA therapeutic products that Regulus decides not to develop either itself or with a partner.

sanofi-aventis

In June 2010, Regulus entered into a global, strategic alliance with sanofi-aventis to discover, develop, and commercialize microRNA therapeutics. The alliance includes $640 million of potential future milestone payments in addition to a $25 million upfront fee, a $10 million equity investment in Regulus that sanofi-aventis made in October 2010 and annual research support for three years with the option to extend two additional years. In addition, Regulus is eligible to receive royalties on microRNA therapeutic products commercialized by sanofi-aventis.  sanofi-aventis also received an option for a broader technology alliance that provides Regulus certain rights to participate in development and commercialization of resulting products. If exercised, this three-year option is worth up to an additional $50 million to Regulus. We and Alnylam are each eligible to receive 7.5 percent of the upfront payment and all potential milestone payments, in addition to royalties on product sales.  As a result, in July 2010 we received a payment of $1.9 million representing 7.5 percent of the $25 million upfront fee from Regulus.

GlaxoSmithKline

In April 2008, Regulus entered into a strategic alliance with GSK to discover, develop and commercialize novel microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and IBD, and in February 2010, Regulus and GSK expanded this alliance to include microRNA therapeutics targeting miR-122 for the treatment of HCV infection. The alliance utilizes Regulus’ expertise and intellectual property position in the discovery and development of microRNA-targeted therapeutics and provides GSK with an option to license drug candidates directed at four different microRNA targets, including miR-122 for HCV. Regulus will be responsible for the discovery and development of the microRNA antagonists through completion of clinical proof of concept, unless GSK chooses to exercise its option earlier. After exercise of the option, GSK will have an exclusive license to d rugs Regulus develops under each program for the relevant microRNA target for further development and commercialization on a worldwide basis. Regulus will have the right to further develop and commercialize any microRNA therapeutics, which GSK chooses not to develop or commercialize.

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Regulus received $28 million in upfront payments from GSK, including $18 million in option fees and two $5 million notes. The notes plus interest will convert into Regulus common stock in the future if Regulus achieves a minimum level of financing with institutional investors. In addition, we and Alnylam are guarantors of the notes, and if the notes do not convert or if Regulus does not repay the notes by February 2013, we, Alnylam and Regulus may elect to repay the notes plus interest with shares of each company’s common stock or cash.  Regulus is eligible to receive from GSK up to $144.5 million in development, regulatory and sales milestone payments for each of the four microRNA-targeted drugs discovered and developed as part of the alliance. In May 2009, Regulus received a $500,000 discovery milestone payment from its collaboration with GSK for demonstrating a pharmacolo gical effect in immune cells by specific microRNA inhibition.  In addition, Regulus would receive from GSK tiered royalties up to double digits on worldwide sales of drugs resulting from the alliance.  During 2010, 2009 and 2008, Regulus recognized revenue of $3.1 million, $3.0 million and $1.9 million, respectively, related to Regulus’ collaboration with GSK.

As part of the HCV collaboration, Regulus granted GSK a limited license to develop and commercialize the miR-122 antagonist SPC 3649, if GSK acquires rights to this compound.  Regulus will receive development and regulatory milestones as well as royalties if GSK develops and commercializes SPC 3649.

Manufacturing

Drug Discovery and Development

In the past, except for small quantities, it was generally expensive and difficult to produce chemically modified oligonucleotides like the antisense drugs we use in our research and development programs. As a result, we have dedicated significant resources to develop ways to improve manufacturing efficiency and capacity. Since we can use variants of the same nucleotide building blocks and the same type of equipment to produce our oligonucleotide drugs, we found that the same techniques we used to efficiently manufacture one oligonucleotide drug could help improve the manufacturing processes for many other oligonucleotide drugs. By developing several proprietary chemical processes to scale up our manufacturing capabilities, we have greatly reduced the cost of producing oligonucleotide drugs. For example, we have significantly reduced the cost of raw materials through improved yield efficiency, while at the same time increasing our capacity to make the drugs. Through both our internal research and development programs and collaborations with outside vendors we may achieve even greater efficiency and further cost reductions.

Due to the growing numbers of our antisense drug development partners and the clinical successes of our antisense drugs, including mipomersen, in 2009 we increased our manufacturing capacity by upgrading and optimizing the efficiency of our manufacturing facility.  In 2011, Genzyme plans to submit for marketing approval of mipomersen in the United States and Europe.  If approved, the increased capacity of our manufacturing facility will provide the supply of drug substance we believe is necessary for the initial launch of mipomersen.

We rely on Genzyme to manufacture the finished drug product for mipomersen, including the initial launch supply.  Genzyme has contracted with a contract manufacturing organization to prepare the finished vials of drug product for mipomersen, and plans to prepare the finished pre-filled syringes for mipomersen at one of its own manufacturing facilities.  In addition, after the initial launch supply of drug substance for mipomersen, Genzyme will be responsible for the long-term supply of mipomersen drug substance and finished drug product.

Our drug substance manufacturing facility is located in an approximately 28,704 square foot building in Carlsbad, California. We lease this building under a lease that has an initial term ending on December 31, 2031 with an option to extend the lease for up to four additional five-year periods.  In addition, we have an approximately 25,792 square foot building we are in the process of renovating to provide support for our drug substance manufacturing facility.  We lease this facility under a lease that has an initial term ending in June 2021 with an option to extend the lease for up to two additional five-year periods.

As part of our collaborations we may agree to manufacture clinical trial materials and/or commercial supply for our partners. For example, in the past we have manufactured clinical supply materials for ATL, Bristol-Myers Squibb, Eli Lilly and Company, Genzyme, iCo, OncoGenex and Teva. We believe we have sufficient manufacturing capacity to meet our current and future obligations under existing agreements with our partners for commercial, research and clinical needs, as well as meet our current internal research and clinical needs. We believe that we have, or will be able to develop or acquire, sufficient supply capacity to meet our anticipated needs. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we can manufacture antisense drugs at commercially competitive prices.

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Regulus Therapeutics

Currently, Regulus only requires small quantities of drugs to conduct its drug discovery programs.  Regulus can satisfy current demand using its internal resources. When Regulus identifies a clinical candidate, it will have to ensure that it has a manufacturer for its drugs.

Patents and Proprietary Rights

Our success depends, in part, on our ability to obtain patent protection for our products in the United States and other countries. We file patent applications, as appropriate, to protect. As of February 14, 2011, we owned or exclusively licensed approximately 1,400 issued patents worldwide.

Isis Pharmaceuticals, Inc.

We own or control patents that provide exclusivity for products in our pipeline and patents that provide exclusivity for our core technology in the field of antisense more generally.  Our core technology patents include claims to chemically-modified nucleosides and oligonucleotides as well as antisense drug designs utilizing these chemically-modified nucleosides.  These core claims are each independent of specific therapeutic target, nucleic acid sequence, or clinical indication.  We also own a large number of patents claiming specific antisense compounds having nucleic acid sequences complementary to therapeutic target nucleic acids, independent of the particular chemical modifications incorporated into the antisense compound.  Most importantly, we seek and obtain issued patent claims for each of our drugs.  For example, for each of our drugs, we file and obtain claims covering each drug’s nucleic acid sequence and precise drug design.  In sum, we maintain our competitive advantage in the field of antisense technology by protecting our core platform technology, which applies to most of our drugs, and by creating multiple layers of patent protection for each of our specific drugs in development.

Chemically Modified Nucleosides and Oligonucleotides

The most broadly-applicable of our patents are those that claim modified nucleosides and oligonucleotides comprising the modified nucleosides that we incorporate into our antisense drugs to increase their therapeutic efficacy.  Nucleosides and chemically-modified nucleosides are the basic building blocks of our antisense drugs, therefore claims that cover any oligonucleotide incorporating one of our proprietary modified nucleosides can apply to a wide array of antisense mechanisms of action as well as several therapeutic targets.  Of particular note are our patents covering our proprietary 2’-O-(2-methoxy) ethyl modified nucleosides, incorporated into each of our development compounds, as well as our lead candidate modification for our generation 2.5 compounds, the constrained-ethyl nucleosides, or cEt, nucleosides.  The following are some of our patents in this category: