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Exhibit 10.2

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

LOAN AGREEMENT

        THIS LOAN AGREEMENT (the "Agreement") is entered into as of the 30th day
of September 2002, (the "Effective Date"), by and between Eli Lilly and Company,
an Indiana corporation ("Lilly"), and Isis Pharmaceuticals, Inc., a Delaware
corporation ("Isis").

RECITALS

        1.    Lilly and Isis have contemporaneously with the execution of this
Agreement entered into a Revised and Restated Supply Agreement (the "Supply
Agreement") pursuant to which Isis will supply a certain active pharmaceutical
ingredient to Lilly.

        2.    In order to assure sufficient financial resources to build the
manufacturing facility necessary to perform its responsibilities under the
Supply Agreement, Isis desires to obtain a loan from Lilly.

        3.    Lilly is willing to make a loan to Isis in accordance with the
terms and conditions set forth herein.

        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. DEFINITIONS

        Section 1.01    Defined Terms.    As used in this Agreement, the
following terms will have the meanings specified below:

        "Affiliate" means, when used with respect to a specified Person, another
Person that directly or indirectly controls or is controlled by or is under
common control with the Person specified.

        "Budget" has the meaning set forth in Section 2.01.

        "Business Day" means any day other than a Saturday, Sunday, or day on
which banking institutions in New York City are not required to be open.

        "Commitment" means the obligation of Lilly to make a Loan to Isis in the
amount set forth in Section 2.01.

        "Commitment Amount" has the meaning set forth in Section 2.01.

        "Common Stock" means the common stock, par value $0.001 per share, of
Isis.

        "Covenants" means the covenants of Isis set forth in Article VI hereof.

        "Debt" means the total amount of the Loan referred to in Section 2.01,
including accrued interest, that remains outstanding at anytime.

        "Dedicated Facility" means the manufacturing facility to be built by
ISIS for the purposes of manufacturing the API in satisfaction of the Supply
Agreement.

        "Development Agreement" means the Development and License Agreement
between the parties dated August 14, 2001, or any similar agreement between the
parties related to a replacement compound (see Section 3.30 of the Development
Agreement).

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        "Disbursement" has the meaning assigned to such term in Section 2.02.

        "Equipment" means the equipment purchased under the Loan Agreement and
specified in Exhibit D attached hereto.

        "Event of Default" has the meaning assigned to such term in Article VII.

        "Financial Officer" of any corporation means the chairman, president,
chief financial officer, or vice president, finance of such corporation.

        "Fundamental change" has the meaning assigned to such term in Subsection
2.03(f).

        "Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

        "ISIS Change of Control" will occur if (a) ISIS consolidates or merges
with, or into, any Lilly Competitor, winds up or dissolves (or suffers any
liquidation or dissolution) or sells, leases, or otherwise transfers (in one
transaction or a series of transactions) all or substantially all of its assets
to a Lilly Competitor, or (b) the surviving entity of such transaction does not
succeed to all rights, duties and obligations of ISIS under this Agreement and
the Loan Agreement. "Lilly Competitor" means a market or technological
competitor of Lilly that has a market capitalization equal to at least [***] of
the market capitalization of Lilly at the time of the transaction described
above.

        "Loan" means a loan of money from Lilly to Isis pursuant to this
Agreement.

        "Payment Date" will mean the earliest of: (i) the date of termination of
the Supply Agreement under Section 13.2 for material breach by Isis,
Section 13.3(a) for an Event of Default or Section 13.3(b) for an Isis Change of
Control; or (ii) the date that is the tenth anniversary of the Effective Date,
provided, however, if any such date specified in (i) or (ii) herein is not a
Business Day, the Payment Date will be the first Business Day thereafter.

        "Person" means any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government or any agency or political subdivision thereof.

        "Principal" means the Debt, less any accrued interest.

        "Product" means the compound designated ISIS 3521, or any replacement
compound pursuant to Section 3.30 of the Development Agreement.

        "Promissory Note" has the meaning assigned to such term in Section 2.01.

        "Transactions" has the meaning assigned to such term in Section 3.02 in
relation to Isis and in Section 4.02 in relation to Lilly.

        "Validation" means cGMP validation of the Dedicated Facility as required
for LILLY Third Party Supply Services Quality Control sign off of demonstration
and validation lots.

        Section 1.02.    Terms Generally.    The definitions in Section 1.01
will apply equally to both the singular and plural forms of the terms defined.
The words "include", "includes" and "including" will be deemed to be followed by
the phrase "without limitation".

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ARTICLE II. LOAN COMMITMENT,
DISBURSEMENTS AND REPAYMENT

        Section 2.01.    Commitment.    

        (a)  Subject to the terms and conditions of this Agreement and relying
on the representations and warranties set forth herein, Lilly agrees to make
available to Isis a Loan in the aggregate principal amount of [***] (the
"Commitment Amount"). The Loan is intended to cover the total actual costs
(including Isis internal labor) Isis incurs to construct, equip and Validate the
Dedicated Facility. A budget (the "Budget") for these costs is attached hereto
as Exhibit B.    The Commitment Amount may be increased only by mutual written
agreement of the parties. The Loan will bear interest at a rate of [***] per
year compounded [***]. The Loan will be evidenced by a promissory note as
hereafter described, prepared in substantially the form attached to this
Agreement as Exhibit A and dated as of the date of the first Loan Disbursement
and payable to the order of Lilly as described in Section 2.03 (the "Promissory
Note").

        (b)  Isis will have no obligation to perform any work to construct,
equip or Validate the Dedicated Facility if (i) such work is not specified in
the Budget, (ii) such work is requested by Lilly, and (iii) Isis reasonably
believes the performance of such work would cause Isis' costs (including Isis'
internal labor) to construct, equip and Validate the Dedicated Facility to
exceed the Commitment Amount.

        Section 2.02.    Loan Disbursements.    

        (a)  Subject to the provisions of Subsection 2.02(b), the Loan will be
disbursed by Lilly to Isis in three disbursements (each a "Disbursement"). The
first Disbursement will be due within five business days of the Effective Date
and will cover the actual cost of the equipment (moveable and nonmoveable) set
forth in the Budget as well as the total actual costs (including Isis' internal
labor) incurred by Isis through the Effective Date to construct, equip and
Validate the Dedicated Facility. The second Disbursement will be due on
December 15, 2002 and will cover the actual costs (including Isis' internal
labor) incurred by Isis through December 10, 2002 to construct, equip and
Validate the Dedicated Facility that were not already covered by the first
Disbursement. The third Disbursement will be due within one (1) month following
the completion of construction and Validation of the Dedicated Facility and will
cover the actual costs (including Isis' internal labor) incurred by Isis through
such completion to construct, equip and Validate the Dedicated Facility that
were not already covered by an earlier Disbursement. Lilly will be under no
obligation whatsoever to make any Disbursements after three (3) months following
the completion of construction and Validation of the Dedicated Facility; and
(ii) if less than the entire Commitment has been disbursed to Isis by the
Payment Date, the Commitment will be deemed reduced to an amount equal to the
aggregate amount of any Disbursements made prior to the Payment Date.

        (b)  Lilly may delay any Disbursement during any period of time that an
Event of Default has occurred and has not been corrected by Isis, in which event
any such delayed Disbursement will be made by Lilly to Isis on the first
Business Day following the date on which the reason for the delay ceases to
exist. Should Lilly delay a Disbursement under this Subsection 2.02(b) for any
reason other than a breach of a Covenant by Isis, Isis' obligation to supply API
under the Supply Agreement shall be postponed until the Disbursement has been
made.

        (c)  On or before the date of the first Disbursement pursuant to
Subsection 2.02(a), Isis will deliver to Lilly the Promissory Note and the
Financial Officer's certificate called for under Subsection 5.01(c). On or
before the date of any subsequent Disbursement pursuant to Subsection 2.02(a),
Isis will deliver to Lilly the Financial Officer's certificate called for under
Subsection 5.02(c).

        (d)  Provided the requirements above have been met, Lilly will make each
Disbursement to Isis within five (5) days of a request for Disbursement or on
the date specified in Section 2.02(a) above,

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whichever is later, by transferring the amount of such Disbursement by
electronic funds transfer to the following account:

Isis Pharmaceuticals, Inc.
Wells Fargo Bank, 401 B Street, Ste 2201
San Diego, CA 92101
Account Number 4946-033701
ABA Number: 121000248

or such Isis bank account as is from time to time designated by Isis to Lilly in
writing.

        Section 2.03.    Repayment of Loan.    

        Isis will repay to Lilly the entire unpaid amount of the Debt as
follows:

        (a)  Isis will repay the Debt by paying Lilly an amount equal to the
first milestone payment Isis receives from Lilly related [***]. Isis will repay
the Debt by paying Lilly an amount equal to the second milestone payment due
from Lilly, which will be related[***]; provided, however that, in the event
that the second milestone payment is [***], then Isis' payment hereunder will
equal [***] of the milestone received, and the balance of the outstanding Debt
will be paid upon receipt of the next milestone payment from Lilly, unless Isis
has already repaid the Debt; and

        (b)  Starting on the Effective Date, Isis will repay the Debt by paying
[***] of the API Supply Cost (as defined in the Supply Agreement) to manufacture
API, [***] of Isis' cost (determined on a similar basis) to manufacture any
other product (commercial or non-commercial) manufactured for Lilly (including a
Product as defined in the Supply Agreement), Isis or any third party, by Isis in
the Dedicated Facility. Payments hereunder will be made within [***] days
following the end of the calendar quarter in which such amounts accrued. Lilly,
or an independent certified public accounting firm of its choice (to the extent
that such firm is a nationally recognized independent accounting firm), will
have the right to request an audit of the records supporting these payments, at
its own expense and on an annual basis, to determine, with respect to any of the
two (2) preceding calendar years, the correctness of any report or payment made
under this Agreement. The expense of any such audit will be borne by Lilly;
provided, however, that if an error in favor of Lilly of more than [***] is
discovered, then such expenses shall be paid by Isis. If such audit concludes
that any amount is due to either party, such payment will be made within [***]
days after receipt of the audit report. The parties will treat all financial
information subject to review under this Section 2.03(b) in accordance with the
confidentiality provisions in Article 4 of the Development Agreement, which
provisions are incorporated herein and made a part of this Agreement by
reference.

        (c)  Until the Debt has been repaid in full, Isis will also continue to
make payments under Subsections 2.03(a) and 2.03(b).

        (d)  All payments made under Subsections 2.03(a) and 2.03(b) above will
be made by offsetting the payments due from Lilly against the corresponding
payment due from Isis. Any outstanding amount of the Debt will be due and
payable, without notice or demand, in its entirety on the Payment Date.

        (e)  In the event that Isis has not fully repaid the Debt on a Payment
Date which results from the tenth anniversary of the Effective Date, then, at
Isis' option, Isis will repay the Debt in full by making equal quarterly
installments over the two years following the Payment Date using one of the
following options. Isis will notify Lilly of how the Debt will be paid at least
fifteen (15) days prior to that Payment Date.

          (i)  Payment in cash;

        (ii)  Conversion of the Promissory Note into the number of Common Shares
equal to the total amount of the Debt being repaid divided by the average
closing stock price of the Common Stock

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for the thirty (30) days prior to the date of payment. Such stock will be
covered by and subject to the Registration Rights and Standstill Agreement,
dated August 17, 2001, between the parties. The amount described above will be
adjusted to reflect any subdivision of the outstanding shares of Common Stock
(by stock split, dividend, or otherwise) or any combination of the outstanding
shares of Common Stock into a smaller number of shares occurring during the
thirty (30)-day pricing period.

Isis will transfer the number of shares of Common Stock determined as described
above on the Payment Date. Isis will notify Lilly of any reclassification of the
outstanding shares of Common Stock, or consolidation, merger or share exchange
of Isis with another Person, or any other transaction or series of related
transactions in which shares of Common Stock are changed into, converted into,
or exchanged for other securities or property in each case where Isis is not the
surviving entity (each a "Fundamental Change").

No fractional shares will be issued upon conversion of the Promissory Note into
shares of Common Stock. If any fractional share of Common Stock would, except
for the provisions of this Section, be delivered upon such conversion, Isis, in
lieu of delivering such fractional share, will pay to Lilly an amount in cash
equal to the fractional share amount times the applicable conversion price.

In the event of conversion of the Promissory Note to Common Stock, Isis will
deliver to Lilly an opinion of counsel from Isis' Vice President, Legal and
General Counsel, dated as of the Payment Date, in substantially the same form
and content as set forth in the attached Exhibit C; or

        (iii)  Transfer to Lilly of title and possession of the Equipment,
without any further notice or action by Lilly. Isis agrees to provide Lilly with
reasonable access to the Dedicated Facility during business hours with
reasonable prior written notice, and will facilitate the removal of the
Equipment from the Dedicated Facility in this event. This transfer of Equipment
will equal payment in full on the Debt.

        (f)    In the event that Isis has not fully repaid the Debt on a Payment
Date which results from termination of the Supply Agreement under Section 13.2
for material breach by Isis, Section 13.3(a) for an Event of Default or
Section 13.3(b) for an Isis Change of Control, the entire Debt will be due and
payable in cash on that Payment Date.

        Section 2.04.    Payment.    All payments under this Agreement shall be
made in cash, via wire transfer to the following account:

Mellon Bank
Pittsburgh, PA
ABA 043000261
For Account of: Eli Lilly and Company
Customer Number: 1971431
Ref: ISIS Loan Repayment

or such other account as may be specified by Lilly, unless otherwise expressly
agreed between the parties.

        Section 2.05.    Prepayment.    

        (a)  Isis will have the right at any time, and from time to time, to
prepay the Debt in cash prior to the Payment Date, in whole or in part, without
penalty upon giving written notice to Lilly before noon Indianapolis time, at
least one Business Day prior to prepayment. Prepayments will be in a minimum
amount of one million U.S. Dollars ($1,000,000) or in integral multiples
thereof, unless such repayment represents the remainder of the balance of the
Debt.

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        (b)  Each notice of prepayment will specify the prepayment date and the
amount of the Debt to be prepaid, will be irrevocable and will commit Isis to
prepay such amount of the Debt as is stated therein on the date specified
therein. All prepayments under this Section 2.05 will be made by electronic
funds transfer to Lilly's designated account, and will be applied first to any
outstanding interest and then any outstanding Principal.

        Section 2.06.    Release From Liens.    

        (a)  Once Isis has repaid the Debt in full, Lilly will facilitate and
take all actions necessary to release the security interest and any related
liens on the Equipment.

ARTICLE III. ISIS' REPRESENTATIONS AND WARRANTIES

        Section 3.01.    Organization and Powers.    Isis represents and
warrants to Lilly that Isis:

        (a)  is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware,

        (b)  has all requisite corporate power and authority to own its property
and assets and to carry on its business as now conducted and as proposed to be
conducted, and

        (c)  has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and to borrow hereunder.

        Section 3.02.    Authorization.    Isis represents and warrants to Lilly
that the execution, delivery and performance by Isis of this Agreement and the
borrowing of the Loan and payment of the Debt (collectively, the "Transactions")
(a) have been duly authorized by all requisite corporate action, and (b) will
not (i) violate (A) any provision of any law, statute, rule or regulation or of
the certificate of incorporation or other constitutive documents or bylaws of
Isis; (B) any order of any Governmental Authority; or (C) any provision of any
indenture, agreement or other instrument or contract to which Isis is a party;
(ii) be in conflict with, result in a breach of, or constitute (alone or with
notice or lapse of time or both) a default under, any such indenture, agreement
or other instrument; or (iii) result in the creation or imposition of any lien
upon any property or assets of Isis except in each case as specified in this
Agreement or where such violation, conflict or lien would not materially impede
Isis' ability to fully perform its obligations under this Agreement.

        Section 3.03.    Enforceability.    Isis represents and warrants to
Lilly that this Agreement constitutes a legal, valid and binding obligation of
Isis, enforceable in accordance with its terms (subject, as to enforceability,
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and to general principles of
equity, regardless of whether such enforceability is considered in a proceeding
at law or in equity).

        Section 3.04.    Governmental Approvals.    Isis represents and warrants
to Lilly that no action, consent or approval of, registration or filing with, or
other action by, any Governmental Authority is required in connection with the
Transactions.

        Section 3.05.    Litigation.    Isis represents and warrants to Lilly
that there are no actions, proceedings or investigations filed or, to the actual
knowledge of Isis' chairman of the board, chief executive officer, chief
financial officer or general counsel, threatened, against Isis in any court or
before any Governmental Authority or arbitration board or tribunal which
question the validity or legality of this Agreement, the Transactions or any
action taken or to be taken by Isis pursuant to this Agreement and no order or
judgment has been issued or entered restraining or enjoining Isis from the
execution, delivery or performance of this Agreement.

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        Section 3.06.    Use of Proceeds and Inspection Rights.    Isis
represents and warrants to Lilly that all proceeds of the Loan will be used
solely for equipping, constructing, and Validating the Dedicated Facility
(including Isis' internal labor) consistent with the Budget. Isis will maintain
accurate records in sufficient detail to reflect the use by Isis of the proceeds
from the Loan (including the FTEs hours, by individual, needed to construct,
equip and Validate the Dedicated Facility and allocation reconciliation of cost
between the Dedicated Facility and the Facility). Each month Isis will provide
the MWG (as defined in the Supply Agreement) a report based on such records (in
which FTE hours will be reported by department) for the MWG's review and
discussion, if any. After Isis has closed its financial books for Isis' 2002
fiscal year, Lilly or an independent certified public accounting firm of its
choice (to the extent that such firm is a nationally recognized independent
accounting firm), will have [***], during normal business hours, upon reasonable
notice, and at Lilly's expense, to audit such records; provided, that the
parties may mutually agree in writing to forego this [***] and rely on a letter
from Isis' independent auditors regarding its audit of such records and the use
of the Loan proceeds. If such audit concludes that any amount is due to either
party, such payment will be made within thirty (30) days after receipt of the
audit report. The parties will treat all financial information subject to review
under this Section 2.03(b) in accordance with the confidentiality provisions in
Article 4 of the Development Agreement, which provisions are incorporated herein
and made a part of this Agreement by reference.

        Section 3.07.    Solvency.    Isis represents and warrants to Lilly that
it is not currently insolvent, i.e., unable to pay its debts and obligations as
they become due for payment.

ARTICLE IV. LILLY REPRESENTATIONS AND WARRANTIES

        Section 4.01.    Organization and Powers.    Lilly represents and
warrants to Isis that Lilly:

        (a)  is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana, and

        (b)  has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.

        Section 4.02.    Authorization.    Lilly represents and warrants to Isis
that the execution, delivery and performance by Lilly of this Agreement and the
making of the Loan (collectively, the "Transactions") (a) have been duly
authorized by all requisite corporate action, and (b) will not (i) violate
(A) any provision of any law, statute, rule or regulation or of the certificate
of incorporation or other constitutive documents or bylaws of Lilly; or (B) any
order of any Governmental Authority; or (C) any provision of any indenture,
agreement or other instrument filed as an exhibit to Lilly's reports required to
be filed under Section 13 of the Securities and Exchange Act of 1934; (ii) be in
conflict with, result in a breach of, or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument; or (iii) result in the creation or imposition of any lien under any
property or assets of Lilly except in each case where such violation, conflict
or lien would not materially impede Lilly's ability to fully perform its
obligations under this Agreement.

        Section 4.03.    Enforceability.    Lilly represents and warrants to
Isis that this Agreement constitutes a legal, valid and binding obligation of
Lilly, enforceable in accordance with its terms (subject, as to enforceability,
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and to general principles of
equity, regardless of whether such enforceability is considered in a proceeding
at law or in equity).

        Section 4.04.    Governmental Approvals.    Lilly represents and
warrants to Isis that no action, consent or approval of, registration or filing
with, or other action by, any Governmental Authority is required in connection
with the Transactions.

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        Section 4.05.    Litigation.    Lilly represents and warrants to Isis
that there are no actions, proceedings or investigations filed or, to the actual
knowledge of Lilly's chairman of the board, chief executive officer, chief
financial officer or general counsel, threatened, against Lilly in any court or
before any Governmental Authority or arbitration board or tribunal which
question the validity or legality of this Agreement, the Transactions or any
action taken or to be taken by Lilly pursuant to this Agreement and no order or
judgment has been issued or entered restraining or enjoining Lilly from the
execution, delivery or performance of this Agreement.

ARTICLE V. CONDITIONS OF LENDING

        Section 5.01.    The obligations of Lilly to incur the Commitment set
forth in Section 2.01, and to make the first Disbursement pursuant to
Section 2.02 of this Agreement are subject to the satisfaction of the conditions
that on the date of such Loan Disbursement:

        (a)  The representations and warranties set forth in Article III will be
true and correct in all material respects with the same effect as though made on
and as of that date, except to the extent such representations and warranties
expressly relate to an earlier date,

        (b)  No Event of Default will have occurred and be continuing, and

        (c)  Lilly will have received the signed Promissory Note and a Financial
Officer's Certificate of Isis, dated as of no more than five (5) days prior to
the planned date of the Disbursement, confirming compliance with the conditions
precedent set forth in paragraphs (a) and (b) above.

        Section 5.02.    The obligations of Lilly to make Loan Disbursements
subsequent to the first Disbursement pursuant to Section 2.02 of this Agreement
are subject to the satisfaction of the conditions that on the date of each
subsequent Loan Disbursement:

        (a)  The representations and warranties set forth in Article III will be
true and correct in all material respects with the same effect as though made on
and as of that date, except to the extent such representations and warranties
expressly relate to an earlier date,

        (b)  No Event of Default will have occurred and be continuing, and

        (c)  Lilly will have received a Financial Officer's Certificate of Isis,
dated as of no more than five (5) days prior to the planned date of the
Disbursement, confirming compliance with the conditions precedent set forth in
paragraphs (a) and (b) above.

ARTICLE VI. ISIS COVENANTS

        Section 6.01.    Isis hereby grants to Lilly a continuing security
interest in the Equipment. Isis covenants and agrees that so long as this
Agreement remains in effect or the Debt is unpaid, unless Lilly otherwise
consents in writing, Lilly will have a lien on the Equipment and Isis will not
create nor allow to be created any other lien or security interest in the
Equipment. Isis agrees to promptly perform, on request of Lilly, such acts as
Lilly may determine to be necessary and advisable to create, perfect, maintain,
preserve, protect and continue the perfection of any lien and security interest
provided for in this Agreement or otherwise to carry out the intent of this
Agreement.

        Section 6.02.    Isis covenants and agrees with Lilly that so long as
this Loan Agreement remains in effect or the Debt is unpaid, unless Lilly
otherwise consents in writing, the Dedicated Facility and the Equipment will be
used exclusively for manufacture under the Supply Agreement and/or manufacture
of other Lilly compounds. During this period Isis will not use the Dedicated
Facility or the Equipment for its own benefit or the benefit of a third party in
any manner whatsoever without Lilly's prior written consent.

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ARTICLE VII. EVENTS OF DEFAULT

        An "Event of Default" includes any of the following:

        (a)  failure by Isis to tender payment of the Debt when and as the same
becomes due and payable;

        (b)  claim of excuse due to a force majeure event under Section 15.1 of
the Supply Agreement for a period of more than [***];

        (c)  breach by Isis of a Covenant set forth in Article VI above; or

        (d)  termination of the Supply Agreement for material breach by Isis.

ARTICLE VIII. SUBORDINATION

        Section 8.01.    Subordination of Indebtedness.    The parties
acknowledge and agree that the obligations evidenced by the Promissory Note and
pursuant to this Agreement are, except to the extent of the value of the
Equipment, hereby made expressly subordinate and subject in right of payment to
the prior payment in full of all principal, interest and other charges relating
to or arising under all obligations of Isis for borrowed money or other similar
obligations now existing, except for any such obligations arising in connection
with a collaboration with a third party pharmaceutical or biotechnology company,
which may be pari passu with the obligations evidenced by the Promissory Note
and pursuant to this Agreement. The parties hereto further expressly acknowledge
and agree that the obligations of Isis evidenced by the Promissory Note and this
Agreement rank, except to the extent of the value of the Equipment, pari passu
with the obligations of Isis under that certain Convertible Promissory Note
issued by Isis to Elan International Services, Ltd. on April 20, 1999.
Notwithstanding the provisions of this Article VIII, Isis' failure to pay the
Debt on the Payment Date will constitute a material breach of this Agreement by
Isis, and Lilly may pursue any legal remedy available to it in relation to such
material breach.

ARTICLE IX. MISCELLANEOUS

        Section 9.01.    Notices.    Except as otherwise expressly provided
herein, notices and other communications provided for herein will be in writing
and will be delivered by hand or overnight courier service or sent by telecopy,
as follows:

        (a)  If to Isis

2292 Faraday Avenue
Carlsbad, CA 92008
Attention: Chief Financial Officer
Tel: 760-603-2460
Fax: 760-931-9639

        with a copy to:

2292 Faraday Avenue
Carlsbad, CA 92008
Attention: Vice President Legal, General Counsel
Tel: 760-931-9200
Fax: 760-268-4922

        (b)  If to Lilly:

Eli Lilly and Company
Lilly Corporate Center

9

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Indianapolis, IN 46285
Fax: 317-433-3000
  telephone confirmation required at 317-276-2703
Attention: Rebecca O. Kendall, Esq., Senior Vice President and
General Counsel

        with a copy to:

Fax: 317-277-5912
  telephone confirmation required at 317-276-9115
Attention: Affinitac Product Team Leader

        All notices and other communications given to any Party hereto in
accordance with the provisions of this Agreement will be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or sent by telecopy to such Party as provided in this Section or in accordance
with the latest unrevoked direction from such Party given in accordance with
this Section.

        Section 9.02.    Survival of Agreement.    All covenants, agreements,
representations and warranties made by Isis herein and in the certificates or
other instruments prepared or delivered in connection with or pursuant to this
Agreement will be considered to have been relied upon by Lilly and will survive
the making by Lilly of the Commitment set forth in Section 2.01 regardless of
any investigation made by Lilly, and will continue in full force and effect as
long as the Debt or any other amount payable under this Agreement is outstanding
and unpaid or the Commitment has not been terminated.

        Section 9.03.    Successors and Assigns.    

        (a)  Neither Party will assign or delegate any of its rights and duties
hereunder without the prior written consent of the other Party, and any attempt
so to assign or delegate will be void, except that Lilly may assign its rights
and obligations hereunder, in whole or in part, to an Affiliate without the
approval or consent of Isis; provided that Lilly will remain liable for all
funding obligations hereunder;

        (b)  Subject to Subsection 9.03(a), whenever in this Agreement one of
the Parties hereto or thereto is referred to, such reference will be deemed to
include the permitted successors and assigns of such Party, and all covenants,
promises and agreements by or on behalf of a Party that are contained in this
Agreement will bind and inure to the benefit of its permitted successors and
assigns.

        Section 9.04.    Applicable Law.    All questions concerning the
construction, validity and interpretation of this Agreement will be construed in
accordance with and governed by the laws of the State of Delaware without regard
to principles of conflicts of laws.

        Section 9.05.    Waivers: Amendment.    

        (a)  No failure or delay of Lilly in exercising any power or right
hereunder will operate as a waiver thereof, nor will any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
Lilly hereunder are cumulative and are not exclusive of any rights or remedies
which it would otherwise have. No waiver of any provision of this Agreement or
consent to any departure therefrom will in any event be effective unless the
same is permitted by Subsection (b) below, and then such waiver or consent will
be effective only in the specific instance and for the purpose for which given.

        (b)  Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by Isis and Lilly.

        Section 9.06.    Severability.    In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein will not in any way be affected or
impaired

10

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thereby. The parties will endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic,
and legal, effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

        Section 9.07.    Counterparts.    This Agreement may be executed in two
or more counterparts, each of which will constitute an original but all of which
when taken together will constitute but one contract.

        Section 9.08.    Headings.    Article and Section headings used herein
are for convenience only, and do not constitute a part of this Agreement.

        Section 9.09.    Right of Setoff.    In addition to Lilly's rights of
set off described in Section 2.03(d), Lilly is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
the monetary obligations owing by Lilly to Isis under Section 5.5 of the Supply
Agreement against any outstanding Debt. In addition, if Isis fails to pay the
Debt when due as described herein, and such failure continues for more [***]
then Lilly is hereby authorized at any time and from time to time, so long as
Isis fails to pay the Debt when due, to the fullest extent permitted by law, to
set off and apply any and all monetary obligations owed by Lilly to Isis at any
time under the Supply Agreement against any outstanding Debt; provided, that
Lilly may not off set any monetary obligations that are the subject of a good
faith dispute among the parties. Lilly agrees promptly to notify Isis after such
setoff and application, but the failure to give such notice will not affect the
validity of such setoff and application. Except as described in Section 2.03(d)
and this Section 9.09, Lilly will have no other rights of setoff, however the
rights of Lilly under this Section are in addition to other rights and remedies
it may have.

        Section 9.10.    Confidentiality and Nondisclosure.    The parties agree
that the existence and terms of this Agreement are confidential and that neither
party will disclose any information related to this Agreement to any third
party, nor use such information for any purpose other than those contemplated by
this Agreement or as required by law.

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

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

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    Name: Charles E. Golden

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    Title: Executive Vice President and Chief Financial Officer
 
 
ISIS PHARMACEUTICALS, INC.
 
 
By:
/s/  B. LYNNE PARSHALL      

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    Name: B. Lynne Parshall

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    Title: Executive Vice President & CFO

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EXHIBIT A

THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH
RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION.

SUBORDINATED PROMISSORY NOTE

[***]     , 2002    

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      San Diego, California

        FOR VALUE RECEIVED, ISIS PHARMACEUTICALS, INC., a Delaware corporation
("Borrower"), hereby promises to pay to the order of ELI LILLY AND COMPANY, an
Indiana corporation ("Lender"), in lawful money of the United States of America
and in immediately available funds, the principal sum [***] (the "Loan")
together with accrued and unpaid interest thereon, each due and payable on the
dates and in the manner set forth in the Loan Agreement (as defined below).

        This Subordinated Promissory Note (this "Note") is the promissory note
referred to in and is executed and delivered in connection with the Loan
Agreement between the parties, dated as of    September, 2002 and executed by
Borrower and Lender (as the same may from time to time be amended, modified or
supplemented or restated, the "Loan Agreement"). All capitalized terms used
herein and not otherwise defined herein will have the respective meanings given
to them in the Loan Agreement.

(1)Loan Requests. Loan Disbursements made under this Note will be disbursed in
the manner and as provided in Section 2.02 of the Loan Agreement. At the time of
any borrowing under this Note (or at the time of receipt of any payment of
principal or conversion of this Note into equity securities of the Borrower),
Lender will make or cause to be made, an appropriate notation on the Exhibit A
attached hereto reflecting the amount of such borrowing (or the amount of such
payment or conversion). The outstanding amount of this Note set forth on such
Exhibit A will be prima facie evidence of the principal amount thereof
outstanding, but the failure to record, or any error in so recording, will not
limit or otherwise affect the obligations of Borrower to make payments of
principal of or interest on this Note when due. Borrower and Lender acknowledge
that the initial principal amount outstanding under this Note as of the date
hereof will be                        Dollars ($                        ), as
indicated on the attached Exhibit A.

(2)Interest. The Loan outstanding from time to time from and after the Effective
Date will bear interest as provided in Section 2.01 of the Loan Agreement.

(3)Repayment. This Note will be paid as set forth in Section 2.03 of the Loan
Agreement.

(4)Subordination. The indebtedness evidenced by this Note is hereby expressly
subordinated, to the extent, in the manner and to the indebtedness as set forth
in Section 8.01 of the Loan Agreement.

(5)Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and will pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.

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(6)Governing Law. This Note is governed by, and construed and enforced in
accordance with, the laws of the State of Delaware, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.

ELI LILLY AND COMPANY   ISIS PHARMACEUTICALS, INC.
By:
 
 
 
By:
 
   

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Printed Name:     Printed Name:      

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Title:       Title:      

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2

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PRINCIPAL BORROWINGS SCHEDULE

Date

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  Borrowing

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  Repayment

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  Principal Balance

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    $ [            ]        

3

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EXHIBIT B

BUDGET

[***]

1

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EXHIBIT C

Opinion of Counsel

        (a)  Isis is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to conduct its business as presently conducted.

        (b)  The Common Stock to be issued has been duly authorized and is duly
and validly issued, fully paid and non-assessable and free of statutory
pre-emptive rights.

        (c)  The issuance of the Common Stock pursuant to the conversion
provisions in the Loan Agreement will not conflict with, or result in any breach
of any of the terms, conditions, or provisions of, or constitute a default
under, (i) the Certificate of Incorporation or Bylaws of Isis or (ii) any
provision of California or federal law, statute, rule or regulation or any
provision of the Delaware General Corporation Law.

        (d)  Except as obtained and in effect on the date of issuance of the
Common Stock, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration, or filing with, any governmental
authority is required on the part of Isis in connection with the issuance of the
Common Stock pursuant to the conversion of the Loan Agreement.

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EXHIBIT D

Equipment List

        [***]

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QuickLinks

Exhibit 10.2

LOAN AGREEMENT