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Exhibit 10.1

        CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24

WAIVER AND RELEASE AGREEMENT

        This Waiver and Release Agreement (the "Release") is made and entered
into effective as of June 5, 2003 between Eli Lilly and Company, having its
principal place of business at Lilly Corporate Center, Indianapolis, Indiana
46285 ("Lilly"), and Isis Pharmaceuticals, Inc., having its principal place of
business at Carlsbad Research Center, 2292 Faraday Avenue, Carlsbad, CA 92008
("Isis").

RECITALS

1.Lilly and Isis are parties to a Revised and Restated ISIS 3521 Supply
Agreement (the "Supply Agreement") and a Loan Agreement (the "Loan Agreement"),
both dated as of September 30, 2002.

2.Both parties wish to terminate certain of their obligations and rights under
these agreements, as set for below.

        NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and promises contained in this Agreement, the parties, intending to be
fully bound, agree as follows:

ARTICLE I
TERMINATION

1.1The parties agree that both the Supply Agreement, including the MRD and the
Quality Agreement (both as defined in the Supply Agreement), and the Loan
Agreement, including the Promissory Note (as defined in the Loan Agreement) are
hereby terminated, effective as of the date first written above, and neither
party shall have any further rights, duties or obligations, monetary or
otherwise, under either the Loan Agreement or the Supply Agreement, except as
expressly set forth herein. Without limiting the inclusiveness of this
Section 1.1, the parties specifically agree that the audit rights provided to
Lilly in Sections 3.06 of the Loan Agreement and 5.6 of the Supply Agreement are
terminated and do not survive.

1.2The parties have entered into a Revised Clinical Quality Agreement, which is
attached hereto as Exhibit C (the "Quality Agreement"). This Quality Agreement
shall remain in effect until the earliest of the following occurs: (i) no
further obligations remain under the Quality Agreement; (ii) the Development and
License Agreement between the parties dated August 14, 2001 is terminated; or
(iii) the Quality Agreement is superseded.

1.3Notwithstanding Section 1.1 above, or any contradictory provision in the Loan
Agreement, only Section 9.10, Confidentiality, of the Loan Agreement shall
survive termination:

1.4Notwithstanding Section 1.1 above, or any contradictory provision in the
Supply Agreement, only the following provisions of the Supply Agreement shall
survive termination:

(a)Section 4.8, Documentation and Record Keeping

(b)Sections 9.4(b) and (c), Testing

(c)Section 11.1, Recalls

(d)Article 12, Indemnification and Insurance

(e)Article 14, Damage Limitations

(f)Section 15.8, Entire Agreement

(g)The clinical Quality Agreement dated November 13, 2001

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ARTICLE II
WAIVER AND RELEASE

2.1Lilly does hereby release and discharge Isis of and from its obligation to
repay the Debt under the Loan Agreement, and waives and releases any right to
limit the use of the Dedicated Facility.

2.2Lilly does hereby release and discharge Isis of and from its obligation to
manufacture and supply API under the Supply Agreement.

2.3Isis does hereby release and discharge Lilly of and from its obligation to
purchase API under the Supply Agreement.

2.4Isis does hereby release and discharge Lilly of and from its obligation to
make payments for Idle Capacity Costs under Section 5.5 of the Supply Agreement,
or to make any other payments whatsoever under the Supply Agreement, except as
specifically set out in Article III below.

ARTICLE III
ADDITIONAL COVENANTS

The parties to this Release hereby additionally agree and covenant that:

3.1All outstanding and currently accrued payments due from either party to the
other under the Loan Agreement and the Supply Agreement, including payments
under Section 2.02 of the Loan Agreement and Section 3.1(f) of the Supply
Agreement, are hereby settled in their entirety for the sum of [***] to be paid
by Lilly to Isis via wire transfer within ten (10) days of the effective date of
this Release in accordance with the instructions attached hereto as Exhibit A.
Upon receipt of such payment, Isis will have no further claim against Lilly for
any payments whatsoever under the Loan Agreement or the Supply Agreement. Lilly
specifically waives any rights to reimbursement of the [***] prepayment for raw
materials made to Isis under Section 5.1(a) of the Supply Agreement, and further
agrees that Isis has full title to and ownership of the raw materials, with the
exception of certain raw materials to be returned to Lilly (as specified below),
with no restriction on use thereof and no requirement to account to Lilly
therefore. Isis will return to Lilly the raw materials listed on Exhibit B, and
hereby transfers to Lilly full title to and ownership of these materials, with
no restriction on use thereof and no requirement to account to Isis therefore.

3.2To the extent that Isis' obligations under the Quality Agreement have been
agreed to under the Affinitak Development Plan, Lilly will have compensated Isis
for such obligations under Section 2 of Amendment Number One to the Development
and License Agreement. If an Isis obligation arises under the Quality Agreement
that is not outlined in the Affinitak Development Plan, the Parties will
promptly agree to an appropriate performance plan and budget to address such
obligation, which will be approved by a designated representative(s) of each
party. Without limiting the inclusiveness of the foregoing, the Parties agree
that the following obligations are not outlined in the Affinitak Development
Plan: (i) obligations under the Quality Agreement that arise after the [***]th
day following the delivery to Lilly of the data generated as a result of the
[***] drug Product stability testing as contemplated by the Development Plan,
except those obligations that arise under Section 2, 4, 9, 10 or 12 of the
Quality Agreement; (ii) actions required to be taken by Isis under Section 7 of
the Quality Agreement as requested by Lilly and beyond those which Isis is
required to complete per Isis procedures and applicable law for out of
specification results and/or confirmed stability failures; (iii) obligations
arising from regulatory inspections or inquiries under Sections 9 and 10 of the
Quality Agreement; and (iv) obligations incurred at the request of Lilly under
Section 16 of the Quality Agreement that result from [***].

3.3The parties acknowledge and admit that no other representation, promise or
agreement of any nature whatsoever, has been made to them, and that this Release
contains the entire agreement between the parties and that all terms of this
Release are binding upon them. This Release shall

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supersede any prior agreements, written or oral, between the parties hereto
related to the subject matter of this Release.

3.4This Release may not be modified or amended except by an instrument in
writing executed and delivered by each of the parties hereto.

3.5The respective representations and warranties of the parties contained herein
shall survive the effective date of this Settlement Agreement and Release and
shall continue until the discharge of all obligations pursuant to this
Agreement.

3.6This Release shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware, without reference to the rules in
Delaware or elsewhere governing choice of law.

3.7This Release shall be binding on and shall inure to the benefit of the
parties, their respective successors and assigns.

3.8This Release is entered into for the sole benefit of Isis and Lilly. Nothing
contained herein shall be construed or interpreted to create any third party
beneficiary contract rights in any other person.

3.9This Release may be executed in counterparts, copies of which may be
transmitted by facsimile, and a facsimile copy of an executed counterpart shall
be sufficient evidence of the executed counterpart. The rights and obligations
of each to the other shall be effective upon their execution of this Release.

        IN WITNESS WHEREOF, and intending to be legally bound hereby, we have
hereunto set our hands this 5th day of June, 2003.

 
 
 
      ELI LILLY AND COMPANY
 
 
 
      By: /s/  CHARLES E. GOLDEN      

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      Title: CFO, Executive Vice President

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      ISIS PHARMACEUTICALS, INC.
 
 
 
      By: /s/  B. LYNNE PARSHALL      

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      Title: CFO, Executive Vice President

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Exhibit A
Account Information
[***]

4

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Exhibit B
Raw Materials to be Returned to Lilly

Isis will ship to Lilly [***] kilograms each of the following [***]:

[***]

[***]

[***]

5

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Exhibit C
Quality Agreement
[***]

6

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WAIVER AND RELEASE AGREEMENT