<PAGE>   1
                                                                    EXHIBIT 10.2



                                               TEXT OMITTED AND FILED SEPARATELY
                                               "CONFIDENTIAL TREATMENT REQUESTED
                                          UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
                                                          200.83 AND 240.24b-2."


                          SECURITIES PURCHASE AGREEMENT

               SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
January 14, 2000, between ISIS PHARMACEUTICALS, INC., a Delaware corporation
(the "Company"), and ELAN INTERNATIONAL SERVICES, LTD., a Bermuda exempted
limited liability company ("EIS") and a wholly-owned subsidiary of Elan
Corporation, plc, an Irish public limited company ("Elan").

                                R E C I T A L S:

               A. The Company desires to issue and sell to EIS, and EIS desires
to purchase from the Company, (i) 12,015 shares of a newly-created series of the
Company's Preferred Stock, par value $.001 per share, designated "Series B
Convertible Exchangeable Preferred Stock" (the "Series B Preferred Stock"), (ii)
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), in amounts and at the times determined pursuant to Section 1(b)(ii) and
(iii) hereof (the "Common Shares" and together with all shares of the Series B
Preferred Stock, the "Shares"), and (iii) warrants to purchase shares of Common
Stock in amounts and at the times determined pursuant to Section 1(b)(ii) and
(iii) hereof (the "Warrants"). In addition, EIS has agreed to lend certain funds
to the Company pursuant to a convertible promissory note in the form attached
hereto as Exhibit A (as may be amended at any time, the "Note" and, together
with the Series B Preferred Stock, the Common Shares, and the Warrants, the
"Securities"), with a maximum aggregate principal amount of U.S.$12,015,000,
amounts in respect of which shall be disbursed in accordance with its terms and
subject to the conditions contained herein and therein and in the Funding
Agreement. The rights, preferences and privileges of the Series B Preferred
Stock are as set forth in the Certificate of Designation of the Series B
Convertible Preferred Stock, (the "Certificate of Designation"), the form of
which is attached hereto as Exhibit B.

               B. The Company and EIS have formed HepaSense Ltd., a Bermuda
exempted limited liability company ("HepaSense"), and pursuant to the terms of a
Subscription, Joint Development and Operating Agreement, dated as of the date
hereof (as may be amended at any time, the "JDOA"), simultaneously with the
transactions contemplated by this Agreement, the Company shall acquire from
HepaSense, for an aggregate purchase price of $12,015,000, (i) 6,001 shares of
HepaSense's voting common stock, par value US$1.00 per share (the "HepaSense
Common Shares"), representing 100% of the outstanding shares of such class of
stock, and (ii) 3,612 shares of HepaSense's non-voting, convertible preferred
stock, par value US$1.00 per share (the "HepaSense Preferred Shares" and
together with the HepaSense Common Shares, the "HepaSense Capital Shares"),
representing 60.20% of the aggregate outstanding HepaSense Preferred Shares and,
on a fully diluted basis, 30.097% of the outstanding HepaSense Capital Shares.
EIS will acquire from HepaSense, for an aggregate purchase price of $2,985,000,
2,388 HepaSense Preferred Shares, representing 39.80% of the aggregate
outstanding HepaSense Preferred Shares and, on a fully diluted basis, 19.898% of
the outstanding HepaSense Capital Shares. Additionally, as of the date hereof,
HepaSense has entered into license agreements with (i) Elan and its subsidiary,
Elan Pharma International Limited (such agreement, as may be amended at any
time, the "Elan License

<PAGE>   2

Agreement"), and (ii) the Company (such agreement, as may be amended at any
time, the "Company License Agreement" and, together with the Elan License
Agreement, the "License Agreements").

               C. The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement, in the form attached hereto as Exhibit C
(as amended at any time, the "Company Registration Rights Agreement"), in
respect of the Common Stock issued or issuable upon (i) conversion of the Series
B Preferred Stock and/or the Note and exercise of the Warrants, and (ii) the
Common Shares to be issued and purchased hereunder, and any other Common Stock
issued to EIS or any of its affiliates or permitted transferees upon any stock
split, stock dividend, recapitalization or similar event affecting the
Securities. The Company, EIS and HepaSense are also executing and delivering on
the date hereof a Registration Rights Agreement in the form attached hereto as
Exhibit D (as amended at any time, the "HepaSense Registration Rights
Agreement"), in respect of the purchase of HepaSense Common Shares and HepaSense
Preferred Shares by the Company and EIS. Additionally, the Company and EIS are
executing and delivering on the date hereof a Funding Agreement in the form
attached hereto as Exhibit E (the "Funding Agreement;" and, together with this
Agreement, the Certificate of Designation, the JDOA, the Company Registration
Rights Agreement, the HepaSense Registration Rights Agreement, the License
Agreements and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby and by the JDOA, the
"Transactions Documents").

                               A G R E E M E N T:

               The parties hereto agree as follows:

               SECTION 1.  Closing.

               (a) Time and Place. The closing of the transactions contemplated
hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at
the offices of Brock Silverstein LLC, 800 Third Avenue, 21st Floor, New York, NY
10022.

               (b) Issuance of Securities.

                      (i) At the Closing, the Company shall issue and sell to
        EIS, and EIS shall purchase from the Company, for an aggregate purchase
        price of US$12,015,000 (the "Preferred Stock Purchase Price"), 12,015
        shares of Series B Preferred Stock.

                      (ii) On the sixtieth (60th) trading day after the Closing
        (the "First Subsequent Purchase Date"), the Company shall issue and sell
        to EIS, and EIS shall purchase from the Company, for an aggregate
        purchase price of US$7,500,000 ("First Common Stock Purchase Price"),
        (A) the number of shares of Common Stock determined by dividing the
        First Common Stock Purchase Price by [ * ] of the average closing price
        of the Common Stock for the [ * ] trading days ending two days prior
        such [ * ] trading day and (B) a Warrant to purchase a number of shares
        of Common Stock equal to [ * ] of the aggregate number of shares of
        Common Stock to be purchased by EIS pursuant to clause (ii)(A) above,
        pursuant to a warrant certificate in the form attached hereto as Exhibit
        F. The purchase by



                                       2

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   3

        EIS of the securities to be issued on the First Subsequent Purchase Date
        is conditioned upon EIS' obtaining requisite approval, if any, pursuant
        to the Mergers and Takeover (Control) Act 1978-1996 (Ireland) (the
        "Mergers Act").

                      (iii) On any day within 5 trading days after the receipt
        by EIS from the Company of notification of the occurrence of the
        Completion Date (the "Second Subsequent Purchase Date"), the Company
        shall issue and sell to EIS, and EIS shall purchase from the Company,
        for an aggregate purchase price of US$7,500,000 (the "Second Common
        Stock Purchase Price"), (A) the number of shares of Common Stock
        determined by dividing the Second Common Stock Purchase Price by [ * ]
        of the average closing price of the Common Stock for the 60 trading days
        ending two days prior to the Completion Date and (B) a Warrant to
        purchase a number of shares of Common Stock equal to 5% of the aggregate
        number of shares of Common Stock to be purchased by EIS pursuant to
        clause (iii)(A) above, pursuant to a warrant certificate in the form
        attached hereto as Exhibit G. "Completion Date" shall mean the date upon
        which a nine month toxicity study, with results sufficient to support a
        decision that ISIS 14803 has [ * ], has been completed. The purchase by
        EIS of the securities to be issued on the Second Subsequent Purchase
        Date is conditioned upon EIS' obtaining requisite approval, if any,
        pursuant to the Mergers Act.

               (c) Convertible Note Facility. EIS shall lend the Company up to
        US$12,015,000, pursuant to the terms and conditions of the Note.

               (d) Delivery.

                      (i) At the Closing:

                             (A) EIS shall pay the Preferred Stock Purchase
        Price by wire transfer to an account designated by the Company and the
        parties hereto shall execute and deliver to each other, as applicable:
        (I) a certificate or certificates for the Series B Preferred Stock; (II)
        the Note; (III) the Company Registration Rights Agreement; (IV) the
        HepaSense Registration Rights Agreement; (V) the JDOA; (VI) the
        Certificate of Designation, as filed with the Secretary of State of the
        State of Delaware; (VII) the License Agreements; (VIII) the Funding
        Agreement; (IX) a secretary certificate, in substantially the form of
        Exhibit H attached hereto; and (X) any other documents or instruments
        reasonably requested by a party hereto; and

                             (B) The Company shall cause to be delivered to EIS
        an opinion of counsel in the form attached hereto as Exhibit I;

                             (C) There shall have been delivered to EIS and the
        Company a legal opinion of Bermuda counsel to HepaSense with respect to
        the due organization of HepaSense and the valid issuance by HepaSense of
        shares of HepaSense Capital Shares to EIS and the Company.



                                       3

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   4

                      (ii) On the First Subsequent Purchase Date, EIS shall pay
        the First Common Stock Purchase Price by wire transfer to an account
        designated by the Company and the parties hereto shall execute and
        deliver to each other, as applicable: (A) a certificate or certificates
        for the Common Stock to be purchased on the First Subsequent Purchase
        Date, as determined pursuant to Section 1(b)(ii) hereof; (B) the Warrant
        to be issued pursuant to Section 1(b)(ii) hereof; (C) a secretary
        certificate of the Company, in substantially the form of Exhibit H; and
        (D) any other documents or instruments reasonably requested by a party
        hereto;

                      (iii) On the Second Subsequent Purchase Date, EIS shall
        pay the Second Common Stock Purchase Price by wire transfer to an
        account designated by the Company and the parties hereto shall execute
        and deliver to each other, as applicable: (A) a certificate or
        certificates for the Common Stock to be purchased on the Second
        Subsequent Purchase Date, as determined pursuant to Section 1(b)(iii)
        hereof; (B) the Warrant to be issued pursuant to Section 1(b)(iii)
        hereof; (C) a secretary certificate of the Company, in substantially the
        form of Exhibit H; and (D) any other documents or instruments reasonably
        requested by a party hereto.

               (e) Exemption from Registration. The Securities and any
underlying shares of Common Stock will be issued under an exemption or
exemptions from registration under the Securities Act of 1933, as amended (the
"Securities Act"). Accordingly, the certificates evidencing the Series B
Preferred Stock and the Common Shares, the Warrants, the Note and any shares of
Common Stock or other securities issuable upon the exercise, conversion or
exchange of any of the Securities shall, upon issuance, contain legends,
substantially in the forms as follows:

               THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
               THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY
               CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
               WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
               UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
               STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO
               THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
               APPLICABLE STATE SECURITIES LAWS.

               THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
               ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN THAT CERTAIN
               SECURITIES PURCHASE AGREEMENT, DATED AS OF JANUARY 14, 2000, BY
               AND BETWEEN ISIS PHARMACEUTICALS, INC. AND ELAN INTERNATIONAL
               SERVICES, LTD.



                                       4
<PAGE>   5

               SECTION 2. Representations and Warranties of the Company. The
Company hereby represents and warrants to EIS, as of the date hereof, as
follows:

               (a) Organization. The Company is duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own and lease its properties, to
carry on its business as presently conducted and as proposed to be conducted and
to consummate the transactions contemplated hereby. The Company is duly
qualified as a foreign corporation and in good standing to do business in each
jurisdiction in which the nature of the business conducted or the property owned
by it requires such qualification, except where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the business, assets, liabilities (contingent or otherwise), operations,
condition (financial or otherwise), or prospects of the Company (a "Company
Material Adverse Effect").

               (b) Capitalization. As of the Closing Date, the Company has
reserved a sufficient number of shares of Common Stock: (i) for issuance upon
conversion of the Series B Preferred Stock being purchased hereunder by EIS
(including dividends in-kind thereon), (ii) for issuance upon exercise of the
Warrants, and (iii) for issuance upon conversion of the Note (including interest
payable thereon). The Shares, when issued against payment therefor in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable, will not be issued in violation of any preemptive or similar
rights. The shares of Common Stock underlying the Series B Preferred Stock, the
Note and the Warrants (the "Underlying Shares"), when issued upon conversion or
exercise in accordance with the terms thereof, will be duly and validly issued,
fully paid and nonassessable, and will not be issued in violation of any
preemptive or similar rights.

               (c) Authorization of Transactions Documents. The Company has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transactions Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement and each of the other Transactions Documents to
which it is a party, including the issuance and sale of the Securities, have
been duly authorized by all requisite corporate action by the Company and, when
executed and delivered by the Company, this Agreement and each of the other
Transactions Documents to which it is a party will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except (A) that enforcement may be limited by (i)
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and (ii) general equity
principles and limitations on the availability of equitable relief, including
specific performance, and (B) that any rights to indemnity or contribution
hereunder or thereunder may be limited by state and federal securities laws and
by public policy considerations.

               (d) No Violation. The execution, delivery and performance by the
Company of this Agreement and each other Transactions Document to which it is a
party, including the issuance and sale of the Securities, and compliance with
the provisions hereof and thereof by the Company, does not conflict with or
constitute or result in a breach of or default under (or an event which with
notice or passage of time or both would constitute a default) or give rise to
any right of termination, cancellation or acceleration under (i) the Certificate
of Incorporation, as amended, or by-laws, of the



                                       5
<PAGE>   6

Company, (ii) applicable law, statute, rule or regulation, or any ruling, writ,
injunction, order, judgment or decree of any court, arbitrator, administrative
agency or other governmental body applicable to the Company or any of its
properties or assets, or (iii) any material contract or agreement affecting the
Company, including any contract filed as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K")
or any subsequent interim quarterly report, except where such breach, default,
termination, cancellation or acceleration would not, individually or in the
aggregate, have a Company Material Adverse Effect.

               (e) Approvals. Other than as may be necessary pursuant to the
Mergers Act or applicable Bermuda Securities laws, no material permit,
authorization, consent, approval, or order of or by, or any notification of or
filing with, any person or entity (governmental or otherwise) is required in
connection with the execution, delivery or performance of this Agreement or the
Transactions Documents, including the issuance and sale of the Securities, by
the Company, other than the filing of a Form D by the Company pursuant to
Regulation D under the Securities Act ("Regulation D").

               (f) SEC Filings. The Company has filed with the Securities and
Exchange Commission (the "SEC") all forms, reports, schedules, statements,
exhibits and other documents (collectively, the "SEC Filings") required to be
filed by the Company on or before the date hereof. At the time filed, the SEC
Filings, including without limitation, any financial statements, exhibits and
schedules included therein or documents incorporated therein by reference (i)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be.

               (g) Financial Statements. The audited financial statements of the
Company for the years ending December 31, 1997 and December 31, 1998, together
with the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the two years then ended and the reports and opinions
thereon of Ernst & Young LLP, contained in the Company's 1997 Form 10-K and 1998
Form 10-K and the Company's unaudited balance sheet for the period ending
September 30, 1999, together with the related statements of operations,
stockholders' equity (deficit) and cash flows for the quarter then ended (as set
forth in the Company's Form 10-Q, for the quarterly period ending September 30,
1999), comply as to form in all material respects with applicable accounting
requirements and the published rules and regulation of the SEC with respect
thereto, and fairly present, in all material respects, the financial position of
the Company and the results of its operations and its cash flows at such dates
and for the periods then ended and were prepared in conformity in all material
respects with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the unaudited financial statements for the
quarterly period ending September 30, 1999, to normal year-end audit adjustments
(which shall not be material in the aggregate) and the absence of footnote
disclosures.

               (h) Litigation. There is no legal, administrative, arbitration or
other action or proceeding or to the Company's knowledge governmental
investigation pending, or to the



                                       6
<PAGE>   7

Company's knowledge, threatened in writing against the Company, or any director,
officer or employee of the Company that challenges the validity or performance
of this Agreement or the other Transactions Documents to which the Company is a
party.

               (i) Absence of Certain Events. Since December 29, 1999, except as
contemplated by the Transactions Documents, (A) the Company has not (i) made,
paid or declared any dividend or distribution to any equity holder (in such
capacity) or redeemed any of its capital stock, (ii) varied its business plan or
practices, in any material respect, from past practices, (iii) entered into any
financing, joint venture, license or similar arrangement that would limit or
restrict its ability to perform its obligations hereunder and under each of the
other Transactions Documents to which it is a party, or (iv) suffered or
permitted to be incurred any liability or obligation or any lien or encumbrance
against any of its properties or assets that would limit or restrict its ability
to perform its obligations hereunder and under each of the other Transactions
Documents to which it is a party, and (B) there has not been any change or
development which has had, or in the Company's reasonable judgment is likely to
have, a Company Material Adverse Effect.

               (j) Disclosure. The representations and warranties set forth
herein and in the other Transactions Documents, when viewed collectively, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances in which they were made.

               (k) Brokers or Finders. There have been no investment bankers,
brokers or finders used by the Company in connection with the transactions
contemplated by the Transactions Documents and no such persons or entities are
entitled to a fee or compensation in respect thereof.

               SECTION 3. Representation and Warranties of EIS. EIS hereby
represents and warrants to the Company, as of the date hereof, as follows:

               (a) Organization. EIS is duly organized, validly existing and in
good standing under the laws of Bermuda and has all requisite corporate power
and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. EIS is duly qualified as a foreign corporation
and in good standing to do business in each jurisdiction in which the nature of
the business conducted or the property owned by it requires such qualification,
except where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, assets, liabilities
(contingent or otherwise), operations, condition (financial or otherwise), or
prospects of EIS (an "EIS Material Adverse Effect").

               (b) Authorization of Transactions Documents. EIS has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transactions Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery, and performance
by EIS of this Agreement and each other Transactions Document to which it is a
party, including the purchase and acceptance of the Securities, have been duly
authorized by all requisite corporate action by EIS and, when executed and
delivered by EIS, this Agreement and each of the other Transactions Documents to
which it is a party, will be the valid and binding obligations



                                       7
<PAGE>   8

of EIS, enforceable against it in accordance with their respective terms, except
(A) that enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and (ii) general equity principles and limitations on the
availability of equitable relief, including specific performance, and (B) that
any rights to indemnity or contribution hereunder or thereunder may be limited
by state and federal securities laws and by public policy considerations.

               (c) No Violation. The execution, delivery and performance by EIS
of this Agreement and each other Transactions Document to which it is a party,
including the purchase and acceptance of the Securities, and compliance with
provisions hereof and thereof by EIS, will not conflict with or constitute or
result in a breach of or default under (or an event which with notice or passage
of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the Memorandum and Articles
of Association of EIS, (ii) any applicable law, statute, rule or regulation, or
any ruling, writ, injunction, order, judgment or decree of any court,
arbitrator, administrative agency or other governmental body applicable to EIS
or any of its properties or assets, or (iii) any material contract to which EIS
is party, except where such breach, default, termination, cancellation or
acceleration would not, individually or in the aggregate, have an EIS Material
Adverse Effect.

               (d) Approvals. Except for consent required under the Mergers Act,
no material permit, authorization, consent, approval or order of or by, or any
notification of or filing with, any person or entity (governmental or otherwise)
is required in connection with the execution, delivery or performance of this
Agreement or the Transactions Documents by EIS.

               (e) Investment Representations.

                      (i) EIS is sophisticated in transactions of this type and
        capable of evaluating the merits and risks of the transactions described
        herein and in the other Transactions Documents to which it is a party,
        and has the capacity to protect its own interests. EIS has not been
        formed solely for the purpose of entering into the transactions
        described herein and therein and is acquiring the Securities (and the
        Underlying Shares) for investment for its own account, not as a nominee
        or agent, and not with the view to, or for resale, distribution or
        fractionalization thereof, in whole or in part, and no other person
        (other than Elan) has a direct or indirect interest, beneficial or
        otherwise in the Securities (or the Underlying Shares); provided,
        however, that EIS shall be permitted to convert or exchange such
        Securities in accordance with their terms.

                      (ii) EIS has not and does not intend to enter into any
        contract, undertaking, agreement or arrangement with any person or
        entity to sell, transfer or pledge the Securities (or the Underlying
        Shares), other than a transfer to a current affiliate or subsidiary or a
        special purpose financing or similar vehicle established by EIS or one
        of its affiliates.



                                       8
<PAGE>   9

                      (iii) EIS acknowledges its understanding that the private
        placement and sale of the Securities (and the Underlying Shares) is
        exempt from registration under the Securities Act by virtue of the
        provisions of Regulation D. In furtherance thereof, EIS represents and
        warrants that it is an "accredited investor" as that term is defined in
        Regulation D, has the financial ability to bear the economic risk of its
        investment, has adequate means for providing for its current needs and
        personal contingencies and has no need for liquidity with respect to its
        investment in the Company.

                      (iv) EIS agrees that it shall not sell or otherwise
        transfer any of the Securities (or the Underlying Shares) without
        registration under the Securities Act or pursuant to an opinion of
        counsel reasonably satisfactory to the Company that an exemption from
        registration is available, and fully understands and agrees that it must
        bear the total economic risk of its purchase for an indefinite period of
        time because, among other reasons, none of the Securities (or the
        Underlying Shares) have been registered under the Securities Act or
        under the securities laws of any applicable state or other jurisdiction
        and, therefore, cannot be resold, pledged, assigned or otherwise
        disposed of unless subsequently registered under the Securities Act and
        under the applicable securities laws of such states or jurisdictions or
        an exemption from such registration is available. EIS understands that
        the Company is under no obligation to register the Securities (or the
        Underlying Shares) on its behalf with the exception of certain
        registration rights with respect to certain of the Securities (and the
        Underlying Shares), as provided in the Company Registration Rights
        Agreement. EIS understands the lack of liquidity and restrictions on
        transfer of the Securities (and the Underlying Shares) and that this
        investment is suitable only for a person or entity of adequate financial
        means that has no need for liquidity of this investment and that can
        afford a total loss of its investment.

               (f) Litigation. There is no legal, administrative, arbitration or
other action or proceeding or governmental investigation pending, or to EIS's
knowledge threatened, against EIS that challenges the validity or performance of
this Agreement or the other Transactions Documents to which EIS is a party.

               (g) Brokers or Finders. There have been no investment bankers,
brokers or finders used by EIS in connection with the transactions contemplated
by the Transactions Documents and no such persons or entities are entitled to a
fee or compensation in respect thereof.

               SECTION 4.  Covenants of the Parties.

               (a) Operating Covenants. From and after the Closing Date for so
long as the Note is outstanding and until the earlier to occur of the exercise
or expiration of the EIS Exchange Right (as such term is defined in Section 5
hereof), the Company shall not without the prior written consent of EIS: (i)
sell, transfer, encumber, pledge or otherwise affect, in any respect, (A) any
HepaSense Capital Shares owned by the Company, including, without limitation,
those HepaSense Preferred Shares transferable to EIS upon exercise by EIS of the
EIS Exchange Right, or (B) its ability to permit EIS to exercise the EIS
Exchange Right in full, as provided herein or (ii) enter into any material
transaction with a director, officer or beneficial owner of more than 20% of
Common




                                       9
<PAGE>   10

Stock on other than an arm's length basis. From and after the Closing Date and
until the earlier to occur of the exercise or expiration of the EIS Exchange
Right, EIS shall not without the prior written consent of the Company encumber,
pledge or otherwise affect, in any respect, any HepaSense Capital Shares owned
by EIS.

               (b) Fully-diluted Stock Ownership. Notwithstanding any other
provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its affiliates, if applicable) holds or has the right
to receive Common Stock (or securities or rights, options or warrants
exercisable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of [ * ] of the Company's outstanding Common Stock on
a fully diluted basis (assuming the exercise, exchange or conversion of such
securities beneficially owned by EIS or its affiliates, but not the exercise,
exchange or conversion of any other similar securities), EIS shall have the
right to convert the Series B Preferred Stock and the shares issuable upon
conversion of the Note into non-voting, convertible liquidation preferred stock
of the Company such that EIS and its affiliates will not directly or indirectly
own more than [ * ] of the Common Stock for a period of at least two years from
the election of the conversions of the Series B Preferred Stock or the Note. In
the event that EIS shall undertake to exercise such right, EIS shall retain the
additional right to exchange such new class of equity security for Common Stock,
in its discretion at any time after two years from the issuance date of the new
securities pursuant to the terms of the underlying security. Each of the Company
and EIS shall use commercially reasonable efforts to effect such transactions
and any required subsequent conversions or adjustments to EIS's securities
position, on a quarterly basis, within 10 business days of the end of each of
EIS's fiscal quarters. The Company shall bear the fees and expenses in
connection with the foregoing for the first such conversion by EIS; thereafter,
EIS shall reimburse the Company for its reasonable legal fees and expenses,
filing fees and other reasonable and documented costs and fees in connection
with carrying out the foregoing.

               (c) Use of Proceeds. The Company shall use the proceeds of (i)
the issuance and sale of the Series B Preferred Stock solely to fund its initial
capital contributions to, and funding of, HepaSense as described in the JDOA,
and (ii) the issuance and funding of the Note solely to fund development amounts
in connection with the business of HepaSense, as described in the Funding
Agreement and, in each case, for no other purpose.

               (d) Confidentiality; Non-Disclosure.

                      (i) Subject to clauses (ii) and (iii) below, from and
        after the date hereof, neither the Company nor EIS (nor their respective
        affiliates) shall disclose to any person or entity this Agreement or the
        other Transactions Documents or the contents thereof or the parties
        thereto, except that such parties may make such disclosure (x) to their
        directors, officers, employees and advisors, so long as they shall have
        advised such persons of the obligation of confidentiality herein and for
        whose breach or default the disclosing party shall be responsible, or
        (y) as required by applicable law, rule, regulation or judicial or
        administrative process, provided that the disclosing party uses
        reasonable efforts to obtain an order or ruling protecting the
        confidentiality of confidential information of the other party contained
        herein or therein. The parties shall be entitled to seek injunctive or
        other equitable



                                       10

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   11

        relief in respect of any breach or threatened breach of the foregoing
        covenant without the requirement of posting a bond or other collateral.

                      (ii) Prior to issuing any press release or public
        disclosure in respect of this Agreement or the transactions contemplated
        hereby, the party proposing such issuance shall obtain the consent of
        the other party to the contents thereof, which consent shall not be
        unreasonably withheld or delayed; it being understood that if such
        second party shall not have responded to such consent request within
        five business days, such consent shall be deemed given.

                      (iii) This Section 4(d) shall not be construed to prohibit
        disclosure by the receiving party of any information which has not been
        previously determined to be confidential by the disclosing party, or
        which shall have become publicly disclosed (other than by breach of the
        receiving party's obligations hereunder).

               (e) Further Assurances. From and after the date hereof, each of
the parties hereto agree to do or cause to be done such further acts and things
and deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable to carry into effect the purposes of this Agreement and the other
Transactions Documents.

               SECTION 5. Conversion and Exchange Rights. The Certificate of
Designation sets forth certain rights of the holders of shares of Series B
Preferred Stock to convert such shares of preferred stock into newly issued
shares of Common Stock, or to exchange such shares of Series B Preferred Stock
into (i) the shares of HepaSense Preferred Shares owned by the Company or (ii)
if the HepaSense Preferred Shares issued to the Company on the date hereof are
converted into HepaSense Common Shares, the HepaSense Common Shares received
upon such conversion (the "EIS Exchange Right"), both on the terms and
conditions set forth therein.

               SECTION 6. Pledge of HepaSense Preferred Shares.

               (a) In order to secure the Company's obligations pursuant to the
EIS Exchange Right, except as provided in Section 6(e) hereof, the Company
hereby pledges, assigns, grants and sets over to EIS, all of the Company's
right, title and interest in and to all HepaSense Preferred Shares deliverable
by the Company upon exercise of the EIS Exchange Right (including share
distributions and dividends thereon, any security into which such HepaSense
Preferred Shares shall be converted and all certificates representing such
shares of capital stock and, issued as an addition to, in substitution or in
exchange for, or on account of any such shares, now or hereafter acquired by the
Company, the "Pledged Shares").

               (b) The Company shall cause to be delivered to EIS all of the
certificates evidencing the Pledged Shares together with duly executed stock
power in favor of EIS, and cause to be filed with the Secretary of State of
California an appropriate UCC-1 financing statement in respect of such pledge,
assignment or setting over, and take all other necessary, appropriate and
customary actions in connection therewith.



                                       11
<PAGE>   12

               (c) During the term of this pledge, in the event the Company
shall be entitled to receive by reason of its ownership of any of the Pledged
Shares any:

                             (i) Stock certificates issued in connection with
               any increase or reduction in capital, reclassification, merger,
               consolidation, sale of assets, combination of shares, stock
               split, spin-off or split-off; or

                             (ii) Option, warrant or right, whether as an
               addition to or in substitution or exchange for any of the Pledged
               Shares or otherwise;

then, in each such case, the Company shall accept the same as agent of EIS or
its permitted assign, in trust for EIS or its permitted assign and shall deliver
the same immediately to EIS or its permitted assign in the exact form received
with the Company's endorsement, to the extent necessary, or appropriate stock
powers duly executed by the Company, to be held by EIS or its permitted assign
as part of the Pledged Shares in accordance with the terms and conditions
contained in this Section 6.

               (d) The obligations of the Company under this Section 6 shall
commence upon the date hereof and shall terminate and be of no further force and
effect upon the expiration of the EIS Exchange Right. Upon the termination of
the pledge of the Pledged Shares, (i) the security interests granted hereby
shall terminate and all rights to the Pledged Shares shall revert to the
Company, (ii) EIS or its permitted assignee shall (x) deliver to the Company all
of the certificates evidencing the Pledged Shares (including the securities
delivered pursuant to Section 6(c)(i) and 6(c)(ii) hereof) and (y) execute and
deliver to the Company such documents as the Company shall reasonably request to
evidence the termination of the security interest granted in this Section 6,
including, without limitation, a UCC Form 3 termination statement.

               (e) Such pledge shall be governed by the applicable provisions of
the New York Uniform Commercial Code. Upon exercise of the EIS Exchange Right,
EIS shall be entitled to keep and retain such share certificates, which shall
then be owned by EIS in accordance with the terms thereof. Except as
specifically provided in Section 6(c) hereof, until EIS exercises the EIS
Exchange Right, the Company shall retain all rights in and to the Pledged Shares
(including without limitation all voting, dividend, liquidation and other
rights), subject only to this pledge and the JDOA.


               SECTION 7. Survival Period. The representations and warranties of
the Company and EIS contained herein shall survive for a period of two years
from and after the date hereof.

               SECTION 8. Notices. All notices, demands and requests of any kind
to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by an internationally-recognized overnight delivery or by
registered or certified mail, return receipt requested and postage prepaid, or
by facsimile transmission (with receipt confirmed by telephone) addressed as
follows:



                                       12
<PAGE>   13

                      (i) if to the Company, to:

                      Isis Pharmaceuticals, Inc.
                      2292 Faraday Avenue
                      Carlsbad, CA 92008
                      Attn:  B. Lynne Parshall
                      Tel.: 760-603-2460
                      Fax:  760-931-9639

                      with a copy to:
                      Cooley Godward LLP
                      4365 Executive Drive
                      San Diego, CA 92121
                      Attn:  Julie Robinson, Esq.
                      Tel.:  619-550-6000
                      Fax:  619-453-3555

                      (ii) if to EIS, to:

                      Elan International Services, Ltd.
                      Flatts, Smiths Parish
                      Bermuda, FL 04
                      Attention: Director
                      Tel.:  441-292-9169
                      Fax:  441-292-2224

                      with a copy to:

                      Brock Silverstein LLC
                      800 Third Avenue
                      New York, New York 10022
                      Attention: Scott Rosenblatt, Esq.
                      Tel.: 212-371-2000
                      Fax:  212-371-5500

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 8. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery service, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted, and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.



                                       13
<PAGE>   14

               SECTION 9. Entire Agreement. This Agreement and the other
Transactions Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties with respect thereto.

               SECTION 10. Amendments. This Agreement may not be modified or
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS dated after the date hereof.

               SECTION 11. Counterparts and Facsimile. The Transactions
Documents may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement. Each of the Transactions
Documents may be signed and delivered to the other party by facsimile
transmission; such transmission shall be deemed a valid signature.

               SECTION 12. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.

               SECTION 13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws, except that all issues
concerning the relative rights of the Company and its stockholders shall be
governed by the Delaware General Corporation Law, without giving effect to the
principles of conflicts of laws.

               SECTION 14. Arbitration.

               (a) Any dispute under the Transactions Documents which is not
settled by mutual consent shall be finally settled by binding arbitration,
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. Such arbitrator shall be reasonably satisfactory to each of the parties;
provided, that if the parties are unable to agree upon the identity of such
arbitrator within 15 days of demand by either party, then either party shall
have the right to petition a presiding justice of the Supreme Court of New York,
New York County, to appoint an arbitrator. The arbitration shall be held in New
York, New York and the arbitrator shall be an independent expert in
pharmaceutical product development and marketing (including clinical development
and regulatory affairs).

               (b) The arbitrator shall determine what discovery will be
permitted, consistent with the goal of limiting the cost and time which the
parties must expend for discovery; provided the arbitrator shall permit such
discovery as he or she deems necessary to permit an equitable resolution of the
dispute. Any written evidence originally in a language other than English shall
be submitted in English translation accompanied by the original or a true copy
thereof. The costs of the arbitration, including administrative and arbitrators'
fees, shall be shared equally by the parties and each party shall bear its own
costs and attorneys' and witness' fees incurred in connection with the
arbitration.



                                       14
<PAGE>   15

               (c) In rendering judgment, the arbitrator shall be instructed by
the parties that he or she shall be permitted to select solely from between the
proposals for resolution of the relevant issue presented by each party, and not
any other proposal. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within 30 days following the
final decision of the arbitrators or such other reasonable period as the
arbitrators determine in a written opinion.

               (d) Any arbitration under the Transactions Documents shall be
completed within one year from the filing of notice of a request for such
arbitration. The arbitration proceedings and the decision shall not be made
public without the joint consent of the parties and each party shall maintain
the confidentiality of such proceedings and decision unless otherwise permitted
by the other party.

               (e) The parties agree that the decision shall be the sole,
exclusive and binding remedy between them regarding any and all disputes,
controversies, claims and counterclaims presented to the arbitrators.
Application may be made to any court having jurisdiction over the party (or its
assets) against whom the decision is rendered for a judicial recognition of the
decision and an order of enforcement.

               SECTION 15. Expenses. Each of the parties shall be responsible
for its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transactions Documents.

               SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by the parties hereto, or in connection with the
transactions contemplated hereby, are an integral part of this Agreement and
shall be deemed representations and warranties hereunder.

               SECTION 17. Assignments and Transfers. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement, the shares of Series B Preferred Stock and the shares of Common Stock
being purchased hereunder by EIS, the Note, the Warrants, and the shares of
Common Stock underlying the Series B Preferred Stock, the Note and the Warrants
may be transferred by EIS to its affiliates and subsidiaries, as well as any
special purpose financing or similar vehicle established by EIS or its
affiliates, provided, however, that EIS shall remain liable for its obligations
hereunder after any such assignment. Other than as set forth above, no party
shall transfer or assign this Agreement, the shares of Series B Preferred Stock
and Common Shares being purchased hereunder by EIS, the Note, the Warrants, and
the shares of Common Stock underlying the Series B Preferred Stock, the Note and
the Warrants, or any interest therein, without the prior written consent of the
other party; provided, however, that no consent shall be required in connection
with any such transfer or assignment by a party pursuant to a sale of all or
substantially all of the business of such party whether by merger, sale of
stock, sale of assets or otherwise.



                                       15
<PAGE>   16

               SECTION 18. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.

                            [Signature Page Follows.]



                                       16
<PAGE>   17

               IN WITNESS WHEREOF, each of the undersigned has duly executed
this Agreement as of the date first written above.

                                        ISIS PHARMACEUTICALS, INC.



                                        By:
                                             -----------------------------------
                                             B. Lynne Parshall
                                             Executive Vice President


                                        ELAN INTERNATIONAL SERVICES, LTD.


                                        By:
                                             -----------------------------------
                                             Kevin Insley
                                             President




                                       17
<PAGE>   18

                                    EXHIBIT A
                           CONVERTIBLE PROMISSORY NOTE



                                       18
<PAGE>   19

                                    EXHIBIT B
                           CERTIFICATE OF DESIGNATION



                                       19
<PAGE>   20

                                    EXHIBIT C
                      COMPANY REGISTRATION RIGHTS AGREEMENT



                                       20
<PAGE>   21

                                    EXHIBIT D
                     HEPASENSE REGISTRATION RIGHTS AGREEMENT



                                       21
<PAGE>   22

                                    EXHIBIT E
                                FUNDING AGREEMENT



                                       22
<PAGE>   23

                                    EXHIBIT F
                               WARRANT CERTIFICATE
                    (FIRST SUBSEQUENT COMMON STOCK PURCHASE)



                                       23
<PAGE>   24

                                    EXHIBIT G
                               WARRANT CERTIFICATE
                    (SECOND SUBSEQUENT COMMON STOCK PURCHASE)



                                       24
<PAGE>   25

                                    EXHIBIT H
                         FORM OF SECRETARY'S CERTIFICATE




                                       25
<PAGE>   26

                                    EXHIBIT I
                           OPINION OF COUNSEL TO ISIS



                                       26