Exhibit 10.6

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

DRUG DEVELOPMENT AND LICENSE OPTION AGREEMENT

 

BETWEEN

 

ELI LILLY AND COMPANY

 

AND

 

ISIS PHARMACEUTICALS, INC.

 

December 2, 2009

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

DRUG DEVELOPMENT AND LICENSE OPTION AGREEMENT

 

THIS DRUG DEVELOPMENT AND LICENSE OPTION AGREEMENT (the “Agreement”) executed on
December 2, 2009 (the “Effective Date”), by and between ELI LILLY AND COMPANY, a
corporation organized and existing under the laws of Indiana and its Affiliates
(together, “Lilly”), and ISIS PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of Delaware and its Affiliates (together, “Isis”).

 

RECITALS

 

A.                                   Lilly and Isis are parties to the Second
Amended and Restated Collaboration Agreement dated August 5, 2005 (the
“Collaboration Agreement”) to identify, characterize and/or develop antisense
oligonucleotides that modulate the expression of biological molecules and to
characterize the effect of such modulation to validate gene targets for drug
discovery, including antisense drug discovery;

 

B.                                     Under the Collaboration Agreement, the
Parties conducted research and development on ASO Compounds directed against
eIF-4E, which resulted in the development of the Product by Lilly;

 

C.                                     Lilly now wishes to return the eIF-4E
Program, including the Product, to Isis so that Isis may continue developing the
Product and the eIF-4E Program;

 

D.                                    In return, Isis will pay Lilly a
technology transfer fee and royalties on the Product and will grant Lilly an
option to later re-acquire a license to the eIF-4E Program, including the
Product on certain pre-defined terms.

 

E.                                      Except for the return of the eIF-4E
Program and the Product to Isis and related matters, this Agreement is not
intended to modify or amend the Collaboration Agreement, which shall continue in
effect following the execution of this Agreement.

 

1

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Parties agree as follows:

 

ARTICLE 1

 

DEFINITIONS; AMENDMENT AND RESTATEMENT

 

1.1                                 Definitions.  Capitalized terms used in this
Agreement, whether in the singular or plural, have the meanings set forth in
Schedule 1.1 which is attached hereto and made part of this Agreement, or as
otherwise specifically defined in this Agreement.

 

ARTICLE 2

 

TERMINATION OF LILLY’S RIGHTS IN PRODUCT; TECHNOLOGY TRANSFER

 

2.1                                 Termination.  Lilly’s license and other
rights under the Collaboration Agreement with respect to the eIF-4E Program and
the Product are hereby terminated, and all rights granted to Lilly under the
Collaboration Agreement with respect to the eIF-4E Program and to the Product
are returned to Isis.  Except as specifically stated in this Agreement: (i) the
Collaboration Agreement and any license granted to Lilly thereunder with respect
to any ASO Compounds or ASO Products, in each case that are not the Product or
part of the eIF-4E Program, will remain in full force and effect, and
(ii) neither Lilly nor Isis will have any further obligation with respect to the
eIF4E Program or the Product.

 

2.2                                 Patent Assignment. Lilly hereby assigns and
transfers, to Isis, all of Lilly’s rights, title, and interests in and to the
Lilly Product Patents.  Simultaneously with the execution of this Agreement,
Lilly will execute and deliver a confirmatory assignment relating to all Lilly
Product Patents, in the form of the assignment attached hereto as Schedule D.

 

2.3                                 Transfer of Records. Lilly and Isis will,
promptly following the Effective Date, agree to and complete an appropriate
process for transfer of information under Lilly’s control (subject to receipt of
any necessary Third Party consents) relating to the eIF-4E Program and the
Product that will include, to the extent practicable and reasonably useful to
Isis,  (a) all batch records related to the Product, including but not limited
to corresponding release data; (b) toxicity and pharmacokinetic data and reports
related to the Product; (c) pharmacology data and reports related to the
Product; (d) Product characterization data, (e) Product stability data; (f) any
other records, including, but not limited to, raw data or interim or final
reports, related to the Product; and (h) all Regulatory Documents, in each case
that are in the possession of Lilly or its Affiliates, or, to the extent Lilly
controls the same, any Third Party engaged by Lilly or any of its Affiliates. 
Lilly will use its good faith efforts to complete such transfer within [***]
days following the Effective Date.  Lilly may retain copies of all such
materials for archival purposes.

 

2

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

ARTICLE 3

 

DEVELOPMENT AND COMMERCIALIZATION; REPORTING

 

3.1                                 Phase I Study.  Lilly, [***], will use its
commercially reasonable efforts to promptly complete the Ongoing Phase I Study,
including but not limited to completing patient follow-up, data collection, data
analyses, summary reports and final reports.  Lilly will transfer to Isis the
results generated under the Ongoing Phase I Study promptly after they become
available to Lilly from the Third Party vendor assembling such data and reports,
including, but not limited to, raw data, interim and final reports in a manner
consistent with Section 2.3.  Lilly will use its good faith efforts to (i) send
Isis the raw data collected by Lilly (in the format collected by Lilly) from
such Phase I Study within [***] days following the locking of the primary
database for such study, and (ii) send Isis the clinical summary reports for
such Phase I Study within [***] days following the locking of the primary
database for such study. Except for as provided in Article 4, Lilly shall have
no obligation to conduct any other development activities with respect to the
eIF-4E Program or the Product.

 

3.2                                 Development and Commercialization.

 

3.2.1                        Except for Lilly’s obligation to complete the
Ongoing Phase I Study as set forth in Section 3.1 above, Isis will be solely
responsible (without obligation except as set forth in Section 3.2.2) for all
development and commercialization activities relating to the Product and the
eIF-4E Program; provided, Isis will not be required to assume any contracts or
obligations Lilly has with a Third Party related to the Product. Within [***]
days following the Effective Date, Isis shall notify Lilly of any Third Party
contracts Isis desires to assume.  Lilly will use its good faith efforts to
assist Isis in assuming such contracts, but will not be obligated to pay any
money or incur any continuing obligation under such contracts.  Lilly shall be
free to terminate any contract that Isis does not assume. Lilly will cooperate
with Isis to assign (or otherwise transfer responsibility) under any Regulatory
Document that is necessary for Isis to conduct the activities described in this
Section 3.2; provided, Lilly will use its good faith efforts to transfer to Isis
ownership of the IND for the Product by [***]. Thereafter, Isis will have the
sole right and responsibility for the preparation of any regulatory filings
required in order to conduct clinical trials on the Product in the Territory,
together with the preparation of suitable applications for marketing approval in
the Territory and will be the owner and party of record of all such regulatory
filings.  All protocols for clinical trials conducted by Isis prior to the
exercise or expiration of the Lilly option provided for in Section 5.1 shall be
approved by the applicable Institutional Review Board and submitted to the
applicable Regulatory Authority.

 

3.2.2                        Isis will use its commercially reasonable efforts
to conduct at [***]; provided, Isis may discontinue such development (and will
not be required to conduct [***] for the Product) if at any time Isis in good
faith believes that continuing such development (i) is not warranted because the
Product has not demonstrated [***], or (ii) would pose an unacceptable risk or
threat of harm in humans; or (iii) would violate any applicable law, ethical
principles, or principles of scientific integrity.

 

3

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

3.3                                 Progress Reports.  Isis will provide Lilly
with [***] written reports describing in reasonable detail the research,
development and commercialization activities by Isis for the Product conducted
in the previous [***]. In addition, Isis will provide Lilly a copy of the final
study report for any clinical studies of the Product within [***] days of the
date the same becomes available to Isis.

 

3.4                                 Compliance.  All studies done under this
Agreement will be carried out in compliance with any applicable laws,
regulations, or guidelines governing the conduct of research at the site where
such studies are being conducted.  All animals involved in studies under this
Agreement will be provided humane care and treatment in accordance with
generally acceptable current veterinary practices.

 

ARTICLE 4

 

MANUFACTURING AND SUPPLY

 

4.1                                 Supply of Existing Material.   To the extent
the same is available to Lilly from its existing supplies of manufactured
material, Lilly will supply Isis with up to [***] of the existing API for the
Product which was produced in accordance with cGMP and is located at Lilly’s
facilities as of the Effective Date (“Lilly API”).  Isis agrees to purchase the
Lilly API, on the terms set forth in this ARTICLE 4.  Lilly will endeavor to
[***] on or before [***] (the “[***]”).  Lilly will perform the [***] in
accordance with the [***] attached hereto as Schedule E (the “[***]”).  Lilly
will use good faith efforts to update the [***] within [***] days of the
Effective Date to include a [***] timeline for the [***], including a [***]. 
Lilly will update Isis, every [***] (or on a [***] basis if mutually agreed by
the Parties’ quality groups) regarding Lilly’s progress in performing the [***],
and Lilly will immediately notify Isis if Lilly decides to [***]. 
Notwithstanding the foregoing, Isis, at its election, will not be required to
purchase the material from Lilly if (i) Lilly has not [***], or if Lilly
notifies Isis that Lilly [***], which Lilly may do if Lilly in good faith
concludes that [***]; or (ii) less than [***] grams of API for the Product is
[***]. Lilly makes no representation or warranty that any particular quantity of
the Lilly API will be available or that any of Lilly API will [***].

 

4.2                                 Transfer of other Information.  Lilly will
also use its good faith efforts to provide any existing information and
documentation on such Lilly API within Lilly’s control (and subject to receipt
of any necessary Third Party consents) that is requested by Isis and that is
required by, or useful to, regulatory authorities at [***] to Isis, including,
but not limited to: summaries of [***] and all [***] records for the Lilly API,
the information specified in the [***], as well as Lilly’s [***] for the
Product; provided, however, that Lilly will not be required to create any such
documentation for Isis, unless otherwise agreed by the Parties.  Lilly will also
use its good faith efforts to assist Isis in obtaining information controlled by
the manufacturer (the “Lilly CMO”) of the Lilly API; and in obtaining the right
to [***] of the Lilly CMO.  Except as explicitly provided as part of the [***],
Isis acknowledges that the Lilly API is provided “AS IS,” without any warranty
of any kind,

 

4

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

express or implied, including any warranty of merchantability or fitness for a
particular purpose.

 

4.3                                 Lilly API Price.  Isis will pay Lilly
US$[***] per gram (inclusive of all shipping, freight and other delivery
charges, the “API Price”) for the Lilly API; provided, that if [***] does not
occur by [***], then the API Price will automatically [***] at the rate of [***]
per gram for each [***] day period between the date of the [***] and the [***]. 
In addition, if Lilly does not complete the [***] by [***], then Isis will have
the rights further set forth in [***] of this Agreement and, if applicable [***]
of the Form License Agreement.

 

4.4                                 [***].  If, in Isis’ reasonable opinion,
differences in the [***] in the Lilly API cause Isis to [***], Isis may [***]
the [***] of the [***] against the [***] of the [***].  Additionally, if Isis
reasonably believes it is necessary to [***] the [***] to comply with applicable
law or satisfy the requirements of any Regulatory Authority, and such [***]
consents to the same, Isis may also offset [***] of each [***] against the [***]
of the [***].  If Isis is entitled to an [***] under this Section 4.4, but the
[***] amount of the [***] for the [***] is less than the amount Isis is [***] to
[***] under this Section 4.4, then, at Isis’ written election, Lilly will [***]
to Isis an [***]of the [***] Isis [***] that is equal to the [***]. In no event,
however, will Lilly be obligated to [***] an [***] greater than $[***].  Isis
will provide Lilly with reasonable documentation regarding any [***] Isis [***]
under this Section 4.4.

 

4.5.          Isis Manufacturing Arrangements.  Isis shall include in any
agreement between Isis and a Third Party relating to manufacturing process
development or manufacture of Product appropriate provisions to ensure that Isis
retains ownership of and access to all manufacturing know-how or other
intellectual property, with the right to transfer the same to Lilly without cost
to Lilly in the event Lilly exercises its option to acquire rights to the
Product.  Isis shall ensure that any such agreements, to the extent they would
extend beyond the date on which Lilly may exercise its option, are [***] at
[***] by Lilly without [***], and do not contain any terms that would [***]
Lilly’s efforts to manufacture Product following exercise of the Lilly option.

 

ARTICLE 5

 

LILLY OPTION

 

5.1                                 Grant of Option.  Subject to the terms and
conditions of this Agreement, Isis hereby grants to Lilly an exclusive (except
as permitted by Section 6.1) option to obtain an exclusive, royalty-bearing
license, to develop, make, use, import, offer for sale and sell the Product, and
the ASO Compounds in the eIF4-E Program on the terms and conditions set forth in
the form of license agreement attached hereto as Schedule A (the “Form License
Agreement”).  During the term of Lilly’s option under this Section 5.1, Isis
shall not grant any rights in the Product, the ASO Compounds or the eIF4-E
Program to any other person that would be inconsistent with Lilly’s right to
exercise such option.

 

5

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

5.2                                 Exercise of Option.

 

5.2.1              Lilly’s option under Section 5.1 with respect to Products
that would require Lilly to pay a license fee and milestones at Tier 1 Rates
under the Form License Agreement is exercisable at any time before the earlier
of (a) [***] for the Product; and (b) the [***], in accordance with ARTICLE 6
below.  Lilly’s option under Section 5.1 that would require Lilly to pay a
license fee and milestones at Tier 2 Rates or Tier 3 Rates under the
Form License Agreement is exercisable after Isis has [***] of its planned [***]
for the Product, but before the earlier of (y) the [***] for the Product; and
(z) the [***], in accordance with ARTICLE 6 below.  Isis will provide Lilly at
least [***] days advance written notice of the Phase III Study Initiation for
the Product.  Isis will provide Lilly with written notice promptly following the
date Isis has [***] of its planned [***] for the Product.

 

5.2.2              Prior to exercising its option, Lilly may, upon [***] days
prior notice to Isis, have access to all available information regarding the
Product, and the eIF-4E Program and access to Isis personnel so that Lilly
conduct a reasonable and customary due diligence investigation; provided, such
diligence is part of Lilly’s good faith consideration of whether to exercise its
option, and such diligence has been approved in accordance with Lilly’s normal
due diligence sanction procedures.  Lilly may exercise the option granted
pursuant to this ARTICLE 5 by providing written notice to Isis prior to the
option’s expiration.  The date that Isis timely receives such notice will be
deemed the “Option Exercise Notice Date.”  The Form License Agreement will be
deemed granted to Lilly on the Option Exercise Notice Date.

 

5.3                                 Automatic Termination.  Except as set forth
in Section 5.4 below, If Lilly fails to timely exercise its option prior to the
earlier of (a) the [***] for the Product; and (b) the [***], in accordance with
ARTICLE 6 below, then the option granted under this ARTICLE 5 will automatically
expire and terminate.

 

5.4           Substitute Option.  In the event (i) Isis discontinues development
of Product [***], (ii) Lilly has not previously exercised its option with
respect to Product, and (iii) within [***] years after the date on which Isis
discontinues development of Product, Isis initiates human clinical trials of any
other ASO Compound targeting the eIF-4E mechanism, Lilly shall have the option
to acquire a license to such other ASO Compound upon the same terms as were
applicable to Lilly’s option to acquire the Product.

 

ARTICLE 6
LILLY RIGHT OF FIRST NEGOTIATION

 

6.1                                 Notwithstanding Section 5.1 above, once
(a) Isis has publicly disclosed the data or a summary of the results of [***]
for the Product; and (b) Isis has complied with the terms and conditions of the
Lilly Right of First Negotiation set forth below in this ARTICLE 6, then Isis
may execute a license with a development and commercialization partner for the
Product and the eIF-4E Program.

 

6

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

6.2                                 Lilly’s Right of First Negotiation.  Isis
hereby grants to Lilly a right of first negotiation (the “Lilly Right of First
Negotiation”) to obtain from Isis an exclusive, worldwide, license to develop
and commercialize the eIF4-E Program, including the Product according to the
provisions set forth in this ARTICLE 6.

 

6.3                                 Once Isis has publicly disclosed the data or
a summary of the results [***] for the Product, and if Isis intends to [***] of
the Product, Isis will so notify Lilly in writing (the “Isis Notification”). 
The Isis Notification will include summaries of preclinical, toxicological and
available clinical data and patent information of the level of detail included
in a Clinical Investigators Brochure.  All information contained in the Isis
Notification or provided pursuant to the due diligence investigation
contemplated by the next sentence will be considered Confidential Information of
Isis and subject to ARTICLE 8 and will be used by Lilly solely for the purpose
of evaluating its interest in exercising its rights under this ARTICLE 6. After
receipt of the Isis Notification, Lilly may, upon [***] days prior notice to
Isis, have access to [***] available information regarding the Product and
access to Isis personnel so that Lilly conduct a customary due diligence
investigation.

 

6.4                                 Within [***] days after receipt of the Isis
Notification (the “Lilly Response Period”), Lilly will either (i) notify Isis
that Lilly is interested in the Product, including a written proposal of the
terms that Lilly intends to form the basis of a final agreement for the
development and commercialization of the Product (a “Lilly Expression of
Interest”); or (ii) exercise its Product option to the extent permitted under
ARTICLE 5 above; or (iii) notify Isis that Lilly has no interest in the
development and commercialization of the Product.

 

6.5                                 If Lilly provides Isis with a Lilly
Expression of Interest prior to the termination of the Lilly Response Period,
then the Parties will negotiate exclusively in good faith reasonable terms that
are intended to form the basis of a final agreement for a period of up to [***]
days from the date of Lilly’s Expression of Interest.

 

6.6                                 If, (i) Lilly fails to provide Isis with a
Lilly Expression of Interest or exercise its option prior to the termination of
the Lilly Response Period; or (ii) Lilly notifies Isis that Lilly has no
interest in the development and commercialization of the Product; or
(iii) despite good faith negotiations, Lilly and Isis are unable to reach an
agreement by the [***] day following Isis’ receipt of a Lilly Expression of
Interest; then, in each case, Isis will thereafter be free to develop the
Product on its own or execute a license with an alternative partners with
respect to the development and commercialization of the Product; provided,
however, that in the event of (iii) of this Section 6.6, then Lilly shall have a
period of [***] days following the [***] day in which to exercise its option. 
If during such period Lilly does not exercise its option, then Isis may, subject
to Section 6.9,  seek an alternative partner, and where Isis intends to execute
a license with an alternative partner, the following provisions will apply:

 

6.6.1                              milestone payments and upfront license fees
offered by any Third Party and accepted by Isis for the Product must exceed (on
a net present value basis) those set forth in the Lilly’s last written proposal
by [***] percent ([***]%).  The discount rate for the net present value
calculation will be the prime rate published in the Wall Street Journal (print
or Internet addition) at the time of negotiation plus [***] percent ([***]%). 
For the

 

7

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

purpose of calculating net present value under this Section 6.6 the following
timing definitions will apply: (i) Phase III Study Initiation will be considered
to begin [***] years after the [***] Study Initiation; (ii) Registration
Submission will be considered to occur [***] years from Phase III Study
Initiation; and (iii) First Commercial Sale will be considered to occur [***]
year after Registration submission.

 

6.6.2                              Royalty rates offered by any Third Party must
equal or exceed [***]% multiplied by the royalty rate set forth in the last
written terms offered by Lilly.

 

6.6.3.                           All other terms and conditions of the third
party offer, taken as a whole, are not materially worse than those terms and
conditions offered by Lilly.

 

6.7                                 Isis will [***] the terms of any such
proposed Third Party agreement to [***], and in the event that Lilly in good
faith disputes that such terms meet the requirements of Section 6.6, then an
independent Third Party with the requisite expertise, selected by the Parties,
will make such determination.  The expense of such independent Third Party will
be shared equally by the Parties.  In the event that any Third Party terms
include non-monetary consideration (e.g., licensing of patent rights), then such
independent Third Party will value such non-monetary consideration as well as
any other terms offered by such Third Party and decide whether as a whole the
Third Party offer exceeds the Lilly offer as set forth above.

 

6.8                                 If a Third Party offer for the Isis Product
exceeds the last written terms offered by Lilly by the guidelines outlined in
Section 6.6 and is accepted by Isis, Lilly will still be entitled to receive
from Isis the running royalty in accordance with Section 7.2 below.  .

 

6.9                                 If Lilly provides Isis with a timely Lilly
Expression of Interest, pursuant to Section 6.5, but Isis does not enter into an
agreement with Lilly or reach a mutually agreed-upon term sheet that represents
a [***] from a Third Party approved by an officer of the company of such Third
Party with respect to the development and commercialization of the Product
pursuant to the provisions of Section 6.6 on or before the date Isis publicly
announces [***] or a [***] of [***] of a [***] for the Product (i.e. where Isis
has not previously publicly announced any [***] from such [***]), then the Lilly
Right of First Negotiation with respect to such Product will be revived.  For
purposes of clarity, if the Lilly Right of First Negotiation is not revived
under this Section 6.9 because there was a mutually agreed-upon term sheet that
represents a [***] from a Third Party approved by an officer of the company of
such Third Party, then, if the transaction contemplated by such term sheet is
later abandoned by Isis and such Third Party, then the Lilly Right of First
Negotiation will be revived following the date of such abandonment.

 

6.10                           Notwithstanding the other provisions of this
ARTICLE 6, the Lilly Right of First Negotiation will automatically expire and
terminate upon the exercise or expiration of Lilly’s option under ARTICLE 5.

 

8

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

ARTICLE 7
PAYMENTS AND ACCOUNTING

 

7.1                                 Technology Access Fee.  In consideration for
the patent assignment and technology transfer set forth in Sections 2.2 and 2.3
above, Isis will pay Lilly $[***] within 5 business days following the Effective
Date.

 

7.2                                 Royalties.  Isis will pay to Lilly a royalty
equal to [***]% of the Net Sales of the Product by Isis, its Affiliates or
Licensees, on a country-by-country basis from the date of the First Commercial
Sale of the Product in such country until the expiration of the last to expire
claim within the Product Patents that Covers the [***] of [***] or [***] of
[***] of such Product in such country.  Notwithstanding the foregoing, if Lilly
does not complete the [***] by [***], then Isis will not be required to pay
royalties on the Net Sales of the Product by Isis its Affiliates or Licensees
that occur during the first [***] months following the First Commercial Sale of
the Product.

 

7.3                                 Third Party Royalty Obligations.  Isis shall
be responsible for payment of all third party royalty and other financial
obligations with respect to sales of Product under any present or future license
arrangements, unless such obligations were created by Lilly.

 

7.4                                 Accounting Reports; Payment of Royalty. 
Isis (including its Affiliates) and its Licensees under the Product Patents will
keep complete and accurate books and records which may be necessary to ascertain
properly and to verify the payments owed hereunder.  Isis will make royalty
payments to Lilly for Products sold by Isis, its Affiliates and Licensees during
the Calendar Quarter within ninety (90) days of the last day of that Calendar
Quarter.  Each royalty payment will be accompanied by a written report for that
Calendar Quarter showing the Net Sales of the Product sold by Isis, worldwide
during the quarterly reporting period and the calculation of the royalties
payable under this Agreement.

 

7.5                                 Audits.  Upon Lilly’s written request, and
not more than once in each Calendar Year, Isis will permit Lilly’s independent
certified public accountant to have access during normal business hours to such
of Isis’ records as may be reasonably necessary to verify the accuracy of the
royalty reports hereunder for the current year and the preceding [***] years
prior to the date of such request.  Lilly will submit an audit plan, including
audit scope, to Isis for Isis’ approval, which will not be unreasonably
withheld, prior to audit implementation.  The independent certified public
accountants will keep confidential any information obtained during such
inspection and will report to Lilly only the amounts of Net Sales and royalties
due and payable.  Upon the expiration of [***] years following the end of any
Calendar Year, the calculation of royalties payable with respect to such year
will be binding and conclusive upon Lilly, and Isis and its Affiliates and
Licensees will be released from any liability or accountability with respect to
royalties for such year.  If such accounting firm concludes that additional
royalties were owed, or that Isis overpaid royalties, during such period, Isis
will pay the additional royalties, or Lilly will return any overpaid royalties,
within ninety (90) days of the date Lilly delivers to Isis such accounting
firm’s written report.  The fees charged by such accounting firm will be paid by
Lilly unless the additional royalties owed by Isis exceed [***] percent ([***]%)
of the royalties paid for the royalty period subject to the audit, in which case
Isis will pay the reasonable fees of the accounting firm.  Isis will include in
each license granted by it under the Product Patents a provision requiring the
Licensee to make [***] to Isis, to [***] and [***] records of sales made
pursuant to such license and to [***] to such records by a mutually agreed upon
[***] to the same extent

 

9

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

required of Isis under this Agreement.  Lilly will treat all financial
information subject to review under this Section 7.5 or under any license
agreement in accordance with the confidentiality provisions of this Agreement,
and will cause its accounting firm to enter into an acceptable confidentiality
agreement with Isis obligating such firm to retain all such financial
information in confidence pursuant to such confidentiality agreement.

 

7.6                                 Payment.  All payments to Lilly under this
Agreement will be made in United States Dollars by bank wire transfer in next
day available funds to such bank account in the United States designated in
writing by Lilly from time to time. Isis will pay a late payment service charge
of [***]% per month (or the highest amount allowed by law, if lower than [***]%)
on all past-due amounts owed by Isis under this Agreement.

 

7.7                                 Income Tax Withholding.  Lilly will be
responsible for its own tax liabilities resulting from the payments received
from Isis under this Agreement.  If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set forth in
this ARTICLE 7, Isis will make such withholding payments as required and
subtract such withholding payments from the payments set forth in this ARTICLE
7.  Isis will submit appropriate proof of payment of the withholding taxes to
Lilly within a reasonable period of time.

 

ARTICLE 8

 

CONFIDENTIALITY

 

8.1                                 Nondisclosure and Nonuse Obligations.  All
Confidential Information disclosed by one Party to the other Party hereunder
will be maintained in confidence and will not be disclosed to any Third Party or
used for any purpose except as expressly permitted herein without the prior
written consent of the other Party.

 

8.2                                 Permitted Disclosure of Confidential
Information.  Notwithstanding Section 8.1, a Party may disclose Confidential
Information of the other Party as follows:

 

8.2.1                        to appropriate U.S. and/or foreign tax authorities,
appropriate patent agencies in order to obtain Patent Rights pursuant to this
Agreement, appropriate Regulatory Authorities to gain approval to conduct
clinical trials or to market Products pursuant to this Agreement, but such
disclosure, may be only to the extent reasonably necessary to obtain such Patent
Rights, authorizations or approvals;

 

8.2.2                        if required by any governmental authority other
than under Section 8.2.1, provided that prior to such disclosure, the Party
subject to the request for such disclosure (the “Notifying Party”) promptly
notifies the other Party of such requirement so that such other Party may seek a
protective order or other appropriate remedy; and provided, further, that in the
event that no such protective order or other remedy is obtained, or that such
other Party waives compliance with this ARTICLE 8, the Notifying Party will
furnish only that portion of the other Party’s Confidential Information that it
is advised by counsel it is legally required to furnish and will exercise all
reasonable efforts to obtain reasonable assurance that

 

10

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

confidential treatment will be accorded the other Party’s Confidential
Information so furnished;

 

8.2.3                        by a Party to its permitted Licensees, agents,
consultants, Affiliates and/or other Third Parties for the research and
development, manufacturing and/or marketing of the Product (or for such Parties
to determine their interest in performing such activities) in accordance with
this Agreement on the condition that such Affiliates and Third Parties agree to
be bound by the confidentiality and non-use obligations contained in this
Agreement; or

 

8.2.4                        if required to be disclosed by law or court order,
provided that notice is promptly delivered to the non-disclosing Party in order
to provide an opportunity to challenge or limit the disclosure obligations.

 

ARTICLE 9

 

DISCLAIMERS, REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS

 

9.1                                 Lilly Representations and Warranties.  Lilly
represents and warrants to Isis as follows:

 

9.1.1                        Corporate Existence and Authority.  As of the
Effective Date, Lilly:  (a) is a corporation duly organized, validly existing
and in good standing under the laws of the state in which it is incorporated;
(b) has full corporate power and authority and the legal right to own and
operate its property and assets and to carry on its business as it is now being
conducted and as contemplated in this Agreement, including the right to grant
the patent assignments and transfer the technology hereunder; (c) has the
corporate power and authority and the legal right to enter into this Agreement
and perform its obligations hereunder; (d) has taken all necessary corporate
action on its part required to authorize the execution and delivery of the
Agreement and the performance of its obligations hereunder; and (e) has
delivered an Agreement that has been duly executed and constitutes a legal,
valid, binding obligation of Lilly and is enforceable against it in accordance
with its terms;

 

9.1.2                        Patents, Prior Art.  As of the Effective Date and
to the best of Lilly’ knowledge, it has the sufficient legal and/or beneficial
title and ownership under the Lilly Product Patents as is necessary to grant the
patent assignments to Isis pursuant to this Agreement;

 

9.1.3                        Absence of Litigation, Infringement,
Misappropriation.  As of the Effective Date and to the best of Lilly’ knowledge,
there is no pending litigation against Lilly (nor has Lilly received any written
communication) which alleges that Lilly’ activities in developing the Product
have or would infringe or misappropriate any intellectual property rights of any
Third Party;

 

9.1.4                        Third Party Obligations.  As of the Effective Date,
Lilly is not a party to an agreement with a Third Party that requires the
payment of any royalty or other financial obligations with respect to sales of
Product;

 

11

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

9.1.5                        Compliance with Laws.  In carrying out its work
under this Agreement, all Lilly work will be carried out in compliance with any
applicable laws including, without limitation, federal, state, or local laws,
regulations, or guidelines governing the work at the site where such work is
being conducted.  Moreover, Lilly will carry out all work under this Agreement
in accordance with current Good Laboratory Practices, Good Clinical Practices,
and Good Manufacturing Practices, if applicable based on the specific work to be
conducted;

 

9.1.6                        No Debarment.  Lilly will comply at all times with
the provisions of the Generic Drug Enforcement Act of 1992 and will upon request
certify in writing to Isis that none of its employees nor any person who
developed the Product on Lilly’s behalf have been debarred under the provisions
of such Act;

 

9.1.7                        Lilly Patents.  To the best of Lilly’ knowledge,
Lilly does not control any Patent (other than the Lilly Product Patents) that
would be infringed by making, using or selling the Product in any country.

 

9.1.8                        No Warranty of Validity or Non-Infringement.
Notwithstanding any provision of this Agreement to the contrary, Lilly makes no
representation or warranty that any of the Lilly Product Patents is valid or
that development or sale of the Product would not infringe the rights of any
other person.

 

9.2                                 Isis Representations and Warranties.  Isis
represents and warrants to Lilly as follows:

 

9.2.1                        Corporate Existence and Authority.  As of the
Effective Date, Isis:  (a) is a corporation duly organized, validly existing and
in good standing under the laws of the state in which it is incorporated;
(b) has full corporate power and authority and the legal right to own and
operate its property and assets and to carry on its business as it is now being
conducted and as contemplated in this Agreement; (c) has the corporate power and
authority and the legal right to enter into this Agreement and perform its
obligations hereunder; (d) has taken all necessary corporate action on its part
required to authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder; and (e) has delivered an Agreement
that has been duly executed and constitutes a legal, valid, binding obligation
of Isis and is enforceable against it in accordance with its terms;

 

9.2.2                        Employee Obligations.  All Isis personnel who will
conduct research under this Agreement have legal obligations requiring
assignment to Isis of all inventions made in the course of and as a result of
their association with Isis and obligating the individual to maintain as
confidential the confidential information of Isis, as well as the confidential
information of Lilly which Isis may receive;

 

9.2.3                        Compliance with Laws.  In carrying out its work
under this Agreement, all Isis work will be carried out in compliance with any
applicable laws including, without limitation, federal, state, or local laws,
regulations, or guidelines governing the work at the site where such work is
being conducted.  Moreover, Isis will develop and commercialize the Product
under this Agreement in accordance with current Good Laboratory Practices, Good

 

12

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Clinical Practices, Good Manufacturing Practices, if applicable based on the
specific work to be conducted;

 

9.2.4                        No Debarment.  Isis will comply at all times with
the provisions of the Generic Drug Enforcement Act of 1992 and will upon request
certify in writing to Lilly that none of its employees nor any person providing
services to Isis in connection with the development or commercialization of the
Product have been debarred under the provisions of such Act; and

 

9.2.5                        Licenses.  Isis has not taken nor will it take any
action which would, in Isis’s good faith judgment, interfere with any
obligations of Isis set forth in this Agreement, including but not limited to
the obligation to grant Lilly the licenses and options described in ARTICLEs 5
and 6.

 

9.3                                 Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH
IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE
OTHER PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.  Without limiting the generality of the foregoing, each Party expressly
does not warrant (a) the success of any Product; or (b) the safety for any
purpose of the technology it provides hereunder.

 

9.4                                 Responsibility and Control.  Lilly and Isis
will each be solely responsible for the safety of their respective employees,
agents, licensees or (sub)licensees with respect to efforts employed under this
Agreement and each will hold the other harmless with regard to any liability for
damages or personal injuries resulting from acts of its respective employees,
agents, or (sub)licensees in accordance with the indemnification provision set
forth in Sections 9.5 through 9.7.

 

9.5                                 Lilly’ Right to Indemnification.  Isis will
indemnify each of Lilly, its Affiliates, permitted successors and assigns, and
the directors, officers, employees, agents and counsel thereof (the “Lilly
Indemnitees”), and defend and hold each Lilly Indemnitee harmless from and
against any and all liabilities, damages, losses, settlements, claims, actions,
suits, penalties, fines, costs or expenses (including, without limitation
reasonable attorneys’ fees) (any of the foregoing, “Damages”) incurred by or
asserted against any Lilly Indemnitee of whatever kind or nature, including,
without limitation, any claim or liability based upon negligence, warranty,
strict liability, or violation of government regulation but only to the extent
arising from or occurring as a result of a claim or demand made by a Third Party
(a “Third Party Claim”) against any Lilly Indemnitee arising because of:
(a) breach of any representation or warranty made by Isis pursuant to this
ARTICLE 9; (b) any material breach of this Agreement by Isis; (c) the
manufacture, use, handling, storage, sale or other disposition of the Product
that is sold or provided by Isis, its Affiliates, agents or Licensee; and/or
(d) violation of the trade secrets of any Third Party by Isis; except, in each
such case in subparagraphs (a) through (d) above, to the extent that such
Damages are finally determined to have resulted from the negligence or
misconduct of an Lilly Indemnitee, or the breach of any representation or
warranty under Section 9.1 by Lilly.

 

13

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

9.6                                 Isis’s Right to Indemnification.  Lilly will
indemnify each of Isis, its Affiliates, Licensees, successors and assigns, and
the directors, officers, employees, agents and counsel thereof (the “Isis
Indemnitees”), and defend and hold each Isis Indemnitee harmless from and
against any and all Damages incurred by or asserted against any Isis Indemnitee
of whatever kind or nature, including, without limitation, any claim or
liability based upon negligence, warranty, strict liability, violation of
government regulation but only to the extent arising from or occurring as a
result of a Third Party Claim against any Isis Indemnitee arising because of:
(a) breach of any representation or warranty made by Lilly pursuant to this
Article 9; (b) any material breach of this Agreement by Lilly; and/or (c) 
violation of the trade secrets of any Third Party by Lilly; except, in each such
case, in subparagraphs (a) through (c) above, to the extent that such Damages
are finally determined to have resulted from the negligence or misconduct of a
Isis Indemnitee, or the breach of any representation or warranty under
Section 9.2 by Isis.

 

9.7                                 Indemnification Procedures.  Promptly after
a Party entitled to indemnification under Section 9.5 or 9.6 (an “Indemnitee”)
receives notice of any pending or threatened claim against it (an “Action”),
such Indemnitee will give written notice to the Party to whom the Indemnitee is
entitled to look for indemnification pursuant to Section 9.5 or 9.6, as
applicable (the “Indemnifying Party”), of the commencement thereof, provided
that the failure so to notify the Indemnifying Party will not relieve it of any
liability that it may have to any Indemnitee hereunder, except to the extent the
Indemnifying Party demonstrates that it is prejudiced thereby.  In case any
Action that is subject to indemnification under this ARTICLE 9, will be brought
against an Indemnitee and it will give written notice to the Indemnifying Party
of the commencement thereof, the Indemnifying Party will be entitled to
participate therein and, if it so desires, to assume the defense thereof with
counsel reasonably satisfactory to such Indemnitee and, after notice from the
Indemnifying Party to the Indemnitee of its election to assume the defense
thereof, the Indemnifying Party will not be liable to such Indemnitee under this
ARTICLE 9 for any fees of other counsel or any other expenses, in each case
subsequently incurred by such Indemnitee in connection with the defense thereof,
other than reasonable costs of investigation.  Notwithstanding an Indemnifying
Party’s election to assume the defense of any such Action that is subject to
indemnification under this ARTICLE 9, the Indemnitee will have the right to
employ separate counsel and to participate in the defense of such Action, and
the Indemnifying Party will bear the reasonable fees, costs and expenses of such
separate counsel if:  (i) the use of counsel chosen by the Indemnifying Party to
represent the Indemnitee would present such counsel with a conflict of interest;
or (ii) the actual or potential defendants in, or targets of, any such Action
include both the Indemnifying Party and the Indemnitee, and the Indemnitee will
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the Indemnifying Party
(in which case the Indemnifying Party will not have the right to assume the
defense of such Action on the Indemnitee’s behalf); or (iii) the Indemnifying
Party will not have employed counsel satisfactory to the Indemnitee to represent
the Indemnitee within a reasonable time after notice of the institution of such
Action; or (iv) the Indemnifying Party will authorize the Indemnitee to employ
separate counsel at the Indemnifying Party’s expense.  If an Indemnifying Party
assumes the defense of such Action, no compromise or settlement thereof may be
effected by the Indemnifying Party without the Indemnitee’s written consent,
which consent will not be unreasonably withheld or delayed, unless (1) there

 

14

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

is no finding or admission of any violation of law or any violation of the
rights of any other Party and no effect on any other claims that may be made
against the Indemnitee and (2) the sole relief provided is monetary damages that
are paid in full by the Indemnifying Party.

 

ARTICLE 10

 

INTELLECTUAL PROPERTY

 

10.1                           Patent Filing and Prosecution.  Isis (at its own
expense) will be responsible for preparing, filing, prosecuting, maintaining and
taking such other actions as are reasonably necessary or appropriate with
respect to the Product Patents.  Isis will keep Lilly continuously informed of
all significant matters relating to the preparation, filing, prosecution and
maintenance of the Product Patents. In the event Isis proposes to abandon the
prosecution or maintenance of any Product Patent, it shall notify Lilly at least
[***] days in advance and allow Lilly to assume the prosecution and maintenance
of such patent at Lilly’s expense.

 

10.2                           Patent Term Extensions.  The Parties will
cooperate with each other in gaining patent term extension wherever applicable
to any Product.  The Party selling such Product will determine which patents
will be extended.  All filings for such extension will be made by the Party to
whom the patent is assigned; provided, however, that in the event that the Party
to whom the patent is assigned elects not to file for an extension, such Party
will (i) inform the other Party of its intention not to file; (ii) grant the
other Party the right to file for such extension; and (iii) cooperate as
necessary to assist the other Party in filing such extension.

 

10.3                           Notice of Certification.  Isis and Lilly each
will immediately upon receiving notice give notice to the other of any
certification filed under the U.S. “Drug Price Competition and Patent Term
Restoration Act of 1984” claiming that (a) Product Patent Covering the Product,
is invalid or that any infringement will not arise from the manufacture, use,
sale, offer for sale or import of any product by a Third Party.

 

10.4                           Notice of Infringement Claim.  If the development
or commercialization of a Product under this Agreement results in a claim
against a Party for patent infringement or for inducing or contributing to
patent infringement (“Infringement Claim”), the Party first having notice of an
Infringement Claim will promptly notify the other in writing.  The notice will
set forth the facts of the Infringement Claim in reasonable detail.

 

10.5                           Responsibilities.  Isis will have the sole right
to control any defense of any Infringement Claim involving alleged infringement
of Third Party rights by Isis’ activities at its own expense and by counsel of
its own choice, and Lilly will have the right, at its own expense, to be
represented in any such action by counsel of its own choice.  Lilly will have
the sole right to control any defense of any Infringement Claim involving
alleged infringement of Third Party rights by Lilly’s activities at its own
expense and by counsel of its own choice, and Isis will have the right, at its
own expense, to be represented in any such action by counsel of its own choice. 
Notwithstanding the foregoing, if the claim involves an allegation of a
violation of the trade secret rights of a Third Party, the Party accused of such

 

15

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

violation will have the obligation to defend against such claim and will
indemnify the other Party against all costs associated with such claim in
accordance with Sections 9.5 through 9.7, as applicable.  Lilly will not settle
any patent infringement litigation under this Section 10.5 relating to any
Product Patents without Isis’ consent.  Isis will not settle any patent
infringement litigation under this Section 10.5 relating to any Product Patents
without Lilly’s consent, if such settlement would materially impair the rights
granted to Lilly under Section 5.1, or would impose an obligation on Lilly. 
Each Party will also keep the other Party continually informed of all
significant matters relating to Infringement Claims of Third Parties.

 

10.6                           Infringement Claims Against Third Parties.

 

10.6.1                  Notice of Infringement.  If any Product Patent is
infringed or misappropriated, as the case may be, by a Third Party, the Party to
this Agreement first having knowledge of such infringement or misappropriation,
will promptly notify the other in writing.  The notice will set forth the facts
of such infringement or misappropriation in reasonable detail.  Isis will have
the primary right, but not the obligation, to institute, prosecute, and control
any action or proceeding with respect to infringement or misappropriation of
such Product Patent by its own counsel.  Lilly will have the right, at its own
expense, to be represented in such action by its own counsel.  Except as
otherwise agreed to by the Parties in writing as part of a cost-sharing
arrangement, any recovery realized as a result of such litigation, after
reimbursement of any litigation expenses of Lilly and Isis, will be retained by
Isis, except that any recovery realized by Isis as a result of such litigation,
after reimbursement of the Parties’ litigation expenses, will, to the extent
attributable to [***] or be treated as [***] of Products by Isis.

 

10.6.2                  Expenses of Bringing Infringement Action.  Isis will
bear the costs and expenses of all infringement or misappropriation actions
asserted against a Third Party on Product Patents.

 

ARTICLE 11

 

TERM AND TERMINATION

 

11.1                           Term of Agreement.  This Agreement will commence
on the Effective Date and will continue until no payments are due or are capable
of becoming due hereunder, unless the Agreement is terminated earlier. All
licenses granted hereunder that are in effect at expiration of this Agreement
will be deemed fully paid-up and perpetual, except as provided otherwise by this
Agreement.

 

11.2                           Termination for Breach.  Either Party may
terminate this Agreement by notice to the other Party at any time during the
term of this Agreement if the other Party is in breach of any material
obligations hereunder and has not cured such breach within [***] days after
notice requesting cure of the breach or such longer period of time as is
required to cure such breach as long as the breaching Party is proceeding in
good faith to cure; provided, however, that in any case when a breach is alleged
regarding the payment of money hereunder, the time period will be [***] days and
undisputed amounts must be paid prior to

 

16

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

such time to avoid breach.  Upon material breach by a Party of its obligations
hereunder, if the non-breaching Party decides not to terminate this Agreement,
such Party will have the right to [***] any [***] it may incur as a result of
curing such breach [***] the amounts [***] to the [***] for the performance of
[***].  Further, to the extent that a Party prevails in a lawsuit brought
against the other Party for material breach of this Agreement, such prevailing
Party will be entitled to collect from the other Party reasonable attorneys’
fees and legal costs incurred in connection with such law suit. If the
non-breaching Party terminates this Agreement under Section 11.2 following
material breach by the breaching Party, the breaching Party will return to the
non-breaching Party all of the non-breaching Party’s Confidential Information
and all materials received from the non-breaching Party during the Agreement,
and the breaching Party will cease all use of the non-breaching Party’s
Confidential Information and materials received from the non-breaching Party for
any purpose except as provided in Sections 11.6, and except that the breaching
Party may (1) keep a copy of all documents for record keeping purposes only and
(2) keep and use any Confidential Information and materials received from the
non-breaching Party that are necessary for the breaching Party to exercise those
of its rights and fulfill those of its obligations that survive the termination
of this Agreement.

 

11.3                           Termination Upon Insolvency.  Either Party may
terminate this Agreement upon notice to the other should the other Party become
insolvent or file or consent to the filing of a petition under any bankruptcy or
insolvency law or have any such petition filed against it which has not been
stayed within sixty (60) days of such filing.  During the term of this
Agreement, all rights and options or licenses granted under or pursuant to this
Agreement by Isis or Lilly are, and will otherwise be deemed to be, for purposes
of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
“intellectual property” as defined under Section 101 of the U.S. Bankruptcy
Code.  The Parties agree that, during the term of this Agreement, the Parties,
as licensees of such rights under this Agreement, will retain and may fully
exercise all of their rights and elections under the U.S. Bankruptcy Code.  The
Parties further agree that, in the event of the commencement of a bankruptcy
proceeding-by or against either Party under the U.S. Bankruptcy Code, the Party
hereto that is not a party to such proceeding will be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, and same, if not
already in their possession, will be promptly delivered to them (i) upon any
such commencement of a bankruptcy proceeding upon their written request
therefor, unless the Party subject to such proceeding elects to continue to
perform all of its obligations under this Agreement; or (ii) if not delivered
under (i) above, following the rejection of this Agreement by or on behalf of
the Party subject to such proceeding upon written request therefor by the
non-subject Party.

 

11.4                           Effect of Termination Due to Isis Breach or
Insolvency.  If Lilly terminates the Agreement based on material breach by or
insolvency of Isis, then:

 

11.4.1                  Solely in the event Isis materially breaches its
obligation under [***] (or termination by Lilly under Section 11.3 before Isis
has met its obligation under [***]), the option granted by Isis to Lilly
pursuant to ARTICLE 5 prior to such termination, will survive, but the [***] and
the amount of each [***] that would otherwise be payable under

 

17

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

the Form License Agreement upon exercise of the option shall be reduced by [***]
percent ([***]%);

 

11.4.2                  Isis’s payment obligations set forth in ARTICLE 7 will
continue; provided, however, that the amounts of the payments will be increased
to reflect the nature of Isis’s breach and the damages caused thereby by amounts
to be agreed upon by the Parties or, if the Parties are unable to reach
agreement, by an independent Third Party with the requisite expertise selected
by the Parties, the expense of which will be borne by Isis;

 

11.4.3                  Any license granted by Isis to Third Party under the
Product Patent Rights will continue in full force and effect but the right to
collect and receive the royalties under ARTICLE 7 will be assigned by Isis to
Lilly, and Isis will provide Lilly with complete and accurate copies of the
relevant portions of the license agreement within thirty (30) days following the
effective date of such termination;

 

11.5                           Effect of Termination Due to Lilly Breach or
Insolvency.  If Isis terminates the Agreement based on material breach by or
insolvency of Lilly, then:

 

11.5.1                  The assignment and technology transfer granted by Lilly
to Isis pursuant to Sections 2.2 and 2.3 will survive;

 

11.5.2                  Lilly’s option and Right of First Negotiation granted by
Isis pursuant to ARTICLE 5 and 6 will terminate;

 

11.5.3                  Isis’ payment obligations set forth in ARTICLE 7 will
continue, provided, however, that the amounts of the payments will be decreased
to reflect the nature of Lilly’s breach and the damages caused thereby by
amounts to be agreed upon by the Parties or, if the Parties are unable to reach
agreement, by an independent Third Party with the requisite expertise selected
by the Parties, the expense of which will be borne by Lilly;

 

11.6                           Accrued Rights/Surviving Obligations.  Except as
expressly provided in this Agreement, expiration or termination of this
Agreement will not relieve the Parties of any obligation that accrued prior to
such expiration or termination, and Isis will be obligated to pay and will pay
to Lilly, within [***] days of such expiration or termination, all payments and
royalties due or accrued pursuant to the terms of ARTICLE 7.  Upon expiration or
early termination of this Agreement, all rights and obligations of the Parties
will cease, except as follows:

 

11.6.1                  The obligations to pay royalties and other sums accruing
hereunder up to the date of termination or expiration will survive;

 

11.6.2                  The obligations of confidentiality set forth in ARTICLE
8 will survive any expiration or termination of this Agreement for a period of
five (5) years;

 

11.6.3                  The obligations for record keeping and accounting
reports set forth in ARTICLE 7 will survive for so long as Products are sold. 
At such time after termination or expiration of this Agreement when sales or
other dispositions of Products have ceased, Isis will render a final report
along with any royalty payment due;

 

18

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

11.6.4                  The termination under Section 2.1 will survive any
termination or expiration of the Agreement;

 

11.6.5                  Lilly and Isis’ rights to inspect books and records as
described in ARTICLE 7 will survive;

 

11.6.6                  The obligations of defense and indemnity set forth in
ARTICLE 9 will survive;

 

11.6.7                  Any cause of action or claim of Lilly or Isis accrued or
to accrue because of any breach or default by the other Party hereunder will
survive; and

 

11.6.8                  All other terms, provisions, representations, rights and
obligations contained in this Agreement that are intended to survive as
specifically set forth elsewhere in this Agreement will survive.

 

11.7                           Limitation of Liability.  No Party will be liable
to another for indirect, incidental, consequential or special damages, including
but not limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages.  Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party under ARTICLE 9.

 

ARTICLE 12

 

PUBLICITY

 

12.1                           Press Release.  Upon execution of this Agreement,
the Parties shall issue a joint press release announcing the existence of this
Agreement in a form and substance agreed to in writing by the Parties.

 

12.2                           Disclosure of Agreement.  Neither Party to this
Agreement may release any information to any Third Party regarding the terms or
existence of this Agreement or the reasons for any termination hereof, without
the prior written consent of the other Party.  Without limitation, this
prohibition applies to press releases, educational and scientific conferences,
quarterly investor updates, promotional materials, governmental filings and
discussions with public officials, the media, security analysts and investors. 
However, this provision does not apply to any disclosures regarding this
Agreement or related information to regulatory agencies such as the FDA or
Federal Trade Commission and/or Department of Justice for such disclosures which
may be required by law, including requests for a copy of this Agreement or
related information by tax authorities.  If any Party to this Agreement
determines a release of information regarding the existence or terms of this
Agreement is required by law (including releases a may be required to be filed
through the Securities Exchange Commission or other government agency), that
Party will notify the other Party as soon as practicable and give as much detail
as possible in relation to the disclosure required.  The Parties will then
cooperate with respect to determining what information should actually be
released.  The Parties hereby agree that release of a press release upon
complete execution of this Agreement is appropriate and such press release will
be mutually agreed upon by the Parties.

 

19

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

12.3         Use of Names, Logos or Symbols.  No Party hereto will use the name,
trademarks, logos, physical likeness, employee names or owner symbol of any
other Party for any purpose, including, without limitation, private or public
securities placements, without the prior written consent of the affected Party,
such consent not to be unreasonably withheld or delayed so long as such use of
name is limited to objective statements of fact, rather than for endorsement
purposes.  Nothing contained herein will be construed as granting either Party
any rights or license to use any of the other Party’s trademarks or tradenames
without separate, express written permission of the owner of such trademark or
tradename.

 

12.4         Publication. Lilly shall have the right to publish the results of
the Ongoing Phase I Study; provided, Lilly will coordinate such publication with
Isis, including giving Isis at least 5 Business Days in advance of such proposed
public disclosure to review and comment on such publication. Isis may publish,
present or otherwise disclose results regarding the Product to the public at its
sole discretion; provided, however, so long as Lilly’s option under ARTICLE 5
has not expired or terminated, Isis will share with Lilly any press release or
other similar public communication made by Isis that is related to a Product’s
efficacy or safety data and/or results at least 5 Business Days in advance of
such proposed public disclosure.  Unless Lilly exercises its option under
ARTICLE 5, Lilly will not publicly present or otherwise disclose results
regarding the Product without obtaining Isis’ prior written consent, such
consent not to be unreasonably withheld.

 

ARTICLE 13

 

MISCELLANEOUS

 

13.1         Force Majeure.  No Party will be held liable or responsible to the
other Party nor be deemed to have defaulted under or breached the Agreement for
failure or delay in fulfilling or performing any term of the Agreement (except
payment obligations) when such failure or delay is caused by or results from
causes beyond the reasonable control of the affected Party including, but not
limited to, fire, flood, earthquake, embargo, war, acts of war or terrorism
(whether war be declared or not), insurrection, riot, civil commotion, strike,
lockout or other labor disturbance, act of God or act, omission or delay in
acting by any governmental authority or the other Party.  The affected Party
will notify the other Party of such force majeure circumstances as soon as
reasonably practical.

 

13.2         Assignment.  This Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligations hereunder be assigned or transferred, by a Party without the written
consent of the other Party; provided, however, that either Party may, without
such consent, assign the Agreement and its rights and obligations hereunder to
(i) any wholly-owned subsidiary in a manner such that the assignor (if it
continues as a separate entity) will remain liable and responsible for the
performance and observance of all its duties and obligations hereunder; and
(ii)  to any successor by merger or sale of substantially all of its business
unit to which this Agreement relates, or in the event of its merger or
consolidation or change in control or similar transaction.  Lilly may also
assign or transfer its rights to receive fees, royalties and milestones under
this Agreement (but no liabilities) without Isis consent, to a Third Party in
connection with a payment factoring transaction. This Agreement will be binding
upon the permitted successors

 

20

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

and permitted assigns of the Parties.  Any assignment not in accordance with
this Section 13.2 will be void.

 

13.3         Severability.  In the event that any of the provisions contained in
this Agreement are 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 thereby, unless the absence
of the invalidated provision(s) adversely affect the substantive rights of the
Parties.  The Parties will replace the invalid, illegal or unenforceable
provision(s) with valid, legal and enforceable provision(s), which, insofar as
practical, implement the purposes of this Agreement.

 

13.4         Notices.  All notices or other communications which are required or
permitted hereunder will be in writing and deemed to be effective (a) on the
date of delivery if delivered in person and written confirmation of delivery is
provided; or (b) on the date sent by facsimile or other electronic transmission,
provided such receipt is verified; or (c) on the day following date of deposit
with an overnight courier if a receipt confirming delivery by overnight courier
is provided; or (d) three days after mailing if mailed by first-class certified
mail, postage paid, to the respective addresses given below, or to another
address as it will designate by written notice given to the other Party.

 

if to Isis, to:

 

Isis Pharmaceuticals, Inc.

1896 Rutherford Road

Carlsbad, CA 92008

Attention:          Chief Operating Officer

 

with a copy to:

 

Attention:          General Counsel

 

if to Lilly, to:

 

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, IN 46285

Attention:          Group Vice President, Lilly Research Laboratories

 

with a copy to:

 

Attention:          General Patent Counsel

 

13.5         Dispute Resolution.  In the event of any controversy or claim
arising from or relating to any provision of this Agreement, or any term or
condition hereof, or the performance by a Party of its obligations hereunder, or
its construction or its actual or alleged breach, the Parties will try to settle
their differences amicably between themselves.

 

21

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

13.6         Choice of Law.  This Agreement will be governed by and construed in
accordance with the laws of the State of New York and the United States without
reference to any rules of conflict of laws.

 

13.7         Entire Agreement.  This Agreement (including all Schedules hereto),
constitute the entire agreement between the Parties with respect to the subject
matter hereof, and supersedes all previous arrangement with respect to the
subject matter hereof, whether written or oral.  Any amendment or modification
to this Agreement will be made in writing signed by both Parties.

 

13.8         Headings.  The captions to the several Articles and Sections hereof
are not a part of the Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

 

13.9         Independent Contractors.  It is expressly agreed that the Parties
will be independent contractors and that the relationship between the Parties
will not constitute a partnership, joint venture or agency.  No Party will have
the authority to make any statements, representations or commitments of any
kind, or to take any action, which will be binding on the other Parties, without
the prior consent of such other Parties.

 

13.10       Further Actions.  Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of the
Agreement.

 

13.11       Waiver.  The waiver by a Party hereto of any right hereunder or the
failure to perform or of a breach by another Party will not be deemed a waiver
of any other right hereunder or of any other breach or failure by said other
Party whether of a similar nature or otherwise.

 

13.12       Jointly Prepared.  This Agreement has been prepared jointly and will
not be strictly construed against either Party.

 

13.13       Counterparts.  This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

22

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

 

 

ELI LILLY AND COMPANY

 

ISIS PHARMACEUTICALS, INC.

 

 

 

 

 

 

By:

/s/ Steven Paul

 

By:

/s/ B. Lynne Parshall

Dr. Steven Paul

 

B. Lynne Parshall

Executive Vice President

 

Chief Operating Officer and

LRL

 

Chief Financial Officer

 

 

[SIGNATURE PAGE TO DEVELOPMENT AND LICENSE AGREEMENT]

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

List of Schedules

 

Schedule 1.1

Definitions

 

 

Schedule A

Form of License Agreement

 

 

Schedule B

Lilly Product Patents as of the Effective Date

 

 

Schedule C

Isis Product Patents as of the Effective Date

 

 

Schedule D

Form of Patent Assignment

 

 

Schedule E

[***] Plan

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

SCHEDULE 1.1

 

DEFINITIONS

 

“Affiliate” means any person, organization, corporation or other business entity
that controls, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of another person, organization,
corporation or entity, whether through the ownership of voting securities or by
contract or court order or otherwise.  For purposes of this definition, an
entity will be deemed to control another entity if it owns or controls, directly
or indirectly, at least fifty percent (50%) of the outstanding stock or other
voting rights entitled to elect directors or their equivalent of such other
entity.  Regulus Therapeutics Inc., will not be considered an Affiliate of Isis.

 

“ASO Compound” means an [***].

 

“Calendar Quarter” will mean the respective three month periods ending on
March 31, June 30, September 30, or December 31 for so long as the Agreement is
in effect.

 

“Calendar Year” will mean each successive twelve month period commencing on
January 1 and ending on December 31 for so long as the Agreement is in effect.

 

“cGMP” means U.S. current Good Manufacturing Practices regulations.

 

“Collaboration Agreement” has the meaning set forth in Recital A of this
Agreement.

 

“Confidential Information” means any and all inventions, know-any, and data and
will include, without limitation, information relating to research and
development plans, experiments, results and plans, compounds, therapeutic leads,
candidates and products, clinical and preclinical data, trade secrets and
manufacturing, marketing, financial, regulatory, personnel and other business
information and plans, all scientific, clinical, regulatory, marketing,
financial and commercial information or data, all whether communicated in
writing, orally or by any other means, and which is provided by one Party to the
other Party in connection with this Agreement.  Confidential Information will
not include information that:

 

(a)           is known by the receiving Party at the time of its receipt, and
not through a prior disclosure by the disclosing Party, as documented by written
records; or

 

(b)           is properly in the public domain through no fault of the receiving
Party; or

 

(c)           is subsequently disclosed to the receiving Party by a Third Party
who may lawfully do so and is not under an obligation of confidentiality to the
disclosing Party; or

 

(d)           is developed by the receiving Party independently of Confidential
Information received from the other Party, as documented by written records.

 

“Control” or “Controlled” means with respect to any intellectual property right,
that the Party owns or has a license to such intellectual property right and has
the ability to grant access,

 

1.1-1

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

a license, or a sublicense to such intellectual property right to the other
Party as provided for in this Agreement without violating an agreement with, or
infringing any rights of, a Third Party as of the time the Party would be first
required under this Agreement to grant the other Party such access, license or
sublicense.

 

“Cover” (including variations thereof such as “Covering”, “Covered”, and
“Coverage”) means that the manufacture, use, import, offer for sale or sale of a
Product would infringe a Valid Claim; provided, with respect to a process or
manufacturing patent, that such a Valid Claim therein effectively precludes a
Third Party from manufacturing, using, importing, offering for sale, or selling
such Product.  The determination of whether a Product is Covered by a particular
Valid Claim will be made on a country-by-country basis.  A Valid Claim will be
deemed to provide effective preclusion hereunder where (i) there is no competing
product being marketed; or (ii) if a product is being marketed by a competitor,
it infringes the Valid Claim (including any period in which, and provided that,
the Valid Claim is being litigated).

 

“Effective Date” has the meaning given to it in the preamble of this Agreement.

 

“eIF-4E” means eukaryotic initiation factor-4E (Entrez Gene ID: 1977).

 

“eIF-4E Program” means [***] eIF-4E [***] eIF-4E [***] eIF-4E Program.

 

“FDA” means the United States Food and Drug Administration or any successor
agency having the administrative authority to regulate the approval for
marketing of new human pharmaceutical or biological therapeutic products in the
United States.

 

“First Commercial Sale” means with respect to any Product the first sale to a
Third Party by Isis, its Affiliates or Licensees under the Product Patent. 
First Commercial Sale will not include transfer of reasonable quantities of any
free samples of a Product or reasonable quantities of Product solely for
development purposes, such as for use in experimental studies or clinical
trials.

 

“[***]” means (1) the [***] of the Lilly API by Lilly’s [***], including but not
limited to (i) a [***] containing the [***] for each lot of Lilly API, and [***]
that each such lot of Lilly API [***] to the applicable [***] set forth in the
[***] of the [***] for the Product; (ii) a [***] of [***] that the Lilly API was
made [***] and the process defined in the [***] for the Lilly API; and
(iii) copies of documents detailing any [***] from any [***] then in effect, in
each case such documents to be delivered to Isis’ VP, Development Chemistry and
Manufacturing; and (2) shipment of the Lilly API to Isis’ VP, Development
Chemistry and Manufacturing in accordance with applicable product specifications
for the Lilly API.

 

“IND” means an Investigational New Drug application as defined in 21 C.F.R. 312
and any versions thereof governing the FDA as may be amended from time to time.

 

“Initiate” means with respect to a clinical study, the dosing of the first
patient in such study.

 

“Institutional Review Board” means an Institutional Review Board as defined in
21 C.F.R. 56 as may be amended from time to time, or its applicable foreign
equivalent.

 

1.1-2

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

“Isis Product Patents” means the Patent Rights listed on Schedule C, and all
Patent Rights issuing therefrom.

 

“Know-How” means all tangible or intangible know-how, inventions (whether
patentable or not), discoveries, processes, formulas, data, clinical and
preclinical results, non-patented inventions, trade secrets, and any physical,
chemical, or biological material or any replication of any such material in
whole or in part.

 

“Licensee” means a Third Party to which Isis has granted a license under the
Product Patents to develop and commercialize the Product.

 

“Lilly Product Patents” means the Patent Rights listed on Schedule B, and all
Patent Rights issuing therefrom.

 

“Lilly Right of First Negotiation” has the meaning set forth in Section 6.2.

 

“Major Market Country” means the United States, Japan, Germany, the United
Kingdom, France, Spain or Italy.

 

“NDA” means a new drug application or other application filed with the FDA to
obtain approval for marketing a Product in the United States, or any future
equivalent process.

 

“Net Sales” means, with respect to a Product, the gross amount invoiced by a
Party, its Affiliates or Licensees thereof to unrelated Third Parties, excluding
any Licensee, for the Product, less:

 

(a)           Trade, quantity and cash discounts allowed;

 

(b)           Commissions, discounts, refunds, rebates, chargebacks, retroactive
price adjustments, and any other allowances which effectively reduce the net
selling price;

 

(c)           Product returns and allowances;

 

(d)           That portion of the value associated with the cost of the drug
delivery systems;

 

(e)           Any tax imposed on the production, sale, delivery or use of the
Product, including, without limitation, sales, use, excise or value added taxes;

 

(f)            Allowance for distribution expenses; and

 

(g)           Any other similar and customary deductions.

 

Net Sales will be calculated in U.S. Dollars.  Such amounts will be determined
from the books and records of a Party, its Affiliate or Licensee, maintained in
accordance with U.S. Generally Accepted Accounting Principles or, in the case of
Licensees, such similar accounting principles, consistently applied.  Each Party
further agrees in determining such amounts, it will use its then current
standard procedures and methodology, including its then current standard

 

1.1-3

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

exchange rate methodology for the translation of foreign currency sales into
U.S. Dollars or, in the case of Licensees, such similar methodology,
consistently applied.

 

Net Sales excludes:

 

(i)            The transfer of reasonable and customary quantities of free
samples of Product(s) and the transfer of Product(s) as clinical trial
materials, other than for subsequent resale;

 

(ii)           Sales or transfers of Product(s) among a Party and its Affiliates
unless the receiving Party is the consumer or user of the Product(s); and

 

(ii)           Use by a Party or its Affiliates or Licensees of Product for any
use connected with the securing of regulatory approval or validating of a
manufacturing process or the obtaining of other necessary marketing approvals
for Product (unless such Product is subsequently sold).

 

In the event that the Product(s) is sold as part of a Combination Product (where
“Combination Product” means any pharmaceutical product which comprises the
Product(s) and at least one other active compound(s) and/or ingredients), the
Net Sales of the Product(s), for the purposes of determining royalty payments,
will be determined by multiplying the Net Sales of Combination Product (as
defined in the standard Net Sales definition) by the fraction, A / (A+B) where A
is the weighted average sale price of the Product(s) when sold separately in
finished form, and B is the weighted average sale price of the other
product(s) sold separately in finished form.

 

In the event that the weighted average sale price of the Product(s) can be
determined but the weighted average sale price of the other product(s) cannot be
determined, Net Sales for purposes of determining royalty payments will be
calculated by multiplying the Net Sales of the Combination Product by the
fraction A / C where A is the weighted average sale price of the Product(s) when
sold separately in finished form and C is the weighted average selling price of
the Combination Product.  In the event that the weighted average sale price of
the other product(s) can be determined but the weighted average sale price of
the Product cannot be determined, Net Sales for purposes of determining royalty
payments will be calculated by multiplying the Net Sales of the Combination
Product by the following formula:  one (1) minus B / C where B is the weighted
average sale price of the other product(s) when sold separately in finished form
and C is the weighted average selling price of the Combination Product.  In the
event that the weighted average sale price of both the Product(s) and the other
product(s) in the Combination Product cannot be determined, the Parties will
attempt to agree on an appropriate weighted average sale price of both the
Product(s) and the other product(s) in the Combination Product, and lacking such
agreement the Net Sales of the Product(s) will be deemed to be equal to fifty
percent (50%) of the Net Sales of the Combination Product.

 

The weighted average sale price for a Product, other product(s), or Combination
Product will be calculated once each Calendar Year and such price will be used
during all applicable royalty reporting periods for the entire Calendar Year. 
When determining the weighted average sale price of a Product, other product(s),
or Combination Product, the weighted average sale price will be calculated by
dividing the sales dollars (translated into U.S. Dollars) by the units of active
ingredient sold during the twelve (12) months (or the number of months sold in a
partial

 

1.1-4

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Calendar Year) for the respective Product(s), other product(s), or Combination
Product.  In the initial Calendar Year, a forecasted weighted average sale price
will be used for Product(s), other product(s), or Combination Product.  Any over
or under payment due to a difference between forecasted and actual weighted
average sale prices will be paid or credited in the first royalty payment of the
following Calendar Year.

 

“Ongoing Phase I Study” means the Lilly Phase I clinical study of the Product,
which study is identified internally by the code [***].

 

“Patent Rights” means: (a) patent applications (including provisional
applications and applications for certificates of invention); (b) any patents
issuing from such patent applications (including certificates of invention);
(c) all patents and patent applications based on, corresponding to, or claiming
the priority date(s) of any of the foregoing; (d) any reissues, substitutions,
confirmations, registrations, validations, re-examinations, additions,
continuations, continued prosecutions, continuations-in-part, or divisions of or
to any of the foregoing; and (e) term extension or other governmental action
which provide exclusive rights beyond the original patent expiration date.

 

“Phase II Study” means a human clinical trial conducted on a series of patients
with the same type of cancer, in each case where the protocol for such phase II
study was approved by the applicable Institutional Review Board.

 

“Phase II Study Initiation” means the dosing of the first patient in the first
human clinical trial conducted on a series of patients with the same type and
stage of cancer.

 

“Phase III Study Initiation” means the dosing of the first patient in the first
human clinical trial conducted in patients and designed to establish Product
safety and efficacy and required to obtain clinical registration of a product
with health regulatory authorities such as the FDA.

 

“Product” means (i) the compound known as LY2275796; and (ii) any preparation in
final form for sale by prescription, over-the-counter or any other method for
any indication, including human or animal use, which contains LY2275796.

 

“Product Patents” means the Isis Product Patents and the Lilly Product Patents.

 

“Registration” means (a) in the United States, approval by the FDA of an NDA, or
similar application for marketing approval, and satisfaction of any related
applicable FDA registration and notification requirements (if any); and (b) in
any Major Market Country other than the United States, approval by regulatory
authorities having jurisdiction over such country of a single application or set
of applications comparable to an NDA and satisfaction of any related applicable
regulatory and notification requirements, if any, together with any other
approval necessary to make and sell pharmaceuticals and medical devices
commercially in such country.

 

“Registration Submission” means (a) in the United States, acceptance by the FDA
of the filing of an NDA, or similar application for marketing approval, for the
Product, and (b) in any Major Market Country other than the United States, the
filing with the applicable Regulatory

 

1.1-5

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Authorities having jurisdiction over such country of a single application or set
of applications comparable to an NDA for the Product.

 

“Regulatory Authority” means any applicable government entities regulating or
otherwise exercising authority with respect to the development and
commercialization of the Product.

 

“Regulatory Documentation”  means all applications, registrations, licenses,
authorizations and approvals (including all regulatory approvals), all
correspondence submitted to or received from Regulatory Authorities (including
minutes and official contact reports relating to any communications with any
Regulatory Authority), all supporting documents and all clinical studies and
tests, including the manufacturing batch records, relating to the Product, and
all data contained in any of the foregoing, including all regulatory drug lists,
advertising and promotion documents, adverse event files and complaint files.

 

“Territory” means the entire world.

 

“Third Party” means any Party other than Isis or Lilly and their respective
Affiliates.

 

“Valid Claim” means any claim in an issued and unexpired patent which has not
been held unenforceable, unpatentable or invalid by a decision of a court or
other governmental agency of competent jurisdiction following exhaustion of all
possible appeal processes and which has not been admitted to be invalid or
unenforceable through reissue, reexamination or disclaimer, or otherwise.

 

1.1-6

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Schedule A

 

Form of License Agreement

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Schedule B

 

Lilly Product Patents as of the Effective Date

 

[***]

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Schedule C

 

Isis Product Patents as of the Effective Date

 

[***]

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Schedule D

 

Form of Patent Assignment

 

WHEREAS, Eli Lilly and Company (“Assignor”), a Indiana corporation with an
address of Lilly Corporate Center, Indianapolis, IN 46285, is the owner of all
rights, title, and interests in and to the patents and patent applications shown
on the attached Exhibit 1 (the “Patents”); and

 

WHEREAS, Isis Pharmaceuticals, Inc. (“Assignee”), a Delaware corporation with an
address of 1896 Rutherford Road, Carlsbad, California 92008, desires to acquire
the entire right, title, and interest in and to the Patents and all the
inventions and discoveries disclosed in the Patents (the “Inventions”);

 

NOW THEREFORE, be it known that effective as of [    ], 2009, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor hereby sells, assigns, transfers, and sets over unto
Assignee (1) the entire right, title, and interest in all countries throughout
the world in and to said Patents and Inventions, including any renewals,
revivals, reissues, reexaminations, extensions, continuations,
continuations-in-part, and divisions of said Patents and any substitute
applications therefor; (2) the entire right to file patent applications (“New
Applications”) in the name of Assignee or its designee, or in the name of
Assignor at Assignee’s or its designee’s election, on the aforesaid Inventions
in all countries of the world; (3) the entire right, title, and interest in and
to any patent which issued and may issue on the Inventions in any country, and
any renewals, revivals, reissues, reexaminations, and extensions thereof, and
any patents of confirmation, registration, and importation of the same; (4) the
right to sue and recover for, and the right to profits or damages due or accrued
in connection with, any and all past, present, or future infringements of the
Patents and Inventions; and (5) the entire right, title, and interest in all
convention and treaty rights of all kinds, including without limitation all
rights of priority in any country of the world, in and to the above Patents and
Inventions;

 

AND, Assignor hereby authorizes and requests the competent authorities to grant
and to issue any and all patents on the Inventions throughout the world to
Assignee, its successors, or assigns, whose rights, title, and interests in such
patents are the same as would have been held and enjoyed by Assignor had this
assignment, sale, and transfer not been made.

 

[Remainder of Page Left Blank]

 

--------------------------------------------------------------------------------

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

Schedule E

 

[***]

 

--------------------------------------------------------------------------------

 

 

FORM OF LICENSE AGREEMENT UNDER DEVELOPMENT AND LICENSE AGREEMENT DATED DECEMBER
2, 2009

 

CONFIDENTIAL TREATMENT REQUESTED

UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

 

 

DEVELOPMENT AND LICENSE AGREEMENT

 

 

BETWEEN

 

 

ELI LILLY AND COMPANY

 

 

AND

 

 

ISIS PHARMACEUTICALS, INC.

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

DEVELOPMENT AND LICENSE AGREEMENT

 

THIS DEVELOPMENT AND LICENSE AGREEMENT (the “Agreement”) executed on
               (the “Effective Date”), by and between ELI LILLY AND COMPANY, a
corporation organized and existing under the laws of Indiana and its Affiliates
(together “Lilly”), and ISIS PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of Delaware, and its affiliates (together “Isis”).

 

RECITALS

 

A.            Isis and Lilly have collaborated to discover and develop the
Product;

 

B.            Lilly has expertise in the research, manufacturing, development,
distribution and sale of pharmaceutical products for human and animal use;

 

C.            Isis and Lilly are parties to the Drug Development and License
Option Agreement dated December 2, 2009 (the “License Option Agreement”)
pursuant to which Isis granted Lilly the option to acquire the Product;

 

D.            On                        (the “Option Exercise Date”) Lilly
exercised its option under the License Option Agreement; and

 

E.             Lilly wishes to obtain, and Isis wishes to grant, an exclusive
license to enable Lilly to develop and commercialize the Product on its own.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Parties agree as follows:

 

ARTICLE 1

DEFINITIONS; OPTION AGREEMENT TERMINATED

 

1.1           Definitions.  Capitalized terms used in this Agreement, whether in
the singular or plural, have the meanings set forth in Schedule 1.1 which is
attached hereto and made part of this Agreement, or as otherwise specifically
defined in this Agreement.

 

1.2           Termination of Option Agreement.  The License Option Agreement is
hereby terminated and replaced by this Agreement in its entirety.  For purposes
of clarification, such termination and replacement will not negate the effect of
Section 2.1 of the License Option Agreement.

 

1

--------------------------------------------------------------------------------

 

ARTICLE 2

PRODUCT DEVELOPMENT AND COMMERCIALIZTION

 

2.1           Development and Commercialization.  As soon as practicable after
the Effective Date, the parties will mutually agree upon and implement a
commercially reasonable transition plan pursuant to which further development
and commercialization activities will be transitioned from Isis to Lilly. The
transition plan will provide for transfer to Lilly of relevant data and records,
ownership of regulatory filings, and transition of Third Party arrangements
(e.g., manufacturing, CRO and similar agreements), and a process for sharing
class specific safety data related to the Product. Isis will not be entitled to
any compensation or reimbursement for the costs of the first [***] hours of its
personnel incurred in transitioning activities to Lilly. Lilly will reimburse
Isis for its reasonable direct Third Party costs incurred in connection with
transition activities.  If Isis and Lilly agree that Isis will continue some of
the development of the Product, Isis and Lilly will agree upon a plan and budget
to reimburse Isis for such development activities.  Following transition of
activities to Lilly, Lilly will be solely responsible for all development and
commercialization of the Product, including toxicology, clinical development
(including taking over and becoming the IND sponsor of all clinical trials that
are ongoing as of the Effective Date), regulatory, manufacturing and
commercialization efforts, except as agreed otherwise by the Parties.  Lilly and
its Sublicensees will have the sole right and responsibility for the preparation
of any regulatory filings required in order to conduct clinical trials on
Product in the Territory, together with the preparation of suitable applications
for marketing approval in the Territory and will be the owner and party of
record of all such regulatory filings.  Isis will cooperate with Lilly, at
Lilly’s expense, as Lilly reasonably requires in preparing such regulatory
filings including, without limitation, any and all data contained therein.

 

ARTICLE 3

PRODUCT LICENSE

 

3.1           Grant of License.  Subject to the terms and conditions of this
Agreement, Isis hereby grants to Lilly an exclusive, royalty-bearing license,
including the right to sublicense, under the Isis Technology solely to develop,
make, use, import, offer for sale and sell Products in the Territory.

 

3.2           Diligence and Reporting.  In order to maintain the license granted
to Lilly under Section 3.1 above, Lilly must maintain an Active Program on the
Product, and as long as Lilly has an Active Program on the Product Isis will not
conduct any research on its own or with a Third Party on eIF-4E or any ASO
Compound directed to eIF-4E.  In the event that there is a material, uncured
breach of the foregoing diligence obligation by Lilly with respect to the
Product, Isis may terminate this Agreement for Lilly breach pursuant to
Section 8.5.  Lilly will provide Isis with annual written reports that include a
description of the research, development and commercialization activities by
Lilly on the Product.  Lilly will provide prompt written

 

2

--------------------------------------------------------------------------------

 

notice to Isis when it ceases to have an Active Program on the Product and
thereafter such license will terminate.  Within [***] months of such notice from
Lilly, or within [***] months of termination of this Agreement by Isis pursuant
to this Section 3.2 or Section 8.2, Isis will provide written notice to Lilly if
it desires to develop a Product and whether it desires to receive from Lilly
summary reports on completed IND-enabling toxicology studies and completed
clinical trials for the Product.  Lilly will provide such summary reports
promptly after receiving such notice from Isis.  If Isis fails to provide such
notice within such [***] month period Lilly will have no obligation to provide
such summary reports to Isis.  For purposes of clarity, if Isis fails to request
such summary reports from Lilly for a Product as described above in this
Section 3.2, Isis may still develop a Product.

 

3.3           No Implied Licenses.  Except as expressly provided otherwise
herein, neither Party hereto will be deemed by this Agreement to have been
granted any license or other rights to the other Party’s intellectual property
rights including any Third Party patent rights.

 

3.4           Negative Covenant of Isis.  Isis hereby agrees that, for so long
as Lilly’s exclusive license under Section 3.1 is in effect, Isis will not
(a) pursue research, development or commercialization of [***] to eIF-4E outside
this Agreement, either on its own or for a Third Party, or (b) grant or assign
to any Third Party any rights to [***] to eIF-4E.

 

ARTICLE 4

PAYMENTS AND ACCOUNTING

 

4.1           Payment Tiers.  The license fee and milestones payable by Lilly to
Isis under this Agreement will depend upon whether Isis has Initiated certain
Phase II Studies for the Product for certain market types by the Option Exercise
Date as follows:

 

4.1.1        If, by the Option Exercise Date, Isis has Initiated either (i) at
least [***] Phase II Study of the Product in at least [***], or (ii) [***] or
more Phase II Studies of the Product in at least [***], then Lilly will pay Isis
the license fee and milestones set forth in this ARTICLE 4 at the “Tier 1
Rates”.

 

4.1.2        If, by the Option Exercise Date, Isis has Initiated [***] or more
Phase II Studies of the Product in only [***], then Lilly will pay Isis the
license fee and milestones set forth in this ARTICLE 4 at the “Tier 2 Rates”.

 

4.1.3        If, by the Option Exercise Date, Isis has only Initiated Phase II
Studies of the Product in [***], then Lilly will pay Isis the license fee and
milestones set forth in this ARTICLE 4 at the “Tier 3 Rates”.

 

4.1.4        Lilly will pay Isis a license fee and milestones based on the
single highest payment tier set forth in this Section 4.1 that Isis has
qualified for with the Product.  For purposes of clarification, the payment
tiers above will be set regardless of the outcome of any Phase II Study
referenced above.

 

3

--------------------------------------------------------------------------------

 

4.2           License Fees.

 

4.2.1        Depending on which payment tier applies as determined under
Section 4.1 above, Lilly will pay Isis a one-time, non-refundable,
non-creditable fee in accordance with the table below, payable within 30 days
following the Effective Date.

 

 

 

Tier 1 Rates

 

Tier 2 Rates

 

Tier 3 Rates

 

Applicable License Fee:

 

$

[***]

 

$

[***]

 

$

[***]

 

 

4.2.2        In addition, if Lilly did not complete the [***] by [***], as set
forth in ARTICLE 4 of the License Option Agreement, then Lilly will pay Isis an
additional one-time, non-refundable, non-creditable fee of $[***], payable
within 60 days following the Effective Date.

 

4.3           Milestone Payments.  Depending on which payment tier applies as
determined under Section 4.1 above, Lilly will pay to Isis the following
milestone payments for a Product within 30 days after the first achievement by
Lilly, its Affiliates or Sublicensees of each of the following events in the
first Major Market Country:

 

 

 

Milestone Payment

 

Milestone Event

 

Tier 1 Rates

 

Tier 2 Rates

 

Tier 3 Rates

 

[***]

 

$

[***]

 

$

[***]

 

$

[***]

 

[***]

 

$

[***]

 

$

[***]

 

$

[***]

 

[***]

 

$

[***]

 

$

[***]

 

$

[***]

 

[***]

 

[***]

 

$

[***]

 

$

[***]

 

[***]

 

[***]

 

[***]

 

$

[***]

 

Total:

 

$

[***]

 

$

[***]

 

$

[***]

 

 

Each milestone payment set forth above is only payable once, even if more than
one Product achieves the same milestone.

 

4.4           Royalties.  Lilly will pay to Isis the following royalties on a
country-by-country basis from the date of the First Commercial Sale of a Product
in each such country until the later of (i) the expiration of the last to expire
Isis Patent Right that includes a Valid Claim that Covers such Product; and
(ii) [***] years from the First Commercial Sale:

 

4

--------------------------------------------------------------------------------

 

Worldwide Annual Net Sales of the Product

 

Royalty Rate

 

On the portion of Net Sales from US$[***] to less than US$[***]

 

[***]

%

On the portion of Net Sales from US$[***] to less than US$[***]

 

[***]

%

On the portion of Net Sales equal to or more than US$[***]

 

[***]

%

 

4.5           Pass Through Royalties.  With respect to Products, Isis will be
responsible for paying the pass through royalties or other compensation payable
by Isis under (i) the [***], (ii) the [***] and (iii) except as provided under
Section 4.6.2, any other agreement executed by Isis under which agreement Isis
has agreed to pay a Third Party royalties based upon sales of the Product.

 

4.6           Access to Third Party Rights.

 

4.6.1        Third Party Licenses.  If, after the Effective Date access to a
Third Party’s intellectual property rights becomes necessary to make, use,
import, or offer to sell, or sell a Product in the Territory, Lilly will have
the right to acquire such access.  [***] percent ([***]%) of the acquisition
cost paid by Lilly (i.e., all consideration paid by Lilly in connection with
such acquisition including, without limitation up-front payments, milestones
payments and royalties) applicable to such Product will be credited against
future royalties owed to Isis by Lilly under this Agreement for a Product. 
Except as the Parties may otherwise agree in writing, under no circumstance will
Lilly acquisitions of Third Party intellectual property rights under the
provisions of this Section 4.5.1 result in a reduction of Net Royalties payable
to Isis under this Agreement by more than [***] ([***]%) percent of the royalty
otherwise due to Isis.

 

4.6.2        Oral Preparation, Formulation or Delivery Technology.  Any oral
preparation, formulation or delivery technology that is applicable to the
Product that is obtained by Isis from any Affiliate or Third Party, including
[***], will be made available to Lilly, at Lilly’s discretion, for use at a cost
(including royalties, milestones and other payments) that is no greater than the
[***] payable by Isis to such Third Party.  Any oral preparation, formulation or
delivery technology developed by Isis during the term of the Agreement that is
applicable to the Products will be made available to Lilly hereunder as Isis
Technology.

 

4.6.3        Royalty Obligations.  Except as otherwise provided in this
Agreement both Parties acknowledge and agree that each is solely responsible for
any and all royalty obligations that have accrued or may accrue in the future
with respect to any agreements and/or arrangement that such Party may have
agreed to prior to the Effective Date.  Except as otherwise provided in this
Agreement, any Third Party technology acquired by Isis that is applicable to the
Product will be made available to Lilly at the cost (including royalties,
milestones and other payments) payable by Isis to such Third Party.

 

5

--------------------------------------------------------------------------------

 

4.7           Compulsory License.  If in any country a Third Party obtains a
Compulsory License to sell a Product, then Lilly or Isis, respectively, will
promptly notify the other Party.  If the royalty rate payable by the grantee of
the Compulsory License is less than the then-current royalty rate paid under
this Agreement, then the royalty rate, payable under this Agreement with respect
to such Product, will be reduced to such lower rate in the subject country for
so long as sales are made pursuant to the Compulsory License; provided, however,
that in no event will the Net Royalty to Isis fall below [***] percent ([***]%).

 

4.8           Inflation.  The increments of annual Net Sales tiers set forth in
Sections 4.3 will be adjusted on a Calendar Year basis commencing January 1,
[***] (and on January 1 of each year thereafter during the term of this
Agreement) by an amount equal to the percentage change, if any, in the CPI for
the preceding year.

 

4.9           Accounting Reports; Payment of Royalty.  Lilly (including its
Affiliates) and its Sublicensees will keep complete and accurate books and
records which may be necessary to ascertain properly and to verify the payments
owed hereunder.  To the extent Lilly has prepared such information for its own
purposes, if requested in writing by Isis, Lilly will provide to Isis [***]
([***]) days after the end of each Calendar Quarter a written report with
Lilly’s good faith estimate of Lilly’s Net Sales accrued in the preceding
Calendar Quarter and the royalties payable thereon.  Lilly will make royalty
payments to Isis for Products sold by Lilly, its Affiliates and Sublicensees
during the Calendar Quarter within [***] ([***]) days of the last day of that
Calendar Quarter.  Each royalty payment will be accompanied by a written report
for that Calendar Quarter showing the Net Sales of the Products sold by Lilly,
its Affiliates and Sublicensees worldwide during the quarterly reporting period
and the calculation of the royalties payable under this Agreement.

 

4.10         Audits.  Upon Isis’ written request, and not more than once in each
Calendar Year, Lilly will permit Lilly’s independent certified public accountant
to have access during normal business hours to such of Lilly’s records as may be
reasonably necessary to verify the accuracy of the royalty reports hereunder for
the current year and the preceding [***] ([***]) years prior to the date of such
request.  Isis will submit an audit plan, including audit scope, to Lilly for
Lilly’s approval, which will not be unreasonably withheld, prior to audit
implementation.  The independent certified public accountants will keep
confidential any information obtained during such inspection and will report to
Isis only the amounts of Net Sales and royalties due and payable.  Upon the
expiration of [***] ([***]) years following the end of any Calendar Year, the
calculation of royalties payable with respect to such year will be binding and
conclusive upon Isis, and Lilly and its Affiliates and Sublicensees will be
released from any liability or accountability with respect to royalties for such
year.  If such accounting firm concludes that additional royalties were owed, or
that Lilly overpaid royalties, during such period, Lilly will pay the additional
royalties, or Isis will return any overpaid royalties, within [***] ([***]) days
of the date Isis delivers to Lilly such accounting firm’s written report.  The
fees charged by such accounting firm will be paid by Lilly unless the additional
royalties owed by Lilly exceed [***] percent ([***]%) of the royalties paid for
the royalty period subject to the audit, in which case Lilly will pay the
reasonable fees of the accounting firm.  Lilly will include in each sublicense
granted by it pursuant to this Agreement a provision requiring the Sublicensee
to make reports to Lilly, to keep and maintain records of sales made pursuant to
such sublicense and to grant access to such records by a mutually agreed upon
independent accountant to the

 

6

--------------------------------------------------------------------------------

 

same extent required of Lilly under this Agreement.  Lilly will treat all
financial information subject to review under this Section 4.10 or under any
sublicense agreement in accordance with the confidentiality provisions of this
Agreement, and will cause its accounting firm to enter into an acceptable
confidentiality agreement with Lilly obligating it to retain all such financial
information in confidence pursuant to such confidentiality agreement.

 

4.11         Payment.  All payments to Isis under this Agreement will be made in
United States Dollars by bank wire transfer in next day available funds to such
bank account in the United States designated in writing by Isis from time to
time. Lilly will pay a late payment service charge of [***]% per month (or the
highest amount allowed by law, if lower than [***]%) on all past-due amounts
owed by such Party under this Agreement.

 

4.12         Income Tax Withholding.  Each Party will be responsible for its own
tax liabilities resulting from the payments received from the other Party under
this Agreement.  If laws, rules or regulations require withholding of income
taxes or other taxes imposed upon payments set forth in this ARTICLE 4, the
paying Party will make such withholding payments as required and subtract such
withholding payments from the payments set forth in this ARTICLE 4.  The paying
Party will submit appropriate proof of payment of the withholding taxes to the
other Party within a reasonable period of time.

 

ARTICLE 5

CONFIDENTIALITY

 

5.1           Nondisclosure and Nonuse Obligations.  All Confidential
Information disclosed by one Party to the other Party hereunder will be
maintained in confidence and will not be disclosed to any Third Party or used
for any purpose except as expressly permitted herein without the prior written
consent of the other Party.

 

5.2           Permitted Disclosure of Confidential Information.  Notwithstanding
Section 5, a Party may disclose Confidential Information of the other Party as
follows:

 

5.2.1        to appropriate U.S. and/or foreign tax authorities, appropriate
patent agencies in order to obtain Patent Rights pursuant to this Agreement,
appropriate regulatory authorities to gain approval to conduct clinical trials
or to market Products pursuant to this Agreement, but such disclosure, may be
only to the extent reasonably necessary to obtain such Patent Rights or
authorizations;

 

5.2.2        if required by any governmental authority other than under
Section 5.2.1, provided that prior to such disclosure, the Party subject to the
request for such disclosure (the “Notifying Party”) promptly notifies the other
Party of such requirement so that such other Party may seek a protective order
or other appropriate remedy; and provided, further, that in the event that no
such protective order or other remedy is obtained, or that such other Party
waives compliance with this ARTICLE 5, the Notifying Party will furnish only
that portion of the other Party’s Confidential Information that it is advised by
counsel it is legally required to furnish and will exercise all reasonable
efforts to obtain reasonable assurance that confidential treatment will be
accorded the other Party’s Confidential Information so furnished;

 

7

--------------------------------------------------------------------------------

 

5.2.3        by a Party to its permitted Sublicensees, agents, consultants,
Affiliates and/or other Third Parties for the research and development,
manufacturing and/or marketing of Products (or for such Parties to determine
their interest in performing such activities) in accordance with this Agreement
on the condition that such Affiliates and Third Parties agree to be bound by the
confidentiality and non-use obligations contained in this Agreement; or

 

5.2.4        if required to be disclosed by law or court order, provided that
notice is promptly delivered to the non-disclosing Party in order to provide an
opportunity to challenge or limit the disclosure obligations.

 

ARTICLE 6

DISCLAIMERS, REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS

 

6.1           Isis Representations and Warranties.  Isis represents and warrants
to Lilly as follows:

 

6.1.1        Corporate Existence and Authority.  As of the Option Exercise Date,
Isis:  (a) is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated, (b) has full
corporate power and authority and the legal right to own and operate its
property and assets and to carry on its business as it is now being conducted
and as contemplated in this Agreement, including the right to grant the options
to license and licenses granted hereunder, (c) has the corporate power and
authority and the legal right to enter into this Agreement and perform its
obligations hereunder, (d) has taken all necessary corporate action on its part
required to authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder, and (e) has delivered an Agreement
that has been duly executed and constitutes a legal, valid, binding obligation
of Isis and is enforceable against it in accordance with its terms;

 

6.1.2        Patents, Prior Art.  As of the Option Exercise Date and to the best
of Isis’ knowledge, it has the sufficient legal and/or beneficial title and
ownership under the Isis Technology as is necessary to fulfill its obligations
under this Agreement and to grant the licenses and options to license to Lilly
pursuant to this Agreement.  Isis is not aware of any communications alleging
that it has violated or, by conducting its business as currently proposed under
this Agreement, would violate any of the intellectual property rights of any
Third Party;

 

6.1.3        Absence of Litigation, Infringement, Misappropriation.  As of the
Option Exercise Date and to the best of Isis’ knowledge, there is no pending or
threatened litigation (and Isis has not received any communication relating
thereto) which alleges that Isis’ activities in developing the Product infringe
or misappropriate any intellectual property rights of any Third Party.  To the
best of Isis’ knowledge, there is no material unauthorized use, infringement or
misappropriation of any of its intellectual property rights that are the subject
of the licenses or options to license granted hereunder;

 

6.1.4        Upstream Licenses.   True and correct copies of the Upstream
Licenses have previously been provided to Lilly by Isis. The Upstream Licenses
are in full force and effect as of the Effective Date, and Isis is not in
material breach of any of the provisions of any

 

8

--------------------------------------------------------------------------------

 

of the Upstream Licenses, nor does there exist any condition that, to the
knowledge of Isis, with passage of time or sending of notice would constitute a
material breach by Isis of any of the provisions of the Upstream Licenses, nor
is Isis aware of any material breach of the Upstream Licenses by any other party
thereto.  Isis has not waived any material rights under any Upstream Licenses. 
Isis will not amend or terminate any Upstream License or waive any rights under
any Upstream License during the term of this Agreement without the prior written
consent of Lilly. Isis will fulfill all of its material obligations under the
Upstream Licenses and otherwise comply with the terms thereof, and,
notwithstanding any other provisions of this Agreement to the contrary, will be
solely responsible for and pay when due any payments due under the Upstream
Licenses. Isis shall exercise its rights under the Upstream Licenses in a manner
consistent with the intent and terms of this Agreement.

 

6.1.5        Full Disclosures.  Isis has provided Lilly with all information
that Lilly has requested for deciding the merits of entering into this Agreement
and all information reasonably useful or necessary to enable Lilly to make an
informed decision regarding entering into this Agreement;

 

6.1.6        Employee Obligations.  All Isis employees who will conduct research
under this Agreement have legal obligations requiring assignment to Isis of all
inventions made in the course of and as a result of their association with Isis
and obligating the individual to maintain as confidential the Confidential
Information of Isis, as well as the Confidential Information of Lilly which Isis
may receive;

 

6.1.7        No Debarment.  Isis will comply at all times with the provisions of
the Generic Drug Enforcement Act of 1992 and will upon request certify in
writing to Lilly that none of its employees nor any person providing services to
Isis in connection with this Agreement have been debarred under the provisions
of such Act; and

 

6.1.8        Licenses.  Isis has not taken nor will it take any action which
would, in Isis’ good faith judgment, interfere with any obligations of Isis set
forth in this Agreement, including but not limited to the licenses granted by
Isis to Lilly under ARTICLE 3.

 

6.2           Lilly Representations and Warranties.  Lilly represents and
warrants to Isis as follows:

 

6.2.1        Corporate Existence and Authority.  As of the Effective Date,
Lilly:  (a) is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated, (b) has full
corporate power and authority and the legal right to own and operate its
property and assets and to carry on its business as it is now being conducted
and as contemplated in this Agreement, including the right to grant the options
to license and licenses granted hereunder, (c) has the corporate power and
authority and the legal right to enter into this Agreement and perform its
obligations hereunder, (d) has taken all necessary corporate action on its part
required to authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder, and (e) has delivered an Agreement
that has been duly

 

9

--------------------------------------------------------------------------------

 

executed and constitutes a legal, valid, binding obligation of Lilly and is
enforceable against it in accordance with its terms;

 

6.2.2        Employee Obligations.  All Lilly personnel who will conduct
research or development under this Agreement have legal obligations requiring
assignment to Lilly of all inventions made in the course of and as a result of
their association with Lilly and obligating the individual to maintain as
confidential the confidential information of Lilly, as well as the confidential
information of Isis which Lilly may receive;

 

6.2.3        Compliance with Laws.  In carrying out its work under this
Agreement, all Lilly work will be carried out in compliance with any applicable
laws including, without limitation, federal, state, or local laws, regulations,
or guidelines governing the work at the site where such work is being
conducted.  Moreover, Lilly will carry out all work under this Agreement in
accordance with current Good Laboratory Practices, Good Clinical Practices, Good
Manufacturing Practices, if applicable based on the specific work to be
conducted; and

 

6.2.4        No Debarment.  Lilly will comply at all times with the provisions
of the Generic Drug Enforcement Act of 1992 and will upon request certify in
writing to Isis that none of its employees nor any person providing services to
Lilly in connection with this Agreement have been debarred under the provisions
of such Act.

 

6.3           Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.  Without
limiting the generality of the foregoing, each Party expressly does not warrant
(a) the success of any Product or (b) the safety for any purpose of the
technology it provides hereunder.

 

6.4           Responsibility and Control.  Lilly and Isis will each be solely
responsible for the safety of their respective employees, agents, licensees or
Sublicensees with respect to efforts employed under this Agreement and each will
hold the other harmless with regard to any liability for damages or personal
injuries resulting from acts of its respective employees, agents, licensees or
Sublicensees.

 

6.5           Isis’ Right to Indemnification.  Lilly will indemnify each of
Isis, its Affiliates, Sublicensees, permitted successors and assigns, and the
directors, officers, employees, agents and counsel thereof (the “Isis
Indemnitees”), and defend and hold each Isis Indemnitee harmless from and
against any and all liabilities, damages, losses, settlements, claims, actions,
suits, penalties, fines, costs or expenses (including, without limitation
reasonable attorneys’ fees) (any of the foregoing, “Damages”) incurred by or
asserted against any Isis Indemnitee of whatever kind or nature, including,
without limitation, any claim or liability based upon negligence, warranty,
strict liability, or violation of government regulation but only to the extent
arising from or occurring as a result of a claim or demand made by a Third Party
(a “Third Party Claim”) against any Isis Indemnitee arising because of:
(a) breach of any representation or warranty made by Lilly pursuant to this
ARTICLE 6; (b) any material breach of this Agreement by Lilly; (c) the
manufacture, use, handling, storage, sale or other disposition of a Product that
is

 

10

--------------------------------------------------------------------------------

 

sold or provided by Lilly, its Affiliates, agents or Sublicensees; and/or
(d) violation of the trade secrets of any Third Party by Lilly; except, in each
such case in subparagraphs (a) through (d) above, to the extent that such
Damages are finally determined to have resulted from the negligence or
misconduct of an Isis Indemnitee, or the breach of any representation or
warranty under Section 6.1 by Isis.

 

6.6           Lilly’s Right to Indemnification.  Isis will indemnify each of
Lilly, its Affiliates, Sublicensees, successors and assigns, and the directors,
officers, employees, agents and counsel thereof (the “Lilly Indemnitees”), and
defend and hold each Lilly Indemnitee harmless from and against any and all
Damages incurred by or asserted against any Lilly Indemnitee of whatever kind or
nature, including, without limitation, any claim or liability based upon
negligence, warranty, strict liability, violation of government regulation but
only to the extent arising from or occurring as a result of a Third Party Claim
against any Lilly Indemnitee arising because of: (a) breach of any
representation or warranty made by Isis pursuant to this ARTICLE 6;  (b) any
material breach of this Agreement by Isis; (c) the manufacture, use, handling,
storage, sale or other disposition of a Product that is sold or provided by
Isis, its Affiliates, agents or Sublicensees; (d) violation of the trade secrets
of any Third Party by Isis and/or (e) any Third Party Claim that any Isis
Technology should not have been disclosed or made available to Lilly; except, in
each such case, in subparagraphs (a) through (e) above, to the extent that such
Damages are finally determined to have resulted from the negligence or
misconduct of a Lilly Indemnitee, or the breach of any representation or
warranty under Section 6.2 by Lilly.

 

6.7           Indemnification Procedures.  Promptly after a Party entitled to
indemnification under Section 6.5 or 6.6 (an “Indemnitee”) receives notice of
any pending or threatened claim against it (an “Action”), such Indemnitee will
give written notice to the Party to whom the Indemnitee is entitled to look for
indemnification pursuant to Section 6.5 or 6.6, as applicable (the “Indemnifying
Party”), of the commencement thereof, provided that the failure so to notify the
Indemnifying Party will not relieve it of any liability that it may have to any
Indemnitee hereunder, except to the extent the Indemnifying Party demonstrates
that it is prejudiced thereby.  In case any Action that is subject to
indemnification under this ARTICLE 6, will be brought against an Indemnitee and
it will give written notice to the Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled to participate therein and, if
it so desires, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnitee and, after notice from the Indemnifying Party to
the Indemnitee of its election to assume the defense thereof, the Indemnifying
Party will not be liable to such Indemnitee under this ARTICLE 6 for any fees of
other counsel or any other expenses, in each case subsequently incurred by such
Indemnitee in connection with the defense thereof, other than reasonable costs
of investigation.  Notwithstanding an Indemnifying Party’s election to assume
the defense of any such Action that is subject to indemnification under this
ARTICLE 6, the Indemnitee will have the right to employ separate counsel and to
participate in the defense of such Action, and the Indemnifying Party will bear
the reasonable fees, costs and expenses of such separate counsel if:  (i) the
use of counsel chosen by the Indemnifying Party to represent the Indemnitee
would present such counsel with a conflict of interest; (ii) the actual or
potential defendants in, or targets of, any such Action include both the
Indemnifying Party and the Indemnitee, and the Indemnitee will have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which case
the

 

11

--------------------------------------------------------------------------------

 

Indemnifying Party will not have the right to assume the defense of such Action
on the Indemnitee’s behalf); (iii) the Indemnifying Party will not have employed
counsel satisfactory to the Indemnitee to represent the Indemnitee within a
reasonable time after notice of the institution of such Action; or (iv) the
Indemnifying Party will authorize the Indemnitee to employ separate counsel at
the Indemnifying Party’s expense.  If an Indemnifying Party assumes the defense
of such Action, no compromise or settlement thereof may be effected by the
Indemnifying Party without the Indemnitee’s written consent, which consent will
not be unreasonably withheld or delayed, unless (1) there is no finding or
admission of any violation of law or any violation of the rights of any other
Party and no effect on any other claims that may be made against the Indemnitee
and (2) the sole relief provided is monetary damages that are paid in full by
the Indemnifying Party.

 

ARTICLE 7

INTELLECTUAL PROPERTY

 

7.1           Patent Filing and Prosecution.  Except as provided in Section 7.2,
Isis will be responsible for preparing, filing, prosecuting, maintaining and
taking such other actions as are reasonably necessary or appropriate with
respect to the Isis Patent Rights.

 

7.2           Lilly at its own expense, will prepare, file, prosecute and/or
maintain the Isis ASO Compound Patent Rights that are exclusively licensed by
Lilly pursuant to Section 3.1.  In the event of termination under Section 3.2 or
8.5, or upon written agreement of the Parties, such responsibility and expense
for preparation, filing, prosecuting and maintenance will revert back to Isis. 
Lilly may use in-house patent counsel or outside patent counsel that is
acceptable to Isis for the filing, prosecution and maintenance of Isis ASO
Compound Patent Rights for which Lilly assumes responsibility for under this
Section 7.2.  Isis will promptly transfer the subject patent files to Lilly and
will execute such documents and perform such acts as may be reasonably necessary
for Lilly to take control of such patent filing, prosecution and maintenance and
will provide all necessary assistance in the prosecution and maintenance
thereof.  Lilly will, in a timely manner, provide Isis with copies of all draft
applications, responses and other substantive papers relating to the filing,
prosecution and maintenance (including the verification of all fees and
annuities) of such Isis ASO Compound Patent Rights and will provide Isis with an
opportunity to comment on any draft applications, responses or amendments at
least [***] days prior to filing and to the extent practicable incorporate such
comments.  Isis hereby acknowledges a possible conflict of interest between
Lilly and Isis relating to the Isis ASO Compound Patent Rights for which Lilly
assumes responsibility for filing, prosecution and maintenance under this
Section 7.2.  So long as Lilly complies with provisions of this Section 7.2,
Isis hereby grants Lilly and Lilly’s patent counsel a conflict waiver, to the
limited extent of any conflict of interest arising from the fact that (a) Lilly
has the right to prepare, file, prosecute and maintain the Isis ASO Compound
Patent Rights pursuant to this Section 7.2 and (b) Isis owns or Controls such
Patent Rights.  Isis and Lilly will discuss in good faith assignment of any ASO
Compound Patent Rights to Lilly.

 

7.3           Election Not to File, Prosecute or Maintain.  If Lilly elects to
discontinue prosecution or maintenance of any Isis ASO Compound Patent Right for
which Lilly assumes responsibility for filing, prosecution and maintenance (or
that is assigned to Lilly) under Section

 

12

--------------------------------------------------------------------------------

 

7.2, then Lilly will give [***] days advance written notice to Isis of any
decision to cease preparation, filing, prosecution and maintenance of that
Patent Right (a “Discontinued Patent”); provided, however, that abandonment of a
patent application in favor of a continuation or a continuation-in-part thereof
will not constitute discontinuance of the patent application.  In such case,
Isis may elect at its sole discretion to continue preparation, filing,
prosecution or maintenance of the Discontinued Patent at its sole expense, and
Isis will own any such patent application and patents maturing therefrom and be
solely responsible for all costs, and Lilly will have a non-exclusive,
worldwide, royalty-bearing (under Section 4.3) license to continue to practice
such Discontinued Patent, including the right to sublicense solely to develop,
make, use, import, offer for sale and sell a Product, in accordance with the
terms of Section 3.1. Lilly will execute such documents and perform such acts as
may be reasonably necessary for Isis to file or to continue prosecution or
maintenance, including assigning ownership of such patents and inventions to
Isis.  Discontinuance may be on a country-by-country basis or for a patent
application or patent series in total.

 

7.4           Costs and Expenses.  Lilly will bear its own costs and expenses in
filing, prosecuting, maintaining and extending the Isis ASO Patent Rights.  Isis
will bear its own costs and expenses in filing, prosecuting, maintaining and
extending the Isis Core Technology Patent Rights and the Isis Manufacturing
Patent Rights.

 

7.5           Patent Term Extensions.  The Parties will cooperate with each
other in gaining patent term extension wherever applicable to any Product.  The
Party selling such Product will determine which patents will be extended.  All
filings for such extension will be made by the Party selling such Product;
provided, however, that in the event that the Party to selling such Product
elects not to file for an extension, such Party will (i) inform the other Party
of its intention not to file, (ii) grant the other Party the right to file for
such extension, and (iii) cooperate as necessary to assist the other Party in
filing such extension.

 

7.6           Notice of Certification.  Isis and Lilly each will immediately
upon receiving notice give notice to the other of any certification filed under
the U.S. “Drug Price Competition and Patent Term Restoration Act of 1984”
claiming that an Isis Patent Right Covering a Product being developed or
commercialized by Lilly hereunder is invalid or that any infringement will not
arise from the manufacture, use, sale, offer for sale or import of any product
by a Third Party.  If permitted under Section 7.2 and Lilly decides not to bring
infringement proceedings against the entity making such a certification with
respect to a Isis Patent Right Covering a Product being developed or
commercialized by Lilly hereunder, Lilly will give notice to Isis of its
decision not to bring suit within twenty-one (21) days after receipt of notice
of such certification.  Isis may then, but is not required to, bring suit
against the entity that filed the certification.  Any suit by Lilly or Isis will
either be in the name of Lilly or in the name of Isis, or jointly by Lilly and
Isis, as may be required by law.  For this purpose, the Party not bringing suit
will execute such legal papers necessary for the prosecution of such suit as may
be reasonably requested by the Party bringing suit.  Any costs incurred or
benefits received as a result of proceeding under this Section 7.6 will be paid
or received entirely by the Party who pursued the action.

 

7.7           Notice of Infringement Claim.  If the practice of a license
granted to a Party under this Agreement results in a claim against a Party for
patent infringement or for inducing or contributing to patent infringement
(“Infringement Claim”), the Party first having notice of an

 

13

--------------------------------------------------------------------------------

 

Infringement Claim will promptly notify the other in writing.  The notice will
set forth the facts of the Infringement Claim in reasonable detail.

 

7.8           Responsibilities.  Isis will have the sole right to control any
defense of any Infringement Claim involving alleged infringement of Third Party
rights by Isis’ activities at its own expense and by counsel of its own choice,
and Lilly will have the right, at its own expense, to be represented in any such
action by counsel of its own choice.  Lilly will have the sole right to control
any defense of any Infringement Claim involving alleged infringement of Third
Party rights by Lilly’s activities at its own expense and by counsel of its own
choice, and Isis will have the right, at its own expense, to be represented in
any such action by counsel of its own choice.  Notwithstanding the foregoing, if
the claim involves an allegation of a violation of the trade secret rights of a
Third Party, the Party accused of such violation will have the obligation to
defend against such claim and will indemnify the other Party against all costs
associated with such claim (in accordance with Sections 6.5 through 6.7). 
Neither Party will have the right to settle any patent infringement litigation
under this Section 7.8 relating to any Patent Rights owned by or exclusively
licensed to the other Party hereunder without the consent of such other Party. 
Each Party will also keep the other Party continually informed of all
significant matters relating to Infringement Claims of Third Parties.

 

7.9           Infringement Claims Against Third Parties.

 

7.9.1        Protection Against Infringement.  Isis and Lilly each agree to take
reasonable actions to protect their respective patents and technology from
infringement and from unauthorized possession or use.

 

7.9.2        Notice of Infringement.  If any Isis ASO Compound Patent Right
licensed by Isis to Lilly under this Agreement is infringed or misappropriated,
as the case may be, by a Third Party, the Party to this Agreement first having
knowledge of such infringement or misappropriation, will promptly notify the
other in writing.  The notice will set forth the facts of such infringement or
misappropriation in reasonable detail.  In such case, Lilly will have the
primary right, but not the obligation, to institute, prosecute, and control any
action or proceeding with respect to infringement or misappropriation of such
Isis ASO Compound Patent Right by its own counsel.  The other Party will have
the right, at its own expense, to be represented in such action by its own
counsel.  Except as otherwise agreed to by the Parties as part of a cost-sharing
arrangement, any recovery realized as a result of such litigation, after
reimbursement of any litigation expenses of Isis and Lilly, will be retained by
the Party that brought and controlled such litigation for purposes of this
Agreement, except that any recovery realized by Lilly as a result of such
litigation, after reimbursement of the Parties’ litigation expenses, will, to
the extent [***] to [***], be treated as [***] of [***] by Lilly.

 

7.9.3        Expenses of Bringing Infringement Action.  Subject to
Section 7.9.2, Lilly will bear the costs and expenses of all infringement or
misappropriation actions brought by Lilly under this Agreement.  Subject to
Section 7.9.2,  Isis will bear the costs and expenses of all infringement or
misappropriation actions brought by Isis under this Agreement.

 

7.9.4        Lilly’s Failure to Institute, Prosecute and Control.  If Lilly
fails to institute, prosecute, and control such action or prosecution within a
period of [***] days after

 

14

--------------------------------------------------------------------------------

 

receiving notice of the infringement, Isis, subject to the prior rights of any
Third Party, will have the right to bring and control any such action by counsel
of its own choice, and Lilly will have the right, at its own expense, to be
represented in any such action by counsel of its own choice. Except as otherwise
agreed to by the Parties as part of a cost-sharing arrangement, any recovery
realized as a result of such litigation, after reimbursement of 100% of any
litigation expenses of Isis and 100% of any litigation expenses of Lilly
(including the costs and expenses incurred by Lilly in providing reasonable
assistance to Isis), will be shared [***] by the Parties.  No settlement or
consent judgment or other voluntary final disposition of a suit under this
Section 7.9.4 may be entered into without the joint consent of Isis and Lilly
(which consent will not be unreasonably withheld or delayed).

 

7.9.5        Settlement Approval.  Neither Party will settle any such proceeding
under this Section 7.9 without the approval of the other Party, which approval
will not be unreasonably withheld or delayed.

 

ARTICLE 8

TERM AND TERMINATION

 

8.1           Term of Agreement.  This Agreement will commence on the Effective
Date and will continue until no payments are due or are capable of becoming due
hereunder, unless the Agreement is terminated earlier in accordance with this
ARTICLE 8. All licenses granted hereunder that are in effect at expiration of
this Agreement will be deemed fully paid-up and perpetual (as more specifically
described in 8.6.1 below), except as provided otherwise by this Agreement.

 

8.2           Termination for Breach.  Either Party may terminate this Agreement
by notice to the other Party at any time during the term of this Agreement if
the other Party is in breach of any material obligations hereunder and has not
cured such breach within ninety (90) days after notice requesting cure of the
breach or such longer period of time as is required to cure such breach as long
as the breaching Party is proceeding in good faith to cure; provided, however,
that in any case when a breach is alleged regarding the payment of money
hereunder, the time period will be thirty (30) days and undisputed amounts must
be paid prior to such time to avoid breach.  Upon material breach by a Party of
its obligations hereunder, if such Party decides not to terminate this
Agreement, such Party will have the right to offset any costs it may incur as a
result of curing such breach against the amounts payable to the breaching Party
for the performance of such obligations.  Further, to the extent that a Party
prevails in a lawsuit brought against the other Party for material breach of
this Agreement, such prevailing Party will be entitled to collect from the other
Party reasonable attorneys’ fees and legal costs incurred in connection with
such law suit. If the non-breaching Party terminates this Agreement under
Section 8.2 following material breach by the breaching Party, the breaching
Party will return to the non-Breaching Party all of the non-breaching Party’s
Confidential Information and all materials received from the non-breaching Party
during the Agreement, and the breaching Party will cease all use of the
non-breaching Party’s Confidential Information and materials received from the
non-breaching Party for any purpose except as provided in Section 8.7, and
except that the breaching Party may (1) keep a copy of all documents for record
keeping purposes only and (2) keep and use any Confidential Information and
materials received from the non-breaching

 

15

--------------------------------------------------------------------------------

 

Party that are necessary for the breaching Party to exercise those of its rights
and fulfill those of its obligations that survive the termination of this
Agreement.

 

8.3           Termination Upon Insolvency.  Either Party may terminate this
Agreement upon notice to the other should the other Party become insolvent or
file or consent to the filing of a petition under any bankruptcy or insolvency
law or have any such petition filed against it which has not been stayed within
sixty (60) days of such filing.  During the term of this Agreement, all rights
and licenses granted under or pursuant to this Agreement by Isis or Lilly are,
and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses of right to “intellectual property” as defined under
Section 101 of the U.S. Bankruptcy Code.  The Parties agree that, during the
term of this Agreement, the Parties, as licensees of such rights under this
Agreement, will retain and may fully exercise all of their rights and elections
under the U.S. Bankruptcy Code.  The Parties further agree that, in the event of
the commencement of a bankruptcy proceeding-by or against either Party under the
U.S. Bankruptcy Code, the Party hereto that is not a party to such proceeding
will be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in their possession, will be
promptly delivered to them (i) upon any such commencement of a bankruptcy
proceeding upon their written request therefor, unless the Party subject to such
proceeding elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, following the rejection of
this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by the non-subject Party.

 

8.4           Termination at Will by Lilly.  Lilly shall have the right to
terminate this Agreement at will upon 90 days written notice to Isis.

 

8.5           Effect of Termination Due to Lilly Breach, Insolvency or at Will. 
If Isis terminates the Agreement based on material breach by or insolvency of
Lilly, or if Lilly terminates this agreement at will pursuant to Section 8.4,
then:

 

8.5.1        the licenses granted by Isis to Lilly pursuant to Section 3.1 will
terminate, and Lilly will stop making and selling such Product;

 

8.5.2        any sublicense granted by either Party to any Sublicensee under a
license hereunder that terminates as a result of termination of this Agreement
by Isis pursuant to Section 8.2 or 8.3 will continue in full force and effect
but will be assigned by such Party to the other Party, and such Party will
provide the other Party with complete and accurate copies of such sublicense
agreements within thirty (30) days following the effective date of such
termination; and

 

8.5.3        Lilly will promptly re-assign any patents assigned to Lilly under
this Agreement, and Lilly will assign or otherwise transfer ownership of any
regulatory filings related to the Product.

 

8.6           Effect of Termination Due to Isis Breach or Insolvency.  If Lilly
terminates the Agreement based on material breach by or insolvency of Isis,
then:

 

8.6.1        licenses granted by Isis to Lilly pursuant to Section 3.1 will
survive;

 

16

--------------------------------------------------------------------------------

 

8.6.2        Lilly’s payment obligations set forth in ARTICLE 4 will continue,
provided, however, that the amounts of the payments will be decreased to reflect
the nature of Isis’s breach and the damages caused thereby by amounts to be
agreed upon by the Parties or, if the Parties are unable to reach agreement, by
an independent Third Party with the requisite expertise selected by the Parties,
the expense of which will be borne by Isis; and

 

8.6.3        any sublicense granted by either Party to any Sublicensee under a
license hereunder that terminates as a result of termination of this Agreement
by Lilly pursuant to Section 8.2 or 8.3 will continue in full force and effect
but will be assigned by such Party to the other Party, and such Party will
provide the other Party with complete and accurate copies of such sublicense
agreements within thirty (30) days following the effective date of such
termination.

 

8.7           Accrued Rights/Surviving Obligations.  Except as expressly
provided in this Agreement, expiration or termination of this Agreement will not
relieve the Parties of any obligation that accrued prior to such expiration or
termination, and Lilly will be obligated to pay and will pay to Isis, within
[***] days of such expiration or termination, all payments and royalties due or
accrued pursuant to the terms of ARTICLE 4.  Upon expiration or early
termination of this Agreement, all rights and obligations of the Parties will
cease, except as follows:

 

8.7.1        In the case of expiration of this Agreement only (and, for purposes
of clarification, not in the case of termination of this Agreement pursuant to
Section 8.2 or 8.3), each of the licenses set forth in Sections 3.1 will survive
and will be deemed to be perpetual and fully paid up, provided that all payment
and other obligations with respect to such licenses have been fulfilled;

 

8.7.2        The obligations to pay royalties and other sums accruing hereunder
up to the date of termination or expiration will survive;

 

8.7.3        The obligations of confidentiality set forth in ARTICLE 5 will
survive;

 

8.7.4        The obligations for record keeping and accounting reports set forth
in ARTICLE 4 will survive for so long as Products are sold.  At such time after
termination or expiration of this Agreement when sales or other dispositions of
Products have ceased, the Party selling such Product will render a final report
along with any royalty payment due;

 

8.7.5        Isis’ and Lilly’s rights to inspect books and records as described
in ARTICLE 4 will survive;

 

8.7.6        The obligations of defense and indemnity set forth in ARTICLE 6
will survive;

 

8.7.7        Any cause of action or claim of Isis or Lilly accrued or to accrue
because of any breach or default by the other Party hereunder will survive; and

 

17

--------------------------------------------------------------------------------

 

8.7.8        All other terms, provisions, representations, rights and
obligations contained in this Agreement that are intended to survive as
specifically set forth elsewhere in this Agreement will survive.

 

8.8           Limitation of Liability.  No Party will be liable to another for
indirect, incidental, consequential or special damages, including but not
limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages.  Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party under ARTICLE 6.

 

ARTICLE 9

PUBLICITY

 

9.1           Press Release.  Upon execution of this Agreement, the Parties
shall issue a joint press release announcing the existence of this Agreement in
a form and substance agreed to in writing by the Parties.

 

9.2           Disclosure of Agreement.  Neither Party to this Agreement may
release any information to any Third Party regarding the terms or existence of
this Agreement or the reasons for any termination hereof, without the prior
written consent of the other Party.  Without limitation, this prohibition
applies to press releases, educational and scientific conferences, quarterly
investor updates, promotional materials, governmental filings and discussions
with public officials, the media, security analysts and investors.  However,
this provision does not apply to any disclosures regarding this Agreement or
related information to regulatory agencies such as the FDA or Federal Trade
Commission and/or Department of Justice for such disclosures which may be
required by law, including requests for a copy of this Agreement or related
information by tax authorities.  If any Party to this Agreement determines a
release of information regarding the existence or terms of this Agreement is
required by law (including releases a may be required to be filed through the
Securities Exchange Commission or other government agency), that Party will
notify the other Party as soon as practicable and give as much detail as
possible in relation to the disclosure required.  The Parties will then
cooperate with respect to determining what information should actually be
released.  The Parties hereby agree that release of a press release upon
complete execution of this Agreement is appropriate and such press release will
be mutually agreed upon by the Parties.

 

9.3           Use of Names, Logos or Symbols.  No Party hereto will use the
name, trademarks, logos, physical likeness, employee names or owner symbol of
any other Party for any purpose, including, without limitation, private or
public securities placements, without the prior written consent of the affected
Party, such consent not to be unreasonably withheld or delayed so long as such
use of name is limited to objective statements of fact, rather than for
endorsement purposes.  Nothing contained herein will be construed as granting
either Party any rights or license to use any of the other Party’s trademarks or
tradenames without separate, express written permission of the owner of such
trademark or tradename.

 

18

--------------------------------------------------------------------------------

 

9.4           Publications.

 

9.4.1        On a country by country basis and only with respect to the Major
Market Countries, prior to Registration of the Product in such country,
(i) Lilly will notify (and provide as much advance notice as possible to) Isis
of any event materially related to Product (including the Product’s efficacy,
safety, clinical data or results, any Registration Submission or Registration)
so that the Parties may analyze the need to or desirability of publicly
disclosing or reporting such event; and (ii) Lilly may publish, present or
otherwise disclose results regarding the Product to the public at its sole
discretion; however, any press release or other similar public communication by
either Party related to a Product’s efficacy, safety, clinical data or results,
Registration Submission or Registration, will be submitted to the other Party
for review at least 5 Business Days in advance of such proposed public
disclosure.

 

9.4.2        On a country by country basis and only with respect to the Major
Market Countries, after Registration of the Product in such country, the
appropriateness of all publications regarding development or commercialization
of the Products in such country shall be determined by Lilly and Lilly may
publish, present or otherwise disclose results regarding the Product to the
public at its sole discretion; however, in each case Lilly will submit to Isis
for review at least 5 Business Days in advance of such proposed public
disclosure, any press release or other similar public communication related to
new and materially negative information regarding a Product’s safety, or
clinical data or results.

 

9.4.3        Notwithstanding the foregoing, the contents of any announcement or
similar publicity which has been reviewed and approved by the reviewing Party
can be re-released by either Party without a requirement for re-approval.

 

ARTICLE 10

MISCELLANEOUS

 

10.1         Further Assurances, HSR.  Each Party will duly execute and deliver
such further instruments and do and cause to be done such further acts and
things, including the filing of such assignments, agreements, documents and
instruments, as may be necessary or as the other Party may reasonably request in
connection with this Agreement in order to carry out more effectively the
provisions and purposes of this Agreement. Each of the Parties shall use its
commercially reasonable efforts to take all actions necessary or advisable under
applicable laws to consummate and make effective the transactions contemplated
by this Agreement including the taking of such reasonable actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions or
waivers by any governmental authority, including filings pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), if required.  The Parties shall make any necessary filings under the HSR
Act as soon as practicable, but in any event not more than fifteen (15) days
following the Effective Date.  In the event the Parties conclude that a filing
under the HSR Act is necessary, no payments shall be made and no license granted
hereunder shall become effective and, except for this Section 10.1, no time
period measured from the Effective Date, shall commence until the applicable
waiting period under the HSR Act has expired or been terminated.  In the event
the applicable waiting period has not expired or been terminated within six
months of the Effective Date, either Party shall have the option to terminate
this Agreement without liability upon written notice to the other.  Neither
Party shall be obligated

 

19

--------------------------------------------------------------------------------

 

to agree to any divestiture of assets or limitation on its current or future
businesses in connection with obtaining clearance under the HSR Act or other
requirement if the Party in good faith believes that the same is unreasonable.

 

10.2         Force Majeure.  No Party will be held liable or responsible to the
other Party nor be deemed to have defaulted under or breached the Agreement for
failure or delay in fulfilling or performing any term of the Agreement (except
payment obligations) when such failure or delay is caused by or results from
causes beyond the reasonable control of the affected Party including, but not
limited to, fire, flood, earthquake, embargo, war, acts of war or terrorism
(whether war be declared or not), insurrection, riot, civil commotion, strike,
lockout or other labor disturbance, act of God or act, omission or delay in
acting by any governmental authority or the other Party.  The affected Party
will notify the other Party of such force majeure circumstances as soon as
reasonably practical.

 

10.3         Assignment.  This Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligations hereunder be assigned or transferred, by a Party without the written
consent of the other Party; provided, however, that either Party may, without
such consent, (1) assign the Agreement and its rights and obligations hereunder
to (i) any wholly-owned subsidiary in a manner such that the assignor (if it
continues as a separate entity) will remain liable and responsible for the
performance and observance of all its duties and obligations hereunder or (ii) 
to any successor by merger or sale of substantially all of its business unit to
which this Agreement relates, or in the event of its merger or consolidation or
Change in Control or similar transaction; or (2) Isis may assign or transfer its
rights to receive fees, royalties and milestones under this Agreement (but no
liabilities), without Lilly’s consent, to a Third Party in connection with a
payment factoring transaction.  This Agreement will be binding upon the
permitted successors and permitted assigns of the Parties.  Any assignment not
in accordance with this Section 10.3 will be void.

 

10.4         Severability.  In the event that any of the provisions contained in
this Agreement are 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 thereby, unless the absence
of the invalidated provision(s) adversely affect the substantive rights of the
Parties.  The Parties will replace the invalid, illegal or unenforceable
provision(s) with valid, legal and enforceable provision(s), which, insofar as
practical, implement the purposes of this Agreement.

 

10.5         Notices.  All notices or other communications which are required or
permitted hereunder will be in writing and deemed to be effective (a) on the
date of delivery if delivered in person and written confirmation of delivery is
provided, (b) on the date sent by facsimile or other electronic transmission,
provided such receipt is verified, (c) on the day following date of deposit with
an overnight courier if a receipt confirming delivery by overnight courier is
provided, or (d) three days after mailing if mailed by first-class certified
mail, postage paid, to the respective addresses given below, or to another
address as it will designate by written notice given to the other Party.

 

20

--------------------------------------------------------------------------------

 

if to Isis, to:

 

Isis Pharmaceuticals, Inc.

1896 Rutherford Road

Carlsbad, CA 92008

Attention:          Chief Operating Officer

Telephone:        760-931-9200

Facsimile:           760-918-3592

 

with a copy to:

 

Attention:          General Counsel

Telephone:        760-931-9200

Facsimile:           760-268-4922

 

if to Lilly, to:

 

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, IN 46285

Attention:          Group Vice President, Lilly Research Laboratories

with a copy to:

 

Attention:          General Patent Counsel

 

10.6         Dispute Resolution.  In the event of any controversy or claim
arising from or relating to any provision of this Agreement, or any term or
condition hereof, or the performance by a Party of its obligations hereunder, or
its construction or its actual or alleged breach, the Parties will try to settle
their differences amicably between themselves.

 

10.7         Choice of Law.  This Agreement will be governed by and construed in
accordance with the laws of the State of New York and the United States without
reference to any rules of conflict of laws.

 

10.8         Entire Agreement.  This Agreement (including all Schedules hereto),
constitute the entire agreement between the Parties with respect to the subject
matter hereof, and supersedes all previous arrangement with respect to the
subject matter hereof, whether written or oral.  Any amendment or modification
to this Agreement will be made in writing signed by both Parties.

 

10.9         Headings.  The captions to the several Articles and Sections hereof
are not a part of the Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

 

10.10       Independent Contractors.  It is expressly agreed that the Parties
will be independent contractors and that the relationship between the Parties
will not constitute a partnership, joint venture or agency.  No Party will have
the authority to make any statements,

 

21

--------------------------------------------------------------------------------

 

representations or commitments of any kind, or to take any action, which will be
binding on the other Parties, without the prior consent of such other Parties.

 

10.11       Further Actions.  Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of the
Agreement.

 

10.12       Waiver.  The waiver by a Party hereto of any right hereunder or the
failure to perform or of a breach by another Party will not be deemed a waiver
of any other right hereunder or of any other breach or failure by said other
Party whether of a similar nature or otherwise.

 

10.13       Jointly Prepared.  This Agreement has been prepared jointly and will
not be strictly construed against either Party.

 

10.14       Counterparts.  This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

22

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

 

 

ELI LILLY AND COMPANY

 

ISIS PHARMACEUTICALS, INC.

 

 

 

 

 

 

By:

 

 

By:

 

 

 

B. Lynne Parshall

 

 

Chief Operating Officer and

 

 

Chief Financial Officer

 

 

[SIGNATURE PAGE TO DEVELOPMENT AND LICENSE AGREEMENT]

 

--------------------------------------------------------------------------------

 

List of Schedules

 

Schedule 1.1              Definitions

 

Schedule A               Isis ASO Compound Patent Rights as of the Effective
Date

 

Schedule B                Isis Manufacturing Patent Rights as of the Effective
Date

 

Schedule C                Isis Core Technology Patent Rights as of the Effective
Date

 

--------------------------------------------------------------------------------

 

SCHEDULE 1.1

 

DEFINITIONS

 

“Active Program” means with respect to a Product, any [***], of a Product. 
Without limitation of the generality of the foregoing, for purposes of
clarification, research, development and commercialization efforts with respect
to a Product will be deemed reasonable if Lilly’s research and development
efforts with respect to such Product are reasonably comparable with other
products in Lilly’s portfolio at a similar stage of development, of similar
market potential, and presenting similar development or commercialization
challenges.

 

“Affiliate” means any person, organization, corporation or other business entity
that controls, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of another person, organization,
corporation or entity, whether through the ownership of voting securities or by
contract or court order or otherwise.  For purposes of this definition, an
entity will be deemed to control another entity if it owns or controls, directly
or indirectly, at least fifty percent (50%) of the outstanding stock or other
voting rights entitled to elect directors or their equivalent of such other
entity.  Regulus Therapeutics Inc. will not be considered an Affiliate of Isis.

 

“ASO Compound” means an [***].

 

“ASO Field” means the development, manufacture and sale of ASO Products for all
uses.

 

“Calendar Quarter” will mean the respective three month periods ending on
March 31, June 30, September 30, or December 31 for so long as the Agreement is
in effect.

 

“Calendar Year” will mean each successive twelve month period commencing on
January 1 and ending on December 31 for so long as the Agreement is in effect.

 

“Change in Control” means any of the following events:  (i) the acquisition by
any Person or group, other than a Person or group controlling such Party as of
the Effective Date, of “beneficial ownership” (as defined in Rule 13d-3 under
the United States Securities Exchange Act of 1934, as amended), directly or
indirectly, of fifty percent (50%) or more of the shares of such Party’s capital
stock the holders of which have general voting power under ordinary
circumstances to elect at least a majority of such Party’s Board of Directors or
equivalent body (the “Board of Directors”) (the “Voting Stock”); (ii) the first
day of which less than two-thirds of the total membership of such Party’s Board
of Directors will be Continuing Directors (as such term is defined below);
(iii) the approval by the shareholders of such Party of a merger, share
exchange, reorganization, consolidation or similar transaction of such Party (a
“Transaction”), other than a Transaction which would result in the Voting Stock
of such Party outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the Voting Stock of such
Party or such surviving entity immediately after such Transaction; or
(iv) approval by the shareholders of such Party of a complete liquidation of
such Party or a sale or disposition of all or substantially all of the assets of
such Party.  For purposes of this

 

1.1-1

--------------------------------------------------------------------------------

 

definition, “Continuing Directors” means individuals serving as of the Second
Restatement Date hereof on such Party’s Board of Directors and any individuals
elected after the date hereof whose election or nomination was approved by at
least a majority of the Continuing Directors serving at the time.

 

“Compulsory License” means, in the case of Product, a compulsory license under
the a Party’s technology obtained by a Third Party through the order, decree or
grant of a governmental authority having competent jurisdiction, authorizing
such Third Party to manufacture, use, sell, offer for sale or import such
Product in a particular country.

 

“Confidential Information” means any and all inventions, know-any, and data and
will include, without limitation, information relating to research and
development plans, experiments, results and plans, compounds, therapeutic leads,
candidates and products, clinical and preclinical data, trade secrets and
manufacturing, marketing, financial, regulatory, personnel and other business
information and plans, all scientific, clinical, regulatory, marketing,
financial and commercial information or data, all whether communicated in
writing, orally or by any other means, and which is provided by one Party to the
other Party in connection with this Agreement.  Confidential Information will
not include information that:

 

(a)           is known by the receiving Party at the time of its receipt, and
not through a prior disclosure by the disclosing Party, as documented by written
records;

 

(b)           is properly in the public domain through no fault of the receiving
Party;

 

(c)           is subsequently disclosed to the receiving Party by a Third Party
who may lawfully do so and is not under an obligation of confidentiality to the
disclosing Party; or

 

(d)           is developed by the receiving Party independently of Confidential
Information received from the other Party, as documented by written records.

 

“Control” or “Controlled” means with respect to any intellectual property right,
that the Party owns or has a license to such intellectual property right and has
the ability to grant access, a license, or a sublicense to such intellectual
property right to the other Party as provided for in this Agreement without
violating an agreement with, or infringing any rights of, a Third Party as of
the time the Party would be first required under this Agreement to grant the
other Party such access, license or sublicense.

 

“Cover” (including variations thereof such as “Covering”, “Covered”, and
“Coverage”) means that the manufacture, use, import, offer for sale or sale of a
Product would infringe a Valid Claim; provided, with respect to a process or
manufacturing patent, that such a Valid Claim therein effectively precludes a
Third Party from manufacturing, using, importing, offering for sale, or selling
such Product.  The determination of whether a Product is Covered by a particular
Valid Claim will be made on a country-by-country basis.  A Valid Claim will be
deemed to provide effective preclusion hereunder where (i) there is no competing
product being marketed or (ii) if a product is being marketed by a competitor,
it infringes the Valid Claim (including any period in which, and provided that,
the Valid Claim is being litigated).

 

1.1-2

--------------------------------------------------------------------------------

 

“CPI” or “Consumer Price Index” means the consumer price index for all urban
consumer series ID CUUR0000SAO as published from time to time by the US Bureau
of Labor Statistics, where the CPI for June, 2001 was 178.

 

“Effective Date” has the meaning ascribed to it in the preamble.

 

“eIF-4E” means eukaryotic initiation factor-4E (Entrez Gene ID: 1977).

 

“eIF-4E Compound” means [***] of the [***] that are [***] eIF-4E [***] eIF-4E
[***].

 

“FDA” means the United States Food and Drug Administration or any successor
agency having the administrative authority to regulate the approval for
marketing of new human pharmaceutical or biological therapeutic products in the
United States.

 

“First Commercial Sale” means with respect to any Product the first sale to a
Third Party by Lilly, its Affiliates or Sublicensees.  First Commercial Sale
will not include transfer of reasonable quantities of any free samples of a
Product or reasonable quantities of a Product solely for development purposes,
such as for use in experimental studies or clinical trials. First Commercial
Sale with respect to an Indication means the First Commercial Sale following
receipt of regulatory approval to include such Indication in the official
labeling for the Product.

 

“[***] Agreement” means that certain agreement between [***] and [***]effective
[***], and any amendments thereto.

 

“IND” means an Investigational New Drug application as defined in 21 C.F.R. 312
and any versions thereof governing the FDA as may be amended from time to time.

 

“Indication” means, with respect to a Product, such Product’s interference with
a gene to affect a specific primary endpoint of a pathophysiologic state,
regardless of etiology.  For purposes of clarity, if an Indication was not
included in a particular NDA (or any foreign counterpart or equivalent section)
for a Product but is included in a subsequent NDA (or abbreviated NDA or
supplemental NDA) for such Product, such Indication is presumptively a separate
and distinct “Indication” from all other Indications for such Product.

 

“Initiate” means with respect to a clinical study, the initial dosing of the
first patient in such study.

 

“Institutional Review Board” means an Institutional Review Board as defined in
21 C.F.R. 56 as may be amended from time to time, or its applicable foreign
equivalent.

 

“Isis ASO Compound Patent Rights” means Patent Rights Controlled by Isis on or
after the Effective Date that Cover the composition of matter of a Product or
the method of using such Product per se.  A representative list of the Isis ASO
Compound Patent Rights as of the Effective Date is attached to this Agreement as
Schedule A.

 

1.1-3

--------------------------------------------------------------------------------

 

“Isis Core Technology Patent Rights” means Patent Rights Controlled by Isis on
or after the Effective Date that Cover the practice of Isis Standard Chemistry
including Patent Rights that Cover chemistries, motifs (patterns of arranging
the chemical building blocks of an antisense oligonucleotides) and/or cellular
mechanism of action by which an oligonucleotide promotes RNA cleavage. A
representative list of the Isis Core Technology Patent Rights that exist as of
the of this Agreement are listed in Schedule C.

 

“Isis Know-How” means all Know-How that is either (i) Controlled by Isis as of
the Effective Date or (ii) that becomes Controlled by Isis after the Effective
Date that is reasonably necessary or useful for research, development,
manufacture, use and sale of Products.

 

“Isis Manufacturing Patent Rights” means Patent Rights Controlled by Isis on or
after the Effective Date that Cover the practice of the Isis Standard Chemistry
Manufacturing Process.  The Isis Manufacturing Patent Rights as of the date of
this Agreement are listed in Schedule B.

 

“Isis Patent Rights” means the Isis Core Technology Patent Rights, the Isis
Manufacturing Patent Rights and Isis ASO Compound Patent Rights.  To the extent
Isis Controls Patent Rights as of the Effective Date other than the Isis
Manufacturing Patents, Isis Core Technology Patent Rights, and the Isis ASO
Compound Patent Rights, and such Patent Rights would Cover a Product, such
Patent Rights will be included in the definition of Isis Patent Rights
automatically if they can be licensed to Lilly with no obligation (financial or
otherwise) to any Third Party with respect to a Product.  To the extent Isis
Controls Patent Rights as of the Effective Date, other than the Isis
Manufacturing Patent Rights, the Isis Core Technology Patent Rights and Isis ASO
Compound Patent Rights that would Cover a Lilly ASO Product, and such Patent
Rights were acquired by Isis from a Third Party and/or Isis has obligations
(financial or otherwise) to a Third Party in connection with the practice of
such Patent Rights, such Patent Rights will only be included in the definition
of Isis Patent Rights if Isis and Lilly negotiate an agreement to license such
Patent Rights which includes (1) the assumption by Lilly of all financial
obligations of Isis arising from the grant to Lilly and the practice by Lilly,
its Affiliates of Sublicensees, of the Patent Rights, (2) the compensation of an
appropriate portion of any acquisition costs incurred by Isis in connection with
obtaining Control of such Patent Rights, and (3) an agreement by Lilly to abide
by all of the terms of the agreement under which Isis has obtained Control of
such Patent Right.  For purposes of determining whether a royalty is payable
under Section 4.4 Isis Patent Rights will include any Patent Right assigned to
Lilly under Section 7.2.

 

“Isis Standard Chemistry” means “2´MOE Gapmers” or an antisense phosphothioate
oligonucleotide of [***] nucleotides wherein all of the backbone linkages are
modified by adding a sulfur at the non-bridging oxygen (phosphorothioate) and a
stretch of at least [***] consecutive nucleotides remain unmodified (deoxy
sugars) and the remaining nucleotides contain an O´-methyl O´-ethyl substitution
at the 2´ position (MOE).

 

“Isis Standard Chemistry Manufacturing Process” means the manufacturing process
as of the [***], represented by the batch record for Isis [***].  Manufacturing
for this purpose includes [***].

 

“Isis Technology” means Isis Know-How and Isis Patent Rights.

 

1.1-4

--------------------------------------------------------------------------------

 

“Know-How” means all tangible or intangible know-how, inventions (whether
patentable or not), discoveries, processes, formulas, data, clinical and
preclinical results, non-patented inventions, trade secrets, and any physical,
chemical, or biological material or any replication of any such material in
whole or in part.

 

“[***] Market Type(s)” means any of [***]

 

“License Option Agreement” has the meaning set forth in Recital C.

 

“Major Market Country” means the [***].

 

“NDA” means a new drug application or other application filed with the FDA to
obtain approval for marketing a Product in the United States, or any future
equivalent process.

 

“Net Royalty” means the effective royalty rate payable to a Party hereunder
determined by subtracting from the actual royalty rate set forth in Section 4.4
hereof the royalty that such Party is required to pay to a Third Party licensor,
including, without limitation, under the [***] Agreement or the [***] Agreement.

 

“Net Sales” means, with respect to a Product, the gross amount invoiced by a
Party, its Affiliates or Sublicensees thereof to unrelated Third Parties,
excluding any Sublicensee, for the Product, less:

 

(a)           Trade, quantity and cash discounts allowed;

 

(b)           Commissions, discounts, refunds, rebates, chargebacks, retroactive
price adjustments, and any other allowances which effectively reduce the net
selling price;

 

(c)           Product returns and allowances;

 

(d)           That portion of the value associated with the cost of the drug
delivery systems;

 

(e)           Any tax imposed on the production, sale, delivery or use of the
Product, including, without limitation, sales, use, excise or value added taxes;

 

(f)            Allowance for distribution expenses; and

 

(g)           Any other similar and customary deductions.

 

Net Sales will be calculated in U.S. Dollars.  Such amounts will be determined
from the books and records of a Party, its Affiliate or Sublicensee, maintained
in accordance with U.S. Generally Accepted Accounting Principles or, in the case
of Sublicensees, such similar accounting principles, consistently applied.  Each
Party further agrees in determining such amounts, it will use its then current
standard procedures and methodology, including its then current standard
exchange rate methodology for the translation of foreign currency sales into
U.S. Dollars or, in the case of Sublicensees, such similar methodology,
consistently applied.

 

Net Sales excludes:

 

1.1-5

--------------------------------------------------------------------------------

 

(i)            The transfer of reasonable and customary quantities of free
samples of Product(s) and the transfer of Product(s) as clinical trial
materials, other than for subsequent resale;

 

(ii)           Sales or transfers of Product(s) among a Party and its Affiliates
unless the receiving Party is the consumer or user of the Product(s); and

 

(ii)           Use by a Party or its Affiliates or Sublicensees of Product for
any use connected with the securing of regulatory approval or validating of a
manufacturing process or the obtaining of other necessary marketing approvals
for Product (unless such Product is subsequently sold).

 

In the event that the Product(s) is sold as part of a Combination Product (where
“Combination Product” means any pharmaceutical product which comprises the
Product(s) and at least one other active compound(s) and/or ingredients), the
Net Sales of the Product(s), for the purposes of determining royalty payments,
will be determined by multiplying the Net Sales of Combination Product (as
defined in the standard Net Sales definition) by the fraction, A / (A+B) where A
is the weighted average sale price of the Product(s) when sold separately in
finished form, and B is the weighted average sale price of the other
product(s) sold separately in finished form.

 

In the event that the weighted average sale price of the Product(s) can be
determined but the weighted average sale price of the other product(s) cannot be
determined, Net Sales for purposes of determining royalty payments will be
calculated by multiplying the Net Sales of the Combination Product by the
fraction A / C where A is the weighted average sale price of the Product(s) when
sold separately in finished form and C is the weighted average selling price of
the Combination Product.  In the event that the weighted average sale price of
the other product(s) can be determined but the weighted average sale price of
the Product cannot be determined, Net Sales for purposes of determining royalty
payments will be calculated by multiplying the Net Sales of the Combination
Product by the following formula:  one (1) minus B / C where B is the weighted
average sale price of the other product(s) when sold separately in finished form
and C is the weighted average selling price of the Combination Product.  In the
event that the weighted average sale price of both the Product(s) and the other
product(s) in the Combination Product cannot be determined, the Parties will
attempt to agree on an appropriate weighted average sale price of both the
Product(s) and the other product(s) in the Combination Product, and lacking such
agreement the Net Sales of the Product(s) will be deemed to be equal to fifty
percent (50%) of the Net Sales of the Combination Product.

 

The weighted average sale price for a Product, other product(s), or Combination
Product will be calculated once each Calendar Year and such price will be used
during all applicable royalty reporting periods for the entire Calendar Year. 
When determining the weighted average sale price of a Product, other product(s),
or Combination Product, the weighted average sale price will be calculated by
dividing the sales dollars (translated into U.S. Dollars) by the units of active
ingredient sold during the twelve (12) months (or the number of months sold in a
partial Calendar Year) for the respective Product(s), other product(s), or
Combination Product.  In the initial Calendar Year, a forecasted weighted
average sale price will be used for Product(s), other product(s), or Combination
Product.  Any over or under payment due to a difference between

 

1.1-6

--------------------------------------------------------------------------------

 

forecasted and actual weighted average sale prices will be paid or credited in
the first royalty payment of the following Calendar Year.

 

“[***] Agreement” means that certain agreement between [***] effective [***] and
all amendments thereto.

 

“Option Exercise Date” has the meaning set forth in Recital D.

 

“Patent Rights” means: (a) patent applications (including provisional
applications and applications for certificates of invention); (b) any patents
issuing from such patent applications (including certificates of invention);
(c) all patents and patent applications based on, corresponding to, or claiming
the priority date(s) of any of the foregoing; (d) any reissues, substitutions,
confirmations, registrations, validations, re-examinations, additions,
continuations, continued prosecutions, continuations-in-part, or divisions of or
to any of the foregoing; and (e) term extension or other governmental action
which provide exclusive rights beyond the original patent expiration date.

 

“Phase II Study” means a human clinical trial conducted on a series of patients
with the same type of cancer, in each case where the protocol for such phase II
study was approved by the applicable Institutional Review Board.

 

“Phase III Study Initiation” means the dosing of the first patient in the first
human clinical trial conducted in patients and designed to establish Product
safety and efficacy and required to obtain clinical registration of a product
with health regulatory authorities such as the FDA.

 

“Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal use, which contains an eIF-4E Compound.

 

“Registration” means (a) in the United States, approval by the FDA of an NDA, or
similar application for marketing approval, and satisfaction of any related
applicable FDA registration and notification requirements (if any), and (b) in
any Major Market Country other than the United States, approval by regulatory
authorities having jurisdiction over such country of a single application or set
of applications comparable to an NDA and satisfaction of any related applicable
regulatory and notification requirements, if any, together with any other
approval necessary to make and sell pharmaceuticals and medical devices
commercially in such country.

 

“Registration Submission” means (a) in the United States, acceptance by the FDA
of the filing of an NDA, or similar application for marketing approval, for the
Product, and (b) in any Major Market Country other than the United States, the
filing with the applicable Regulatory Authorities having jurisdiction over such
country of a single application or set of applications comparable to an NDA for
the Product.

 

“RNAi Compound” means [***]

 

“[***] Market Types” means any [***] that are not [***] Market Types.

 

1.1-7

--------------------------------------------------------------------------------

 

“Sublicensees” means any Third Party to which Lilly or any of its Affiliates or
Isis or any of its Affiliates grants any right to manufacture, market and sell a
Product.  A Third Party who is granted only the right to sell a Product (such as
a wholesaler) will not be considered a Sublicensee.

 

“Territory” means the entire world.

 

“Third Party” means any Party other than Isis or Lilly and their respective
Affiliates.

 

“Upstream Licenses” means those Third Party licenses or sublicenses listed on
Schedule     .

 

“Valid Claim” means any claim in an issued and unexpired patent which has not
been held unenforceable, unpatentable or invalid by a decision of a court or
other governmental agency of competent jurisdiction following exhaustion of all
possible appeal processes and which has not been admitted to be invalid or
unenforceable through reissue, reexamination or disclaimer, or otherwise.

 

1.1-8

--------------------------------------------------------------------------------

 

SCHEDULE A

 

ISIS ASO COMPOUND PATENT RIGHTS AS OF THE EFFECTIVE DATE

 

--------------------------------------------------------------------------------

 

SCHEDULE B

 

ISIS MANUFACTURING PATENT RIGHTS AS OF THE EFFECTIVE DATE

 

--------------------------------------------------------------------------------

 

SCHEDULE C

 

ISIS CORE TECHNOLOGY PATENT RIGHTS AS OF THE EFFECTIVE DATE

 

--------------------------------------------------------------------------------