<Page>

                                              *Text Omitted and Filed Separately
                                                Confidential Treatment Requested
                                           Under 17 C.F.R. Sections 200.80(b)(4)
                                                            200.83 and 240.24b-2





                        DEVELOPMENT AND LICENSE AGREEMENT

                                     between

                                MERCK & CO., INC.

                                       and

                           ISIS PHARMACEUTICALS, INC.

<Page>

                        DEVELOPMENT AND LICENSE AGREEMENT


         THIS AGREEMENT is effective as the date of the last party to sign this
Agreement (the "Effective Date") between MERCK & CO., INC., a corporation
organized and existing under the laws of the State of New Jersey ("MERCK") and
ISIS PHARMACEUTICALS, INC. a corporation organized and existing under the laws
of the State of Delaware ("ISIS").

                                    RECITALS:

         WHEREAS, ISIS has rights in and to ISIS Know-How and ISIS Patent Rights
(as the foregoing are hereinafter defined); and,

         WHEREAS, MERCK and ISIS desire to enter into an agreement to develop
Compound (as hereinafter defined) upon the terms and conditions set forth
herein; and,

         WHEREAS, MERCK desires to obtain licenses under the ISIS Patent Rights
and ISIS Know-How, and the technical assistance of ISIS for the purpose of
preparing and manufacturing Compound and Product, upon the terms and conditions
set forth herein, and ISIS desires to grant such licenses and such assistance to
MERCK.

         NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS


         Unless specifically set forth to the contrary herein, the following
terms, whether used in the singular or plural, shall have the respective
meanings set forth below:

1.1    "Affiliate" shall mean (i) any corporation or business entity of
       which fifty percent (50%) or more of the securities or other ownership
       interests representing the equity, the voting stock or general
       partnership interest are owned, controlled or held, directly or
       indirectly, by MERCK or ISIS; or (ii) any corporation or business entity
       which, directly or indirectly, owns, controls or holds fifty percent
       (50%) (or the maximum ownership interest permitted by law) or more of the
       securities or other ownership interests representing the equity, the
       voting stock or, if applicable, the general partnership interest, of
       MERCK or ISIS; or (iii) any corporation or business entity of which fifty
       percent (50%) or more of the securities or other ownership interests
       representing the equity, the voting stock or general partnership interest
       are owned, controlled or held, directly or indirectly, by a corporation
       or business entity described in (i) or (ii).

1.2    "Calendar Quarter" shall mean the respective periods of three (3)
       consecutive calendar months ending on March 31, June 30, September 30 and
       December 31.

1.3    "Calendar Year" shall mean each successive period of twelve (12) months
       commencing on January 1 and ending on December 31.

1.4    "Clinical Development Program" shall mean the clinical development
       activities undertaken by MERCK as set forth in Article II herein

                                       1
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1.5    "Clinical Supply Agreement" shall mean the Clinical Supply Agreement
       entered into by the parties on the Effective Date in the form attached
       hereto as Schedule 1.

1.6    "Combination Product" shall mean a Product which includes one or more
       pharmaceutically active ingredients other than Compound in combination
       with Compound. All references to Product in this Agreement shall be
       deemed to include Combination Product.

1.7    "Compound" shall mean ISIS compounds ISIS 113715 and [ * ] that, as of
       the Effective Date and during the term of this Agreement, i) incorporate
       ISIS Core Technology and ii) target the genetic sequence of PTP-1B
       thereby reducing expression of PTP-1B protein in humans or animals.

1.8    "Compound Improvement" shall mean any and all enhancements, whether or
       not patentable, in the Compound. Compound Improvement shall include
       without limitation pharmaceutical formulations and dosage forms for
       administration discovered or invented solely or jointly by employees of
       MERCK, or acquired by MERCK, during the term of this Agreement. Compound
       Improvement shall not include pharmaceutical formulations or dosage forms
       for administration discovered or invented solely by employees of ISIS, or
       acquired by ISIS, during the term of this Agreement.

1.9    "Core Technology Improvement" shall mean any and all enhancements,
       whether or not patentable, in the ISIS Core Technology arising during the
       term of this Agreement.

1.10   "Field" shall mean the use of Compound and Product for any and all
       purposes.

1.11   "First Commercial Sale" shall mean, with respect to any Product, the
       first sale for end use or consumption of such Product in a country after
       all required approvals, including marketing and pricing approvals, have
       been granted by the governing Regulatory Authority of such country.

1.12   "FTE" shall mean the equivalent of a full-time scientist's work time over
       a twelve-month period (including normal vacations, sick days and
       holidays). The portion of an FTE year devoted by a scientist to the
       Preclinical Development Program, Technology Transfer, Clinical Supply
       Agreement, or any other activities under this Agreement which the parties
       may agree will be undertaken by ISIS on an FTE basis, shall be determined
       by dividing the number of days during any twelve-month period devoted by
       such employee to the Preclinical Development Program, Technology
       Transfer, Clinical Supply Agreement, or any other activities under this
       Agreement which the parties may agree will be undertaken by ISIS on an
       FTE basis, by the total number of working days during such twelve-month
       period (including normal vacations, sick days and holidays).

1.13   "Information" shall mean any and all information and data, including
       without limitation all scientific, preclinical, clinical, regulatory,
       manufacturing, marketing, financial and commercial information and data,
       whether communicated in writing or orally or by any other method, which
       is provided by one party to the other party in connection with this
       Agreement.

1.14   "ISIS Core Technology" shall mean technology owned or acquired by ISIS as
       of the Effective Date which claims, covers or relates to linkages and
       sugar units in an antisense oligonucleotide, wherein such linkages
       include phosphorothioate linkages and such sugar units include a
       combination of deoxy sugar units and 2'-O- (2-methoxy- ethyl)- (MOE-)
       modified sugar units with natural and methyl substituted heterocycle
       bases ("MOE Gapmer Technology"). ISIS Core Technology also includes
       technology owned or acquired by ISIS as of the Effective Date which
       claims, covers or relates to the cellular mechanisms of action by which
       MOE

*Confidential Treatment Requested          2
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       Gapmer Technology antisense oligonucleotides exert their effect. ISIS
       Core Technology does not include any target gene specific technology.

1.15   "ISIS Know-How" shall mean any and all information and materials
       including without limitation, Compound, Compound Improvements, ISIS
       Manufacturing Technology, ISIS Core Technology, Manufacturing Technology
       Improvements, Core Technology Improvements, processes, methods,
       protocols, formulas, preclinical, manufacturing and other data,
       discoveries, inventions, know-how and trade secrets, patentable or
       otherwise, which during the term of this Agreement (i) are in the
       possession or control of ISIS or an ISIS Affiliate, (ii) are not
       generally known and (iii) are necessary or useful to MERCK in the Field
       including without limitation the development, manufacture, marketing, use
       or sale of Compound or Product.

1.16   "ISIS Patent Rights" shall mean any and all patents and patent
       applications in the Territory (which for the purposes of this Agreement
       shall be deemed to include certificates of invention and applications for
       certificates of invention) which during the term of this Agreement are
       owned by ISIS or to which ISIS through license or otherwise acquires
       rights which (a) claim, cover or relate to Compound and/or Product
       including without limitation those patents and patent applications which
       (i) are Compound patents and patent applications listed on Schedule 1.16
       (a) (i); or (ii) are ISIS Core Technology patents and patent applications
       listed on Schedule 1.16 (a) (ii) (to the extent that such ISIS Core
       Technology patents and patent applications are necessary or useful to
       Merck in the Field) and patents and patent applications which claim,
       cover or relate to Core Technology Improvements (to the extent that such
       Core Technology Improvement patents and patent applications are necessary
       to Merck to practice effectively in the Field) ; or iii) are ISIS
       Manufacturing Technology patents and patent applications listed on
       Schedule 1.16 (a) (iii) (to the extent that such ISIS Manufacturing
       Technology patents and patent applications are necessary or useful to
       Merck in the Field) and patents and patent applications which claim,
       cover or relate to Manufacturing Technology Improvements, to the extent
       that such Manufacturing Technology Improvement patents and patent
       applications are necessary or useful to Merck in the Field; or (b) are
       divisions, continuations, continuations-in-part, reissues, renewals,
       extensions, supplementary protection certificates, and the like of any of
       the foregoing patents and patent applications and foreign equivalents
       thereof.

1.17   "ISIS Manufacturing Technology" shall mean any and all scientific
       and technical data and information including without limitation formulas,
       methods, techniques, protocols, and processes owned or acquired by ISIS
       or an ISIS Affiliate by license or otherwise as of the Effective Date
       which are necessary or useful to MERCK in the preparation, formulation,
       analysis, manufacturing or delivery of Compound and/or Product for the
       purpose of carrying out or implementing the manufacturing process defined
       generally as the process steps set forth in master batch records for the
       Compound ISIS 113715[ * ] including reasonable variants and extensions of
       process steps thereof.

1.18   "Major Market" shall mean any one of the following countries: United
       States, Japan, the United Kingdom, France, Germany, Italy or Spain.

1.19   "Manufacturing Technology Improvement" shall mean any and all
       enhancements, whether or not patentable, in the ISIS Manufacturing
       Technology arising during the term of this Agreement.

1.20   "Marketing Application" shall mean a New Drug Application (NDA),
       Worldwide Marketing Authorization (WMA), or Marketing Application
       Authorization (MAA) or similar application or submission for marketing
       authorization of a Product filed with a Regulatory Authority including
       without limitation the FDA.

1.21   "Net Sales" shall mean the gross invoice price of Product sold by MERCK,
       its Affiliates or sublicensees (which term does not include distributors)
       to the first independent third party after deducting, if not previously
       deducted, in the amount invoiced:

                                       3
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        (a)  trade and quantity discounts other than early pay cash
             discounts;

        (b)  returns, rebate, chargebacks and other allowances;

        (c)  retroactive price reductions;

        (d)  sales commissions paid to third party distributors;

        (e)  a fixed amount equal to [ * ] of the amount invoiced to cover bad
             debt, sales or excise taxes, early payment cash discounts,
             transportation and insurance charges, custom duties, and other
             governmental charges;

        (f)  the standard inventory cost of devices or delivery systems used
             for dispensing or administering Product.

       With respect to sales of Combination Products, Net Sales shall be
       calculated on the basis of the invoice price of Product containing the
       same strength of Compound sold without other active ingredients. In the
       event that Product is sold only as a Combination Product, Net Sales shall
       be calculated on the basis of the invoice price of the Combination
       Product multiplied by a fraction, the numerator of which shall be the
       inventory cost of Compound in the Product and the denominator of which
       shall be the inventory cost of all of the active ingredients in the
       Combination Product. Inventory cost shall be determined in accordance
       with MERCK's regular accounting methods, consistently applied. The
       deductions set forth in paragraphs (a) through (f) above will be applied
       in calculating Net Sales for a Combination Product. In the event that
       Product is sold only as a Combination Product and either party reasonably
       believes that the calculation set forth in this Paragraph does not fairly
       reflect the value of the Product relative to the other active ingredients
       in the Combination Product, the parties shall negotiate, in good faith,
       other means of calculating Net Sales with respect to Combination
       Products.

1.22   "Phase I Clinical Trial" shall mean the first clinical trial in
       humans in any country including without limitation the first clinical
       trial in humans that is intended to evaluate the safety, tolerability,
       pharmacological and/or pharmocokinetic effect of a Compound in human
       subjects or that would otherwise satisfy the requirements of 21 CFR
       312.21(a) or its foreign equivalent.

1.23   "Phase II Clinical Trial" shall mean a human clinical trial in any
       country that is intended to evaluate the effectiveness of a Compound for
       a particular indication or indications in human subjects with the disease
       or indication under study or that would otherwise satisfy the
       requirements of 21 CFR 312.21(b) or its foreign equivalent. Specifically,
       a Phase II (a) Clinical Trial shall mean a clinical trial which is the
       first assessment of efficacy in the target population (and specifically
       does not include a clinical trial in which the sole endpoints relate to
       safety or drug interaction), and a Phase II (b) Clinical Trial shall mean
       a clinical trial which is a definitive dose-ranging study.

1.24   "Phase III Clinical Trial" shall mean a pivotal human clinical trial
       in any country the results of which could be used to establish safety and
       efficacy of a Compound as a basis for a Marketing Application or that
       would otherwise satisfy the requirements of 21 CFR 312.21(c) or its
       foreign equivalent.

1.25   "Preclinical Development Program" shall mean the preclinical
       development activities undertaken by MERCK and/or by ISIS, at the
       direction of MERCK, as set forth in Article II herein and Schedule 2.2
       attached hereto as may be amended by the parties from time to time.

1.26   "Product" shall mean preparation(s) in final form for sale by
       prescription, over-the-counter or any other method for any and all uses
       in the Field which contain Compound including without limitation any
       Combination Product.

*Confidential Treatment Requested      4
<Page>

1.27   "Regulatory Authority" shall mean any applicable government
       regulatory authority involved in granting approvals for the marketing,
       and/or pricing of a Product in the Territory, including without
       limitation, in the United States, the Food and Drug Administration
       ("FDA"), and any successor government authority having substantially the
       same function, and foreign equivalents thereof.

1.28   "Technology Transfer" shall have the meaning set forth in Section
       7.2.1 herein.

1.29   "Territory" shall mean all of the countries in the world, and their
       territories and possessions.

1.30   "Valid Patent Claim" shall mean a claim of an issued and unexpired
       patent included within the ISIS Patent Rights listed on Schedule 1.16 (a)
       (i) hereto, which has not been revoked or held unenforceable or invalid
       by a decision of a court or other governmental agency of competent
       jurisdiction, unappealable or not appealed within the time allowed for
       appeal, and which has not been disclaimed, denied or admitted to be
       invalid or unenforceable through reissue or disclaimer or otherwise.




                                   ARTICLE II

                  PRECLINICAL AND CLINICAL DEVELOPMENT PROGRAM



2.1      GENERAL. ISIS and MERCK shall undertake the Preclinical Development
         Program activities and MERCK shall undertake the Clinical Development
         activities upon the terms and conditions set forth in this Agreement.

2.2.1    CONDUCT OF PRECLINICAL DEVELOPMENT PROGRAM. a) The activities to
         be undertaken by ISIS and MERCK in the course of the Preclinical
         Development Program shall be at the direction of MERCK, and are set
         forth in Schedule 2.2. Promptly after the Effective Date, the parties
         will jointly develop a more detailed Schedule 2.2 relating to the
         activities, timeline, and budget agreed to in writing by the parties
         for the Preclinical Development Program, such amended Schedule 2.2 to
         be attached hereto and made a part of this Agreement. Schedule 2.2 may
         further be amended from time to time upon prior mutual written
         agreement of the parties. ISIS and MERCK shall conduct the Preclinical
         Development Program in a good scientific manner, and in compliance in
         all material respects with all requirements of applicable laws, rules
         and regulations to achieve the objectives efficiently and
         expeditiously. ISIS and MERCK shall proceed diligently with the work
         set out in Schedule 2.2 using good faith efforts to provide sufficient
         time, effort, equipment, facilities and skilled personnel to accomplish
         the objectives set forth in Schedule 2.2.

         (b) In no event shall ISIS be entitled to utilize the services of any
         third party to carry out its obligation under the Preclinical
         Development Program without the prior written approval of MERCK. ISIS
         and MERCK hereby acknowledge that MERCK has approved the use by ISIS of
         third parties listed in the attached Schedule 2.2.1 (b) for the purpose
         of carrying out certain ISIS' obligations under the Preclinical
         Development Program as indicated in Schedule 2.2.1 (b). Notwithstanding
         such approval by MERCK for the use of third parties as set forth
         herein, ISIS shall remain fully liable for the performance of ISIS'
         obligations under the Preclinical Development Program. Further, where
         ISIS is permitted hereunder to utilize third parties to carry out
         ISIS's obligations under the Preclinical Development Program, ISIS
         hereby warrants that the terms of any and all agreements with such
         third parties applicable to activities under the Preclinical
         Development Program, including without limitation terms relating to
         confidentiality, record keeping and inspection, inventions and
         licensing shall be consistent with the terms of this Agreement between
         ISIS and MERCK. ISIS shall, at MERCK's request, provide MERCK with a
         copy of any such third party agreements. MERCK shall be entitled (but
         shall not be obligated), at its discretion, to assume ISIS' rights and
         responsibilities under such third party agreements applicable to
         activities under the Preclinical Research Program.

                                       5
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2.2.2    USE OF PRECLINICAL DEVELOPMENT PROGRAM FUNDING. ISIS shall apply the
         Preclinical Development Program funding it receives from MERCK under
         this Agreement solely to carry out its obligations under Schedule 2.2
         in accordance with the terms of this Agreement and the budget
         established by the parties.

2.2.3    PRECLINICAL DEVELOPMENT PROGRAM PROJECT LEADERS. Each party shall
         appoint one (1) project leader who shall be the primary contact between
         the parties with respect to the Preclinical Development Program and who
         shall each have appropriate technical credentials, experience and
         knowledge, and ongoing familiarity with the Preclinical Development
         Program ("Project Leader"). The Preclinical Development Program shall
         be conducted under the direction of the Project Leaders. The parties
         may seek the advice of additional representatives or consultants from
         time to time, by mutual consent of the parties. In the event that the
         Project Leaders cannot or do not, after good faith efforts, reach
         agreement on an issue, the resolution and/or course of conduct shall be
         determined by MERCK, in its sole discretion, provided that ISIS shall
         not be required, without its prior written consent, to carry out any
         additional work not included in Schedule 2.2, as may be amended by the
         parties.

2.2.4    MEETINGS. The Project Leaders shall meet at least once each month with
         the location for such meetings alternating between ISIS and MERCK
         facilities (or such other locations as is determined by the parties).
         Alternatively, the Project Leaders may meet by means of teleconference,
         videoconference or other similar communications equipment. The Project
         Leaders shall confer regarding the status of the Preclinical
         Development Program, review relevant data, consider and advise on any
         technical issues that arise, consider issues of priority, and review
         and advise on any budgetary and economic matters relating to the
         Preclinical Development Program.

2.2.5    PRECLINICAL DEVELOPMENT PROGRAM RESULTS AND INVENTIONS. ISIS
         shall promptly disclose to MERCK the development, making, conception or
         reduction to practice of all data, information, discoveries, and
         inventions, patentable or not, arising from the Preclinical Development
         Program. All such data, information, discoveries, and inventions
         including without limitations Compound Improvements, patentable or not,
         arising from the Preclinical Development Program shall be the sole and
         exclusive property of MERCK, subject to the provisions of Sections 3.4
         and 7.2.6 with regard to Core Technology Improvements and Manufacturing
         Technology Improvements, respectively. MERCK shall promptly disclose to
         ISIS, prior to filing the relevant patent application, all Core
         Technology Improvements and Manufacturing Technology Improvements
         arising from the Preclinical Development Program which shall be subject
         to the license granted to ISIS hereunder in accordance with the
         requirements of Sections 3.4 and 7.2.6, respectively, in the event that
         such Core Technology Improvements or Manufacturing Technology
         Improvements become patented Core Technology Improvements or patented
         Manufacturing Technology Improvements.

2.2.6    RECORDS. ISIS shall maintain records, in sufficient detail and in good
         scientific manner appropriate for patent and regulatory purposes, which
         shall (a) fully and properly reflect all work done and results achieved
         in the performance of the Preclinical Development Program, and (b)
         permit ISIS to provide the CMC Items listed and attached hereto as
         Schedule 2.2.6 as required by MERCK.

2.2.7    COPIES AND INSPECTION OF RECORDS. MERCK shall have the right,
         during normal business hours and upon reasonable notice, to inspect and
         copy all such records of ISIS referred to in Section 2.2.6 including
         without limitation the CMC Items listed on Schedule 2.2.6 and all
         preclinical information and data necessary or useful for MERCK for the
         purposes of filing with Regulatory Authorities hereunder. MERCK shall
         maintain such records and the information disclosed therein in
         confidence in accordance with Section 4.1. MERCK shall have the right
         to arrange for its employees and/or consultants involved in the
         activities contemplated hereunder to visit the offices and laboratories
         of ISIS and its third party contractors listed in Schedule 2.2.1 (b)
         during normal business hours and upon reasonable notice, and to discuss
         the Preclinical Development Program work and its results in detail with
         the technical personnel and consultants of ISIS.

2.2.8    QUARTERLY REPORTS. Within thirty (30) days following the end of
         each Calendar Quarter during the Preclinical Development Program, ISIS
         shall provide to MERCK, upon MERCK's request, a written progress report
         which shall describe the work performed to date on the Preclinical
         Development Program, evaluate the work performed in relation to the
         goals of the Preclinical Development Program and provide such other
         information required by the Preclinical Development Program or
         reasonably requested by

                                       6
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         MERCK relating to the progress of the goals or performance of the
         Preclinical Development Program ("Quarterly Report"). Upon request,
         ISIS shall provide copies of the records described in Section 2.2.6
         above. Further, ISIS shall provide the CMC Items listed in Schedule
         2.2.6 in accordance with the timeline to be agreed to by the parties.

2.2.9    COMPLIANCE. ISIS hereby certifies that it has not and will not employ
         or otherwise use in any capacity any person debarred under Section 21
         USC 335(a) in performing any Preclinical Development Program
         activities.

2.3.1    CLINICAL DEVELOPMENT PROGRAM. MERCK may, at its sole discretion,
         undertake, and shall solely own the results of, the Clinical
         Development Program. MERCK shall have the sole responsibility to make
         any and all regulatory filings for Compound and Product in the
         Territory as MERCK, in its sole discretion, deems appropriate, and
         MERCK shall be the sole owner of all regulatory submissions and
         government approvals therefor. Similarly, MERCK shall have and conduct
         any and all communications and interactions with regulatory agencies
         with respect to the Compound and Product, including without limitation
         Regulatory Authorities, and other government authorities. ISIS shall
         cooperate with MERCK in all of these activities whenever and to the
         extent requested by MERCK, and shall supply MERCK with any and all
         information necessary or useful to MERCK in preparing and filing
         regulatory and other government submissions, and in obtaining
         regulatory and other governmental approvals.

2.3.2    DEVELOPMENT AND COMMERCIALIZATION. MERCK shall use reasonable
         efforts, consistent with the usual practice followed by MERCK in
         pursuing the commercialization and marketing of its other similar
         pharmaceutical products, at its own expense, to develop and
         commercialize a Product on a commercially reasonable basis in such
         countries in the Territory where in MERCK's opinion it is commercially
         viable to do so.

2.3.3    EXCUSED PERFORMANCE. In addition to the provisions of Section
         10.1 hereof, the obligations of MERCK with respect to any Product under
         Section 2.3.2 are expressly conditioned upon the continuing absence of
         any adverse condition or event relating to the safety or efficacy of
         the Product, and the obligation of MERCK to develop or market any such
         Product shall be delayed or suspended so long as in MERCK's opinion any
         such condition or event exists. All judgments as to safety and efficacy
         shall be made by MERCK in its sole discretion.

2.3.4    CLINICAL DEVELOPMENT PROGRAM RESULTS AND INVENTIONS. All data,
         information, inventions and discoveries including without limitation
         Compound Improvements, patentable or not, resulting from the Clinical
         Development Program shall be the sole and exclusive property of MERCK,
         subject to the provisions of Sections 3.4 and 7.2.6 with regard to Core
         Technology Improvements and Manufacturing Technology Improvements,
         respectively.

2.4      REPORTING REQUIREMENTS. ISIS and MERCK hereby agree to comply with the
         reporting requirements set forth in Schedule 2.4 attached hereto, as
         may be amended in writing by the parties from time to time. In the
         event of changes to regulatory reporting requirements worldwide, each
         party agrees to comply with revised notification requirements as
         reasonably requested in writing by the other party. Notwithstanding the
         foregoing, MERCK shall have the sole right to report to the Regulatory
         Authorities any such information relating to the Compound or Product.



                                   ARTICLE III
                       LICENSE; DISCLOSURE OF INFORMATION

3.1      LICENSE GRANT.

         (a)  ISIS hereby grants to MERCK an exclusive (exclusive even as to
              ISIS), sublicensable, royalty-bearing license in the Territory to
              practice under the ISIS Patent Rights and to utilize the ISIS
              Know-How to develop, make, have made, use, sell, offer to sell and
              import Compound and Product in the Field and to otherwise carry
              out the activities contemplated by this Agreement.

                                       7
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         (b)  Notwithstanding the foregoing, in the case of ISIS Patent
              Rights or ISIS Know-How consisting of Core Technology
              Improvements, MERCK shall be granted an exclusive license to such
              ISIS Patent Rights and ISIS Know-How in the Field to the extent
              that such Core Technology Improvements are necessary for MERCK to
              practice effectively in the Field, and, in the case of such Core
              Technology Improvements acquired by ISIS from third party(ies)
              during the term of this Agreement, where such third party rights
              are sublicensable and MERCK has agreed with ISIS to comply with
              all obligations relating to such sublicense by ISIS. Further, in
              the case of ISIS Patent Rights or ISIS Know-How consisting of
              Manufacturing Technology Improvements acquired by ISIS from third
              party(ies) during the term of this Agreement, MERCK's shall be
              granted an exclusive license to such ISIS Patent Rights and ISIS
              Know-How in the Field where such third party rights are
              sublicensable and MERCK has agreed with ISIS to comply with all
              obligations relating to such sublicense by ISIS.

         (c)  ISIS shall retain the right to practice under the ISIS Patent
              Rights and to utilize the ISIS Know-How licensed to MERCK
              hereunder solely as necessary to carry out ISIS' obligations under
              this Agreement.

         (d)  For clarification purposes, the parties hereby acknowledge that
              MERCK shall have no liability or responsibility for, and ISIS
              shall be fully liable and responsible for, any payments of any
              kind whatsoever payable by ISIS to its third party licensors of
              intellectual property licensed to MERCK by ISIS hereunder.

         (e)  In addition to the representations and warranties set forth in
              this Agreement, ISIS hereby agrees, with regard to the ISIS Patent
              Rights licensed from third parties as set forth in Patent Schedule
              1.16(a)(ii), to the following terms and conditions:

              (i)  ISIS warrants that it will take all actions reasonably
                   necessary to maintain the relevant third party licenses in
                   good standing as to the ISIS Patent Rights sublicensed to
                   MERCK under this Agreement; and

             (ii)  ISIS shall make all reasonable efforts to notify MERCK as
                   soon as practicable of any notice given or received by ISIS
                   to terminate such third party license(s), and, in the event
                   that such third party license(s) should be terminated for any
                   reason, make all reasonable efforts to obtain for MERCK the
                   right to directly license with the relevant ISIS' third party
                   licensor(s) for the rights sublicensed to MERCK hereunder as
                   of the Effective Date; and,

             (iii) In the event that MERCK, due to termination of the relevant
                   license between ISIS and its third party licensor, enter
                   into a direct license with such third party licensor,
                   MERCK shall be entitled to deduct any payments payable by
                   MERCK to such third party licensor from payments due to ISIS
                   under this Agreement.

3.2      NON-EXCLUSIVE LICENSE GRANT. In the event the development, making,
         having made, use, sale or import by MERCK, its Affiliates and/or
         sublicensees of Compound (or Product, due to its incorporation of
         Compound) would infringe during the term of this Agreement a claim of
         issued letters patent which ISIS owns or has the rights to license and
         which patents are not covered by the grant in Section 3.1, ISIS hereby
         grants to MERCK, to the extent ISIS is legally able to do so, a
         non-exclusive, royalty-free, sublicensable license in the Territory
         under such issued letters patent solely for MERCK to develop, make,
         have made, use, sell, offer for sale or import Compound and Product in
         the Field in the Territory.

3.3      DISCLOSURE OF INFORMATION. During the term of this Agreement, ISIS
         shall promptly disclose to MERCK in English and in writing on an
         ongoing basis all ISIS Know-How and other useful information not
         previously disclosed.

3.4      CORE TECHNOLOGY IMPROVEMENTS. The entire right, title, and interest in
         and to all Core Technology Improvements, patentable or not, developed
         or invented solely by employees of ISIS during the term of this
         Agreement shall be the sole and exclusive property of ISIS, subject to
         the licenses granted to MERCK under this Agreement. The entire right,
         title, and interest in and to all Core Technology Improvements,
         patentable or not, developed or invented solely by employees of MERCK
         during the term of this Agreement shall be the sole and exclusive
         property of MERCK, and MERCK hereby grants to ISIS a

                                       8
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         worldwide, non-exclusive, sublicensable, royalty-free license to any
         such patented sole MERCK Core Technology Improvements solely for use
         outside of the Field. The entire right, title, and interest in and to
         all Core Technology Improvements, patentable or not, developed or
         invented jointly by employees of ISIS and MERCK during the term of this
         Agreement shall be the joint property of ISIS and MERCK, subject to the
         licenses granted to MERCK under this Agreement. The parties shall
         promptly disclose to each other the development, making, conception or
         reduction to practice of all Core Technology Improvements.

3.5      COMPOUND IMPROVEMENTS. The entire right, title, and interest in and
         to all Compound Improvements, patentable or not, developed or invented
         solely or jointly by employees of ISIS and/or MERCK during the term of
         this Agreement shall be the sole and exclusive property of MERCK. ISIS
         shall promptly disclose to MERCK the development, making, conception or
         reduction to practice of all Compound Improvements.

 3.6     TARGET EXCLUSIVITY. ISIS hereby agrees that, until such time as the
         approval of the first marketing application for a Compound in a Major
         Market pursuant to this Agreement, ISIS will work exclusively (even as
         to ISIS itself) with MERCK with regard to any and all activities for
         the research, discovery, development and/or commercialization of
         antisense compounds and products that target the genetic sequence of
         PTP-1B.

                                   ARTICLE IV

                         CONFIDENTIALITY AND PUBLICATION

4.1      NONDISCLOSURE OBLIGATION. All Information disclosed by one party to the
         other party hereunder shall be maintained in confidence by the
         receiving party and shall not be disclosed to a non-party or used for
         any purpose except as set forth herein without the prior written
         consent of the disclosing party, except to the extent that such
         Information:

         (a)   is known by recipient at the time of its receipt, and not
               through a prior disclosure by the disclosing party, as documented
               by business records;

         (b)   is properly in the public domain;

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

         (d)   is developed by the receiving party independently of
               Information received from the other party;

         (e)   is disclosed to governmental or other regulatory agencies by
               either party in order to obtain patents or by MERCK to gain
               approval to conduct clinical trials or to market Product, but
               such disclosure may be only to the extent reasonably necessary to
               obtain patents or authorizations;

         (f)   is deemed necessary by MERCK to be disclosed to MERCK
               sublicensees, agents, consultants, Affiliates and/or other third
               parties for the 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 third parties agree to be bound by the
               confidentiality obligations contained this Agreement, PROVIDED
               the term of confidentiality for such third parties shall be no
               less than seven (7) years; or

         (g)   is required to be disclosed by law or court order, provided
               that notice is promptly delivered to the other party in order to
               provide an opportunity to challenge or limit the disclosure
               obligations.

4.2      PUBLICATION. MERCK shall be entitled to publish on the subject matter
         of this Agreement, PROVIDED THAT, MERCK shall deliver to ISIS a copy of
         any proposed publication or an outline of any oral disclosure involving
         ISIS Manufacturing Technology or ISIS Core Technology at least sixty
         (60) days prior to submission for publication or presentation, and ISIS
         shall have the right to request a reasonable delay in such publication
         or presentation in order to protect patentable information. If ISIS
         requests a delay, MERCK shall delay submission or presentation for a
         period of up to thirty (30) days after such planned submission date to
         enable patent applications to be filed by ISIS in accordance with
         Article VIII below.

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         Upon expiration of such thirty-day (30)period, MERCK shall be free to
         proceed with the publication or presentation. Further, MERCK hereby
         agrees to provide ISIS, for informational purposes only, with a copy of
         any proposed MERCK publication involving the Compound once such
         proposal has been submitted for publication. ISIS shall be permitted to
         publish on matters relating to the Compound or Product during the term
         of this Agreement including without limitation any ISIS Know-How only
         upon the prior written approval of MERCK, which may be given at MERCK's
         sole discretion. Notwithstanding the foregoing, MERCK acknowledges
         that, prior to the Effective Date, ISIS and its third party research
         collaborator(s) have generated data relating to the Compound that ISIS
         is contractually required to permit such third party research
         collaborator(s) to publish or present during the term of this
         Agreement. ISIS agrees to provide MERCK, in advance of the proposed
         publication or presentation, with copies of any such proposed
         publication or presentation intended for publication or presentation
         during the term of this Agreement, and ISIS warrants to MERCK that ISIS
         shall not grant such third party collaborators any rights to publish or
         present such data beyond the rights ISIS is contractually required to
         grant such third parties as of the Effective Date, and in no case shall
         ISIS grant such third parties any rights to publish or present data
         which could negatively impact Compound or Product.

4.3      PUBLICITY. No disclosure of the existence of, or the terms of, this
         Agreement may be made by either party, and no party shall use the name,
         trademark, trade name or logo of the other party or its employees in
         any publicity, news release or disclosure relating to this Agreement,
         or its subject matter, without the prior express written permission of
         the other party, except as may be required by law.



                                    ARTICLE V

                         PAYMENTS; ROYALTIES AND REPORTS

5.1      PROGRAM FUNDING. a) In consideration for ISIS' performance of certain
         preclinical development activities in connection with the Compound as
         of [ * ] such reimbursement to take place within thirty (30) days of
         the Effective Date and upon receipt of invoice from ISIS. In
         consideration for ISIS' performance of certain preclinical development
         activities in connection with the Compound [ * ] for the performance of
         such activities, such reimbursement to take place within thirty (30)
         days of receipt of invoice from ISIS. [ * ]

         b) In consideration for ISIS' performance of its obligations under the
         Preclinical Development Program, upon the terms and conditions
         contained herein, MERCK shall pay ISIS for such performance in
         accordance with the requirements of Schedule 2.2. The FTE rate for
         Preclinical Development Program work performed directly by ISIS shall
         be [ * ] per FTE for any of the following activities undertaken
         directly by ISIS pursuant to the Preclinical Development Program: drug
         substance manufacturing; analytical chemistry; process chemistry;
         formulation; raw material ordering and handling; quality control; or
         manufacturing technology transfer. The FTE rate for Preclinical
         Development Program work performed directly by ISIS shall be [ * ] per
         FTE for any of the following activities undertaken pursuant to the
         Preclinical Development Program: toxicology;
         pharmocokinetics/metabolism; regulatory; clinical development and data
         management. MERCK shall reimburse ISIS for payments to third parties
         who have been approved by MERCK to conduct the Preclinical Development
         Program activities hereunder. ISIS shall invoice MERCK [ * ] for the
         amounts payable in accordance with Schedule 2.2. Payments under this
         Section. 5.1 (b) shall be due thirty (30) days after receipt of each
         invoice by MERCK. With each [ * ] invoice after the first [ * ] invoice
         provided to MERCK under this Paragraph, ISIS will provide MERCK with
         copies of third party invoices supporting the invoice amounts charged
         to MERCK in the prior [ * ] invoice to MERCK, and ISIS will make any
         adjustments for overpayment or underpayment therein. If one party is
         owing the other party as result of such reconciliation process, the
         owing party will issue a payment to the other party within thirty (30)
         days. Total payments under this Section shall not exceed [ * ] without
         the prior written approval of MERCK for performance of activities under
         Schedule 2.2.

         c)   In connection with the Technology Transfer efforts by ISIS
              hereunder, ISIS shall utilize [ * ] In consideration for ISIS'
              performance of its obligations under the Technology Transfer, upon
              the terms and conditions contained herein, MERCK shall pay ISIS
              for such performance in accordance with the

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              requirements of Article VII herein and Schedule 7. 2. ISIS shall
              invoice MERCK, [ * ] for all activities performed in accordance
              with Article VII and the Schedule 7.2. Such invoice shall itemize
              the activities as set forth in Schedule 7.2. Merck will pay each
              invoice within thirty (30) days after receipt of invoice and all
              relevant documentation.

         d)   In consideration of ISIS' performance of CMC activities in
              connection with the Compound as set forth in Schedule 2.2.6, and
              other Compound-specific activities including without limitation
              specifications development for in-process and release testing of
              Compound and formulated Compound (including standards, stability
              programs, and formulation development) and other activities
              requested by MERCK in support of registration efforts and in
              response to regulatory questions and regulatory inspections, where
              the foregoing activities are required under this Agreement but
              fall outside ISIS' activities pursuant to the Preclinical
              Development Program, Technology Transfer and [ * ] MERCK shall
              compensate ISIS for such performance at the FTE rate of [ * ] for
              any of the following activities undertaken directly by ISIS:
              analytical chemistry; process chemistry; formulation; drug
              substance manufacturing, raw material ordering and handling; or
              manufacturing technology transfer; and, at the FTE rate of [ * ]
              for the following activities performed directly by ISIS under this
              Paragraph (d): toxicology; pharmocokinetics/metabolism;
              regulatory; clinical development and data management.


              Further, where ISIS undertakes other activities such as analytical
              methods development for raw materials, API, drug product testing
              and release, and process development in connection with other
              phosphorothioate 2' deoxyoligonucelotides and MOE Gapmer
              Technology drugs which support the activities of ISIS with regard
              to Compound as required pursuant to this Agreement, MERCK will
              compensate ISIS [ * ] The FTE rate shall be [ * ] for any of the
              following activities undertaken directly by ISIS pursuant to this
              Section 5.1 (d): analytical chemistry; process chemistry;
              formulation; drug substance manufacturing, raw material ordering
              and handling; or manufacturing technology transfer. The FTE rate
              shall be [ * ] per FTE for any of the following activities
              undertaken by ISIS pursuant to this Section 5.1 (d); toxicology;
              pharmocokinetics/metabolism; regulatory; clinical development and
              data management.]

5.2      CONSIDERATION FOR RESEARCH FUNDING. [ * ]

5.3      MILESTONE PAYMENTS.

         a) Subject to the terms and conditions of, and during the term of, this
         Agreement, MERCK shall pay to ISIS [ * ] each, each such milestone
         payable only once, upon satisfactory performance of the Preclinical
         Development Program activities in accordance with the requirements of
         Schedule 2.2 as Schedule 2.2 may be amended by mutual agreement of the
         parties. The Preclinical Development milestones set forth in this
         Section 5.3 (a) shall become payable [* ] Notwithstanding the
         foregoing, in the event that MERCK provides ISIS with a notice of
         Agreement termination in accordance with the terms of Article 9 herein
         prior to any such anniversary date, any milestone payment for a
         milestone achieved during [ * ] and MERCK shall have no obligation to
         make any such milestone payment to ISIS.

         b) Subject to the terms and conditions of, and during the term of, this
         Agreement, MERCK shall pay to ISIS the following Development milestone
         payments with respect to each Compound in development for diabetes,
         each milestone payment to be made no more than once with respect to
         such Compound:

         (i) [ * ]

         (ii) [ * ]

         (iii) [ * ]

         (iv) [ * ]

         (v) [ * ]

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         c) Subject to the terms and conditions of, and during the term of, this
         Agreement, MERCK shall pay to ISIS the following Development milestone
         payments with respect to each Compound for obesity, each milestone
         payment to be made no more than once with respect to each such
         Compound:

         (i) [ * ]

         (ii) [ * ]

         (iii) [ * ]

         MERCK shall notify ISIS in writing within thirty (30) days upon the
         achievement of each Development milestone set forth in Sections 5.3 (b)
         and (c), such notice to be accompanied by payment of the appropriate
         milestone payment. The milestone payment shall be payable only upon the
         initial achievement of such milestone and no amounts shall be due
         hereunder for subsequent or repeated achievement of such milestone.
         Should the development of a Compound for an indication be discontinued,
         any Development milestone payment(s) previously paid hereunder for a
         Compound for such indication shall not be payable by MERCK for any
         other Compound developed by MERCK hereunder for the same indication. In
         the event that MERCK achieves any Developmental Milestone set forth in
         Sections 5.3 (b) or (c) without having achieved prior Developmental
         Milestone(s) set forth in the relevant Section for the same indication,
         Merck shall be obligated to pay all such prior Developmental Milestones
         not previously paid, upon achievement of such subsequent Developmental
         Milestone for the same indication.

ROYALTIES.

5.4.1    ROYALTIES PAYABLE BY MERCK. Subject to the terms and conditions
         of, and during the term of, this Agreement, MERCK shall pay to ISIS
         royalties in an amount equal to:

         (a)   [ * ] of the aggregate annual worldwide Net Sales of each
               Product by MERCK, its Affiliates or sublicensees where such
               aggregate annual worldwide Net Sales are less than [ * ] as set
               forth below, provided the sale of the Product would, but for the
               license hereunder, infringe a Valid Patent Claim in the country
               of sale, or

         (b)   [ * ] of the aggregate annual worldwide Net Sales of each
               Product by MERCK, its Affiliates or sublicensees where such
               aggregate annual worldwide Net Sales are equal to or greater than
               [ * ] as set forth below, provided the sale of the Product would,
               but for the license hereunder, infringe a Valid Patent Claim in
               the country of sale, or

         (c)   For Net Sales of Products by MERCK, its Affiliates or
               sublicensees other than those covered by Subsection 5.4.1. (a) or
               5.4.1 (b), the royalty rate shall be [ * ] but in no event shall
               such royalty pursuant to this Subsection 5.4.1 (c) [ * ]

         Royalties on each Product at the rate set forth above shall be
         effective as of the date of First Commercial Sale of Product in a
         country and shall continue until either (i) the expiration of the last
         applicable patent on such Product in such country in the case of sales
         under Subsection 5.4.1(a) and (b), [ * ] in the case of sales of
         Product under Subsection 5.4.1(c) above. Notwithstanding the foregoing,
         under Subsection (ii) of this Paragraph, [ * ] However, in no event
         shall such pass through royalties be payable by Merck after such ISIS'
         royalty obligations to such third party licensor(s) have terminated.
         Royalty payments pursuant to Subsection 5.4.1 are subject to the
         following conditions:

         (x)   that only one royalty shall be due with respect to the same
               unit of Product;

         (y)   that no royalties shall be due upon the sale or other transfer
               among MERCK, its Affiliates or sublicensees, but in such cases
               the royalty shall be due and calculated upon MERCK's or its
               Affiliate's or its sublicensee's Net Sales to the first
               independent third party; and (z) no royalties shall accrue on the
               disposition of Product in reasonable quantities by MERCK,
               Affiliates or its sublicenses as samples (promotion or otherwise)
               or as donations (for example, to non-profit institutions or
               government agencies for a non-commercial purpose).

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         In the event that MERCK sells Product for end use or consumption prior
         to receiving all required approvals from the governing Regulatory
         Authority of the country of sale, including without limitation for
         compassionate use purposes, the first such sale for end use or
         consumption of such Product in such country shall be deemed a First
         Commercial Sale hereunder for the purpose of establishing the effective
         date for the initiation of payment of royalties in such country as set
         forth above, however, [ * ]set forth in Section (ii) above shall
         commence upon the date of First Commercial Sale after all required
         approvals have been granted, as set forth in Section 1.11 of this
         Agreement.


                                             [ * ]



5.4.2    ROYALTY PAYABLE UNDER MANAGED PHARMACEUTICAL CONTRACT. It is understood
         by the parties that MERCK may sell Product to an independent third
         party (such as a retailer or wholesaler) and may subsequently perform
         services relating to Product and other products under a managed
         pharmaceutical benefits contract or other similar contract. In such
         cases, it is agreed by the parties that Net Sales shall be based on the
         invoice price to such independent retailer or wholesaler, as set forth
         in Section 1.21, notwithstanding that MERCK or its Affiliates may
         receive compensation arising from the performance of such services.

5.4.3    CHANGE IN SALES PRACTICES. The parties acknowledge that during the term
         of this Agreement, MERCK's sales practices for the marketing and
         distribution of Product may change to the extent to which the
         calculation of the payment for royalties on Net Sales may become
         impractical or even impossible. In such event the parties agree to meet
         and discuss in good faith new ways of compensating ISIS to the extent
         currently contemplated under Section 5.4.1.

5.4.4    ROYALTIES FOR BULK FORMULATED COMPOUND. In those cases where MERCK
         sells bulk formulated Compound, rather than Product in packaged form,
         to an independent third party, the royalty obligations of this Article
         V shall be applicable to the bulk formulated Compound.

5.4.5    COMPULSORY LICENSES. If a compulsory license is granted to a third
         party with respect to Product in any country in the Territory with a
         royalty rate lower than the royalty rate provided by Section 5.4.1.,
         then the royalty rate to be paid by MERCK on Net Sales in that country
         under Section 5.4.1 shall be reduced to the rate paid by the compulsory
         licensee.

5.4.6    THIRD PARTY LICENSES. In the event that one or more patent
         licenses from other third parties are required by MERCK, its Affiliates
         and sublicensees to practice the ISIS Patent Rights or to utilize the
         ISIS Know-How in order to develop, make, have made, use, import, offer
         to sell or sell Compound (or Product, due to the incorporation of
         Compound) (hereinafter "Third Party Patent Licenses"). [ * ] In the
         event that MERCK acquires patent license(s) from third parties pursuant
         to this Subsection 5.4.6, and such license(s) are both sublicensable,
         and useful outside the Field, MERCK hereby grants ISIS a non-exclusive,
         royalty-free sublicense under such patent license(s) solely for use
         outside the Field, such sublicense to be subject to the obligations of
         such third party license(s) to MERCK. ]

5.5      REPORTS; PAYMENT OF ROYALTY. During the term of the Agreement following
         the First Commercial Sale of a Product, MERCK shall furnish to ISIS a [
         * ] written report for the [ * ] showing the Net Sales of all Products
         subject to royalty payments sold by MERCK, its Affiliates and its
         sublicensees in the Territory during the reporting period and the
         royalties payable under this Agreement. MERCK shall provide ISIS, for
         ISIS' convenience, [ * ] Reports of actual information as required in
         this Subsection 5.5 above shall be due on the [ * ] following the close
         of each [ * ] Royalties shown to have accrued by each such [ * ]
         royalty report shall be due and payable on the date such royalty report
         is due [ * ] following the close of each [ * ] MERCK shall keep
         complete and accurate records in sufficient detail to enable the
         royalties payable hereunder to be determined.

5.6      AUDITS.

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         (a)   Upon the written request of ISIS and not more than once in
               each Calendar Year, MERCK shall permit an independent certified
               public accounting firm of nationally recognized standing selected
               by ISIS and reasonably acceptable to MERCK, at ISIS's expense, to
               have access during normal business hours to such of the records
               of MERCK as may be necessary to verify the accuracy of the
               royalty reports hereunder for any year ending not more than
               twenty-four (24) months prior to the date of such request. Such
               records shall consist of the Net Sales figure for each Product,
               and the Coefficient for each Product, as reported on a quarterly
               basis within MERCK's internal worldwide accounting system. The
               accounting firm shall disclose to ISIS only whether the royalty
               reports are correct or incorrect and the specific details
               concerning any discrepancies. No other information shall be
               provided to ISIS.

         (b)   If such accounting firm correctly concludes that additional
               royalties were owed during such period, MERCK shall pay the
               additional royalties within thirty (30) days of the date ISIS
               delivers to MERCK such accounting firm's written report so
               correctly concluding. The fees charged by such accounting firm
               shall be paid by ISIS [ * ]

         (c)   MERCK shall include in each sublicense granted by it pursuant
               to this Agreement a provision requiring the sublicensee to make
               reports to MERCK, to keep and maintain records of sales made
               pursuant to such sublicense and to grant access to such records
               by ISIS's independent accountant to the same extent required of
               MERCK under this Agreement.

         (d)   Upon the expiration of [ * ] months following the end of any
               year, the calculation of royalties payable with respect to such
               year shall be binding and conclusive upon ISIS, and MERCK and its
               sublicensees shall be released from any liability or
               accountability with respect to royalties for such year.

         (e)   ISIS shall treat all financial information subject to review
               under this Section 5.6 or under any sublicense agreement as MERCK
               Information in accordance with the confidentiality and non-use
               provisions of this Agreement, and shall cause its accounting firm
               to enter into an acceptable confidentiality agreement with MERCK
               and its sublicensees obligating such accounting firms to retain
               all such financial information in confidence pursuant to such
               confidentiality and non-use provisions.

5.7      PAYMENT EXCHANGE RATE. All payments to be made by MERCK to ISIS under
         this Agreement shall be made in United States dollars and may be paid
         by check made to the order of ISIS or bank wire transfer in immediately
         available funds to such bank account in the United States designated in
         writing by ISIS from time to time. In the case of sales invoiced in a
         foreign currency, exchange conversion of such sales into United States
         dollars shall be made on a monthly basis and shall be made at the rate
         of exchange utilized by MERCK in its worldwide accounting system
         prevailing on the third to the last business day preceding the month in
         which sales are recorded by MERCK.

5.8      INCOME TAX WITHHOLDING. If laws, rules or regulations require
         withholding of income taxes or other taxes imposed upon payments set
         forth in this Article V, MERCK shall make such withholding payments as
         required and subtract such withholding payments from the payments set
         forth in this Article V. MERCK shall submit appropriate proof of
         payment of the withholding taxes to ISIS within a reasonable period of
         time.

                                   ARTICLE VI

                    REPRESENTATIONS, WARRANTIES AND INDEMNITY

6.1      REPRESENTATION AND WARRANTY. ISIS represents and warrants to MERCK
         that, as of the date of this Agreement:

         (a)   to the best of ISIS' knowledge, the ISIS Patent Rights, ISIS
               Core Technology, ISIS Manufacturing Technology and ISIS Know-How
               are subsisting and are not invalid or unenforceable, in whole or
               in part;

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         (b)   it has the full right, power and authority to enter into this
               Agreement, to perform the Preclinical Development Program and
               Technology Transfer, and to grant the licenses granted under
               Article III hereof;

         (c)   it has not previously assigned, transferred, conveyed or
               otherwise encumbered its right, title and interest in ISIS Patent
               Rights, ISIS Core Technology, ISIS Manufacturing Technology or
               ISIS Know-How in a manner that would interfere with ISIS' ability
               to grant the licenses granted to MERCK under this Agreement;

         (d)   it is the sole and exclusive owner of the Compound and the
               patent applications claiming Compound set forth in Schedule 1.16
               (a) (i) herein, and has the rights in and to the ISIS Patent
               Rights, ISIS Core Technology, ISIS Manufacturing Technology and
               ISIS Know-How necessary and sufficient to grant to MERCK the
               rights licensed to MERCK under this Agreement all of which are
               free and clear of any liens, charges and encumbrances, and no
               other person, corporate or other private entity, or governmental
               entity or subdivision thereof, has or shall have any claim of
               ownership with respect to the ISIS Patent Rights, ISIS Core
               Technology, ISIS Manufacturing Technology and ISIS Know-How
               licensed to MERCK under this Agreement that would interfere with
               the licenses granted to MERCK under this Agreement, whatsoever;

         (e)   to the best of ISIS' knowledge, the licensed ISIS Patent
               Rights, ISIS Core Technology, ISIS Manufacturing Technology and
               ISIS Know-How and the development, manufacture, use, sale and
               import of Compound and Product do not interfere with or infringe
               any intellectual property rights owned or possessed by any third
               party;

         (f)   there are no claims, judgments or settlements against or owed
               by ISIS or pending or threatened claims or litigation relating to
               the ISIS Patent Rights, ISIS Core Technology, ISIS Manufacturing
               Technology or ISIS Know-How; and

         (g)   ISIS has disclosed to MERCK all reasonably relevant information
               regarding ISIS Patent Rights, ISIS Manufacturing Technology,
               ISIS Core Technology and ISIS Know-How licensed under this
               Agreement, including all patent opinions obtained by ISIS
               related thereto.

6.2      INDEMNITY. a) ISIS shall indemnify, defend and hold MERCK and its
         Affiliates, and their respective directors, officers, employees and
         agents harmless against any and all losses, costs, liabilities and
         expenses (including reasonable attorneys' fees), actions, suits,
         claims, demands and prosecution that may be brought or instituted to
         the extent based upon or arising out of i) the negligence or willful
         misconduct of ISIS under this Agreement, or ii) the material breach by
         ISIS of any warranty, representation or obligation of ISIS under this
         Agreement.

         b) MERCK shall indemnify, defend and hold ISIS and its Affiliates, and
         their respective directors, officers, employees and agents harmless
         against any and all losses, costs, liabilities and expenses (including
         reasonable attorneys' fees), actions, suits, claims, demands and
         prosecution that may be brought or instituted to the extent based upon
         or arising out of i) the negligence or willful misconduct of MERCK
         under this Agreement, ii) the material breach by MERCK of any warranty,
         representation or obligation of MERCK under this Agreement, or iii) the
         use, manufacture or sale by MERCK of Compound or Product.

                                   ARTICLE VII

                     CLINICAL SUPPLY AND TECHNOLOGY TRANSFER

7.1      CLINICAL SUPPLY. ISIS hereby agrees to supply MERCK with its worldwide
         requirements for API, Intermediate Compound, Placebo and Clinical
         Product (as the foregoing terms are defined in the Clinical Supply
         Agreement) in accordance with the terms of the Clinical Supply
         Agreement. In the event that ISIS does not have sufficient
         manufacturing capacity to meet MERCK's requirements in accordance with
         the terms of the Clinical Supply Agreement, ISIS may use a third party
         toll manufacturer to manufacture all or part of MERCK's requirements,
         upon the prior written approval of MERCK. MERCK shall supply its own
         requirements for Compound and Products for development and
         commercialization on a worldwide

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         basis upon completion of the Technology Transfer in accordance with the
         terms of this Agreement. Concurrently with the execution of this
         Agreement, the parties shall execute the Clinical Supply Agreement
         attached hereto as Schedule 1.5.

7.2.1    TECHNOLOGY TRANSFER. Commencing with the Effective Date and for a
         time period thereafter to be determined by the Committee (the
         "Technology Transfer Term") and in accordance with the terms and
         conditions set forth in this Agreement, ISIS promptly shall (a)
         disclose to and transfer to MERCK all of the ISIS Know-How and ISIS
         Technology including the items listed in Schedule 7.2 and those items
         more fully detailed in the Technology Transfer Work Plan to be agreed
         to by the parties within thirty (30) days after the Effective Date and
         (b) provide to MERCK the training and support described in Schedule 7.2
         and the Technology Transfer Work Plan and elsewhere in this Agreement
         to enable MERCK to efficiently and economically optimize use of the
         ISIS Know-How, ISIS Technology and ISIS Patent Rights, in the
         formulation, development, registration, manufacture, marketing and sale
         of Compound and Product in the Field (the "Technology Transfer"). ISIS
         shall perform the Technology Transfer in accordance with the Procedures
         established by the Committee in accordance with Section 7.2.3. The
         parties shall cooperate so that the Technology Transfer may be
         completed as expeditiously as possible.

7.2.2    TECHNOLOGY TRANSFER COMMITTEE. The Technology Transfer shall be
         coordinated and implemented under the supervision of a joint committee
         (the "Committee") comprised of an agreed number of employees appointed
         by the parties having appropriate technical credentials, experience and
         knowledge and co-chaired by an employee of each party. The advice of
         additional employees or consultants of either party may by mutual
         consent of the parties be obtained. Decisions of the Committee shall be
         made by unanimous decision of the two-co-chairs; provided however, in
         the event that the co-chairs do not, after good faith efforts, reach
         agreement on an issue, the resolution and/or course of conduct in issue
         shall be determined in good faith by the Executive Vice President,
         Science and Technology, and President of MERCK Research Laboratories,
         and the Executive Vice President of ISIS; provided, however, in the
         event that they do not, after good faith efforts, reach agreement on an
         issue, the issue shall be submitted to arbitration pursuant to Section
         10.6. Throughout the entire Technology Transfer Term, the Committee
         shall meet at least once each month in person or by teleconference,
         videoconference or by other mutually acceptable means. The Committee
         shall establish the Procedures, confer regarding the status of the
         Technology Transfer and compliance with the Procedures, review relevant
         data and results achieved, consider and advise on any technical issues
         that arise, consider issues of priority, and review and advise on any
         matters relating to the Technology Transfer referred to the Committee.

7.2.3    PROCEDURES FOR TECHNOLOGY TRANSFER. Promptly after the Effective
         Date, the Committee shall commence to monitor compliance with the
         procedures set forth in Schedule 7.2 and the Technology Transfer Work
         Plan which shall detail the procedures for the prompt and efficient
         Technology Transfer, and shall describe the events necessary to
         accomplish the Technology Transfer and detail the training and support
         to be provided by ISIS during the Technology Transfer (the
         "Procedures"). The Procedures shall be designed to ensure, and shall be
         refined by the Committee as necessary to ensure, MERCK's optimal use of
         the ISIS Know-How, ISIS Technology and ISIS Patent Rights in
         developing, manufacturing and commercializing Compound and Product, all
         in accordance with the terms of this Agreement.

7.2.4    TRAINING AND SUPPORT. The training and support to be provided by
         ISIS to MERCK throughout the Technology Transfer Term shall include
         without limitation training and support in a mutually acceptable MERCK
         facility in all of the methods necessary to practice the ISIS Know-How,
         ISIS Technology and ISIS Patent Rights in the development,
         manufacturing and commercialization of Compound and Product, and this
         shall include without limitation (a) demonstration and training during
         the installation, operational and performance qualifications of the
         technology, (b) technical support for the operational startup of
         manufacturing equipment, and (c) demonstration of the manufacturing
         processes. In addition, a reasonable number of employees of MERCK and
         its Affiliates shall be entitled to visit ISIS facilities including
         without limitation pilot and commercial scale facilities and testing
         laboratories to observe relevant processes in operation. Moreover, ISIS
         shall provide technical consultation on an as-needed basis following
         NDA approval of Product for a time period to be established by the
         Committee. ISIS also shall be available, if requested, for consultation
         during any regulatory inspection or to assist in responding to
         regulatory questions that may occur during Product registration
         activities.

                                       16
<Page>

7.2.5    RECORDS. ISIS shall maintain records, in sufficient detail and in
         good scientific manner appropriate for patent, regulatory and
         manufacturing purposes, which shall fully and properly reflect all of
         the work done and the progress achieved in the performance of the
         Technology Transfer (the "Records"). The Records at all times shall be
         available to the Committee and Merck shall have the right, during
         normal business hours and upon reasonable notice, to inspect and copy
         all such Records. MERCK also shall have the right to arrange for its
         employees and/or consultants to visit ISIS at its offices and
         laboratories and other facilities during normal business hours on
         reasonable notice concerning or in furtherance of the Technology
         Transfer and/or to discuss the progress of the Technology Transfer and
         its results in detail with the technical personnel and consultants of
         ISIS.

7.2.6    MANUFACTURING TECHNOLOGY IMPROVEMENTS. The entire right, title,
         and interest in and to all Manufacturing Technology Improvements,
         patentable or not, developed or invented solely by employees of ISIS
         during the term of this Agreement shall be the sole and exclusive
         property of ISIS, subject to the licenses granted to MERCK under this
         Agreement. The entire right, title, and interest in and to all
         Manufacturing Technology Improvements, patentable or not, developed or
         invented solely by employees of MERCK during the term of this Agreement
         shall be the sole and exclusive property of MERCK, and MERCK hereby
         grants to ISIS a worldwide, non-exclusive, sublicensable, royalty-free
         license to any such patented sole MERCK Manufacturing Technology
         Improvements solely for use outside of the Field. The entire right,
         title, and interest in and to all Manufacturing Technology
         Improvements, patentable or not, developed or invented jointly by
         employees of ISIS and MERCK during the term of this Agreement shall be
         the joint property of ISIS and MERCK, subject to the licenses granted
         to MERCK under this Agreement. The parties shall promptly disclose to
         each other the development, making, conception or reduction to practice
         of all Manufacturing Technology Improvements.

                                  ARTICLE VIII

                                PATENT PROVISIONS

8.1      FILING, PROSECUTION AND MAINTENANCE OF PATENTS. ISIS and MERCK hereby
         agree that, during the term of this Agreement, the ISIS Patent Rights
         which claim, cover or relate to the Compound in the Territory shall, at
         MERCK's expense, be filed, prosecuted and maintained by independent
         patent legal counsel chosen by MERCK and reasonably acceptable to ISIS.
         Such independent counsel shall keep ISIS and MERCK advised of the
         status of the actual and prospective patent filings and upon the
         request of the party(ies), shall provide advance copies of any papers
         related to the filing, prosecution and maintenance. The parties shall
         consult as to patent filings by such independent counsel which shall be
         subject to the prior mutual agreement of the parties. ISIS agrees to
         file, prosecute and maintain in the Territory the ISIS Patent Rights
         which claim, cover or relate to Core Technology, Core Technology
         Improvements, Manufacturing Technology or Manufacturing Technology
         Improvements owned in whole or in part by ISIS and licensed to MERCK
         under this Agreement. ISIS shall keep MERCK advised of the status of
         the actual and prospective patent filings on a semi-annual basis and
         upon the request of MERCK, provide copies of any papers related to the
         filing, prosecution and maintenance of such patent filings. MERCK shall
         have the exclusive right during the term of this Agreement to file,
         prosecute and maintain, in the Territory, patent applications that
         claim, cover or relate to Compound Improvements. With respect to all
         filings hereunder, the filing party shall be responsible for payment
         for all costs and expenses related to such filings.

8.2      ISIS PATENT RIGHTS PATENT SCHEDULES. ISIS hereby agrees to provide
         MERCK with updated patent schedules in a timeframe agreed to by the
         parties.

8.3      INTERFERENCE, OPPOSITION, REEXAMINATION AND REISSUE. Either party
         shall, within ten (10) days of learning of such event, inform the other
         party of any request for, or filing or declaration of, any
         interference, opposition, or reexamination relating to ISIS Patent
         Rights in the Field. MERCK and ISIS shall thereafter consult and
         cooperate fully to determine a course of action with respect to any
         such proceeding subject to the following:

         (a)   Any interference, opposition, reissue, or reexamination
               proceeding relating to ISIS Patent Rights which claim, cover or
               relate to Compound in the Territory shall be conducted at MERCK's
               expense by independent patent legal counsel chosen by MERCK and
               reasonably acceptable to

                                       17
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               ISIS. MERCK and ISIS will cooperate fully and will provide each
               other and the independent patent legal counsel with any
               information or assistance that any party may reasonably request.
               Outside patent legal counsel shall keep MERCK and ISIS informed
               of developments in any such action or proceeding. Decisions on
               whether to initiate such a proceeding and the course of action in
               such proceeding, including settlement negotiations and terms,
               shall be made by mutual agreement of ISIS and MERCK.

         (b)   Any interference, opposition, reissue, or reexamination
               proceeding relating to ISIS Patent Rights which claim, cover or
               relate to the Core Technology, Core Technology Improvements,
               Manufacturing Technology or Manufacturing Technology Improvements
               in the Territory, shall be conducted by ISIS at ISIS' expense. To
               the extent that such interference, opposition, reissue, or
               reexamination proceeding materially impacts MERCK's rights within
               the Field, MERCK and ISIS will cooperate fully and will provide
               each other with any information or assistance that either may
               reasonably request. ISIS shall keep MERCK informed of
               developments in any such action or proceeding, including, to the
               extent permissible, the status of any settlement negotiations and
               the terms of any offer related thereto, except that ISIS must
               obtain MERCK's consent to any settlement terms which affect
               MERCK's freedom to operate in the Field under the licenses
               granted to MERCK under this Agreement.

8.4      ENFORCEMENT AND DEFENSE.

         (a) ISIS shall give MERCK notice of (i) any infringement of ISIS
             Patent Rights in the Field, or (ii) any misappropriation or misuse
             of ISIS Know-How in the Field, that may come to ISIS's attention.
             MERCK and ISIS shall thereafter consult and cooperate fully to
             determine a course of action, including without limitation the
             commencement of legal action by either or both MERCK and ISIS, to
             terminate any infringement of ISIS Patent Rights or any
             misappropriation or misuse of ISIS Know-How in the Field. However,
             ISIS, upon notice to MERCK, shall have the first right to initiate
             and prosecute such legal action at its own expense and in the name
             of ISIS and MERCK, or to control the defense of any declaratory
             judgment action relating to ISIS Patent Rights or ISIS Know-How in
             the Field. ISIS shall promptly inform MERCK if it elects not to
             exercise such first right and MERCK shall thereafter have the right
             to either initiate and prosecute such action or to control the
             defense of such declaratory judgment action in the name of MERCK
             and, if necessary, ISIS.

         (b) In the event that ISIS elects not to initiate and prosecute an
             action as provided in paragraph (a), and MERCK elects to do so, the
             costs of any agreed-upon course of action to terminate infringement
             of ISIS Patent Rights or misappropriation or misuse of ISIS
             Know-How, including the costs of any legal action commenced or the
             defense of any declaratory judgment, shall be shared equally by
             ISIS and MERCK, except that the cost of any such action related
             solely to the Compound shall be borne by MERCK.

         (c) For any action to terminate any infringement of ISIS Patent
             Rights or any misappropriation or misuse of ISIS Know-How, in the
             event that MERCK is unable to initiate or prosecute such action
             solely in its own name, ISIS will join such action voluntarily and
             will execute and cause its Affiliates to execute all documents
             necessary for MERCK to initiate litigation to prosecute and
             maintain such action. In connection with any action, MERCK and ISIS
             will cooperate fully and will provide each other with any
             information or assistance that either may reasonably request. Each
             party shall keep the other informed of developments in any action
             or proceeding, including, to the extent permissible by law, the
             status of any settlement negotiations and the terms of any offer
             related thereto.

         (d) Any recovery obtained by either or both MERCK and ISIS in
             connection with or as a result of any action contemplated by this
             section, whether by settlement or otherwise, shall be shared in
             order as follows:

             (i)  the party which initiated and prosecuted the action shall
                  recoup all of its costs and expenses incurred in connection
                  with the action;

             (ii) the other party shall then, to the extent possible, recover
                  its costs and expenses incurred in connection with the
                  action; and

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             (iii)the amount of any recovery remaining shall then be allocated
                  between the parties on a PRO RATA basis under which ISIS shall
                  receive a proportion based on the royalties it lost and
                  MERCK shall receive a proportion based on its lost profits.

         (e) ISIS shall inform MERCK of any certification regarding any ISIS
             Patent Rights it has received pursuant to either 21 U.S.C.
             Sections 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or under Canada's
             Patented medicines (Notice of Compliance) Regulations Article 5 and
             shall provide MERCK with a copy of such certification within five
             (5) days of receipt. ISIS's and MERCK's rights with respect to the
             initiation and prosecution of any legal action as a result of such
             certification or any recovery obtained as a result of such legal
             action shall be as defined in paragraphs (a)-(d) hereof; provided,
             however, that ISIS shall exercise its first right to initiate and
             prosecute any action and shall inform MERCK of such decision within
             ten (10) days of receipt of the certification, after which time
             MERCK shall have the right to initiate and prosecute such action.

8.5      CERTIFICATION UNDER DRUG PRICE COMPETITION AND PATENT RESTORATION ACT.
         ISIS and MERCK each shall immediately give notice to the other of any
         certification of which they become aware filed under the United States
         "Drug Price Competition and Patent Term Restoration Act of 1984"
         claiming that ISIS Patent Rights covering Compound or Product are
         invalid or that infringement will not arise from the manufacture, use
         or sale of Compound(s) or Product(s) by a third party. If ISIS or MERCK
         (depending on which party is defending the ISIS Patent Rights) decides
         not to bring infringement proceedings against the entity making such a
         certification, such party shall give notice to the other party of its
         decision not to bring suit within twenty-one (21) days after receipt of
         notice of such certification. The party receiving such notice may then,
         but is not required to, bring suit against the party that filed the
         certification. Any suit by MERCK or ISIS shall either be in the name of
         MERCK or in the name of ISIS, or jointly by MERCK and ISIS. For this
         purpose, the party not bringing suit shall execute such legal papers
         necessary for the prosecution of such suit as may be reasonably
         requested by the party bringing suit.

8.6      ABANDONMENT. ISIS shall promptly give notice to MERCK of the grant,
         lapse, revocation, surrender, invalidation or abandonment of any ISIS
         Patent Rights licensed to MERCK for which ISIS is responsible for the
         filing, prosecution and maintenance.

8.7      PATENT TERM RESTORATION. The parties hereto shall cooperate with each
         other in obtaining patent term restoration or supplemental protection
         certificates or their equivalents in any country in the Territory where
         applicable to ISIS Patent Rights. In the event that elections with
         respect to obtaining such patent term restoration are to be made, MERCK
         shall have the right to make the election and ISIS agrees to abide by
         such election.

                                   ARTICLE IX

                              TERM AND TERMINATION

9.1      TERM AND EXPIRATION. This Agreement shall be effective as of the
         Effective Date and unless terminated earlier pursuant to Sections 9.2
         or 9.3 below, the term of this Agreement shall continue in effect until
         expiration of all royalty obligations hereunder. Upon expiration of
         this Agreement due to expiration of all royalty obligations hereunder,
         MERCK's licenses pursuant to Section 3.1 and 3.2 shall become fully
         paid-up, perpetual licenses.

9.2      TERMINATION BY MERCK. a) Notwithstanding anything contained herein to
         the contrary, MERCK shall have the right to terminate this Agreement at
         any time in its sole discretion a) during the Preclinical Development
         Program by giving thirty (30) days advanced written notice to ISIS, and
         b) thereafter by giving ninety (90) days advance written notice to
         ISIS. b) In the event of such termination by MERCK, the rights and
         obligations hereunder, including any payment obligations not due and
         owing as of the termination date, shall terminate, subject to the
         provisions of Section 9.4 herein, provided that MERCK shall be
         obligated to pay all non-cancelable commitments to undertake
         Preclinical Development Program studies in accordance with Schedule 2.2
         and the terms of this Agreement, and all other non-cancelable Agreement
         commitments undertaken by ISIS in accordance with the terms of this
         Agreement, where such non-cancelable commitments exist as of the date
         of notice of termination is provided by MERCK. c) In the

                                       19
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         event that MERCK terminates this Agreement pursuant to this Section
         9.2 after the commencement of Clinical Development studies by MERCK for
         reasons other than safety, and ISIS notifies MERCK within ninety (90)
         days after such termination that ISIS wishes to commercialize the
         Compound, the parties hereof agree to enter into negotiations for a
         commercially reasonable arrangement to permit ISIS to undertake
         development and commercialization of the Compound utilizing summaries
         of Clinical Development Program data developed by MERCK under this
         Agreement. [ * ]

9.3      TERMINATION.

9.3.1    TERMINATION FOR CAUSE. This Agreement may be terminated by notice by
         either party at any time during the term of this Agreement:

         (a)   if the other party is in breach of its material obligations
               hereunder by causes and reasons within its control and has not
               cured such breach within ninety (90) days after notice requesting
               cure of the breach; providing, however, that in the event of a
               good faith dispute with respect to the existence of a material
               breach, the ninety (90) day cure period shall be stayed until
               such time as the dispute is resolved pursuant to Subsection 10.6
               hereof; and

         (b)   upon the filing or institution of bankruptcy, reorganization,
               liquidation or receivership proceedings, or upon an assignment of
               a substantial portion of the assets for the benefit of creditors
               by the other party; PROVIDED, HOWEVER, in the case of any
               involuntary bankruptcy proceeding such right to terminate shall
               only become effective if the party consents to the involuntary
               bankruptcy or such proceeding is not dismissed within ninety (90)
               days after the filing thereof.

9.3.2    EFFECT OF TERMINATION FOR CAUSE ON LICENSE.

         (a)   In the event MERCK terminates this Agreement under Section
               9.3.1(a), MERCK's licenses pursuant to Sections 3.1 and 3.2 shall
               become perpetual licenses. It is understood that in the event
               MERCK contends it suffers damages as a result of the breach,
               MERCK may place a portion of the payments to be made by MERCK
               pursuant to Article 5 that would reasonably cover MERCK's alleged
               damages into an interest-bearing escrow account pending
               resolution of any dispute between the parties relating to the
               material breach or termination of the agreement, including a
               dispute over damages, pursuant to paragraph 10.6. In the event
               that ISIS terminates this Agreement under Section 9.3.1(a),
               MERCK's licenses pursuant to Sections 3.1 and 3.2 shall terminate
               as of such termination date.

         (b)   In the event this Agreement is terminated by MERCK under
               Section 9.3.1(b) or due to the rejection of this Agreement by or
               on behalf of ISIS under Section 365 of the United States
               Bankruptcy Code (the "Code"), all licenses and rights to licenses
               granted under or pursuant to this Agreement by ISIS to MERCK are,
               and shall otherwise be deemed to be, for purposes of Section
               365(n) of the Code, licenses of rights to "intellectual property"
               as defined under Section 101(35A) of the Code. The parties agree
               that MERCK, as a licensee of such rights under this Agreement,
               shall retain and may fully exercise all of its rights and
               elections under the Code, and that upon commencement of a
               bankruptcy proceeding by or against ISIS under the Code, MERCK
               shall be entitled to a complete duplicate of or complete access
               to (as MERCK deems appropriate), any such intellectual property
               and all embodiments of such intellectual property. Such
               intellectual property and all embodiments thereof shall be
               promptly delivered to MERCK (i) upon any such commencement of a
               bankruptcy proceeding upon written request therefore by MERCK,
               unless ISIS elects to continue to perform all of its obligations
               under this Agreement or (ii) if not delivered under (i) above,
               upon the rejection of this Agreement by or on behalf of ISIS upon
               written request therefore by MERCK. Where MERCK does retain and
               is able to fully exercise all licenses and rights to licenses
               granted under this Agreement, MERCK's payment obligations to ISIS
               for milestones and royalties in accordance with Section 5.3
               and/or Section 5.4 of this Agreement in connection with such
               exercise by MERCK of MERCK's licenses hereunder shall continue in
               effect.

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               The foregoing is without prejudice to any rights MERCK may
               have arising under the Code or other applicable law.

9.4      EFFECT OF EXPIRATION OR TERMINATION. (a) Expiration or termination of
         the Agreement shall not relieve the parties of any obligation accruing
         prior to such expiration or termination, Sections 2.2.5, 2.2.6, 2.2.7,
         2.3.4, 3.1 (d), 3.4, 3.5, 7.2.5, 7.2.6, 9.1, 9.2, 9.3.2, 9.4, 10.4,
         10.5 and 10.6 shall survive expiration or termination of the Agreement,
         the provisions of Article IV shall survive the termination or
         expiration of the Agreement and shall continue in effect for ten (10)
         years thereafter, and the provisions of 2.4 and Schedule 2.4 shall
         continue in effect in accordance with the application timetable set
         forth therein. Any expiration or early termination of this Agreement
         shall be without prejudice to the rights of either party against the
         other accrued or accruing under this Agreement prior to termination,
         including the obligation to pay royalties for Product or Compound sold
         prior to such termination.

         (b) Upon any termination of this Agreement by MERCK pursuant to
         Subsection 9.2, or by ISIS pursuant to Subsection 9.3.1, MERCK shall be
         entitled, during the twelve (12) months following the termination date,
         to finish any work-in-progress and to sell any inventory of Compound
         and Product which remains on hand.





                                    ARTICLE X

                                  MISCELLANEOUS

10.1     FORCE MAJEURE. Neither party shall 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 when such failure or delay is caused by or results from
         causes beyond the reasonable control of the affected party including
         without limitation embargoes, war, acts of war (whether war be declared
         or not), insurrections, riots, civil commotions, strikes, lockouts or
         other labor disturbances, or acts of God. The affected party shall
         notify the other party of such force majeure circumstances as soon as
         reasonably practical and shall make every reasonable effort to mitigate
         the effects of such force majeure circumstances.

10.2     ASSIGNMENT. This Agreement shall inure to the benefit and be binding
         upon each party, its successors and assigns. The 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 either party without the prior written consent of the
         other party; PROVIDED, HOWEVER, that MERCK may, without such consent,
         assign the Agreement and its rights and obligations hereunder to an
         Affiliate or in connection with the transfer or sale of all or
         substantially all of its assets related to the Product or the business,
         or in the event of its merger or consolidation or change in control or
         similar transaction, and PROVIDED, HOWEVER, that ISIS may, without such
         consent, assign the Agreement and its rights and obligations hereunder
         in connection with the transfer or sale of all or substantially all of
         its assets, or in the event of its merger or consolidation or change in
         control or similar transaction. Any permitted assignee shall assume all
         obligations of its assignor under the Agreement. Any attempted
         assignment not in accordance with this Section 10.2 shall be void.

10.3     SEVERABILITY. In the event any one or more of the provisions contained
         in this Agreement should be held invalid, illegal or unenforceable in
         any respect, the validity, legality and enforceability of the remaining
         provisions contained herein shall 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
         shall in such an instance use their best efforts to 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.

10.4     NOTICES. All notices which are required or permitted hereunder shall be
         in writing and sufficient if delivered personally, sent by facsimile
         (and promptly confirmed by personal delivery, registered or

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         certified mail or overnight courier), sent by nationally-recognized
         overnight courier or sent by registered or certified mail, postage
         prepaid, return receipt requested, addressed as follows:

              if to ISIS, to:           ISIS Pharmaceuticals, Inc.
                                        Carlsbad Research Center
                                        2292 Faraday Avenue
                                        Carlsbad, CA  92008
                                        Attention:  Executive Vice President
                                        Fax No.:  (760) 931-9639

              with a copy to:           Attention:  General Counsel
                                        Fax No.: (760) 603-3820



              if to MERCK, to:          Merck & Co., Inc.
                                        One Merck Drive
                                        P.O. Box 100
                                        Whitehouse Station, NJ 08889-0100
                                        Attention:  Vice President,
                                        Corporate Development and Licensing






              with a copy to:           Attention: Office of the Secretary

         or to such other address as the party to whom notice is to be given may
         have furnished to the other party in writing in accordance herewith.
         Any such notice shall be deemed to have been given when delivered if
         personally delivered or sent by telecopier on a business day, on the
         business day after dispatch if sent by nationally-recognized overnight
         courier and on the third business day following the date of mailing if
         sent by mail.

10.5     APPLICABLE LAW. The Agreement shall be governed by and construed
         in accordance with the laws of the State of New Jersey without
         reference to any rules of conflict of laws or renvoi.

10.6     DISPUTE RESOLUTION. The parties shall negotiate in good faith and use
         reasonable efforts to settle any dispute, controversy or claim arising
         from or related to this Agreement or the breach thereof. If the parties
         do not fully settle, and a party wishes to pursue the matter, each such
         dispute, controversy or claim that is not an "Excluded Claim" shall be
         finally resolved by binding arbitration in accordance with the
         Commercial Arbitration Rules and Supplementary Procedures for Large
         Complex Disputes of the American Arbitration Association ("AAA"), and
         judgment on the arbitration award may be entered in any court having
         jurisdiction thereof. The arbitration shall be conducted by a panel of
         three persons experienced in the pharmaceutical business: within 30
         days after initiation of arbitration, each party shall select one
         person to act as arbitrator and the two party-selected arbitrators
         shall select a third arbitrator within 30 days of their appointment. If
         the arbitrators selected by the parties are unable or fail to agree
         upon the third arbitrator, the third arbitrator shall be appointed by
         the AAA. The place of arbitration shall be Denver, Colorado. Either
         party may apply to the arbitrators for interim injunctive relief until
         the arbitration award is rendered or the controversy is otherwise
         resolved. Either party also may, without waiving any remedy under this
         Agreement, seek from any court having jurisdiction any injunctive or
         provisional relief necessary to protect the rights or property of that
         party pending the arbitration award. The arbitrators shall have no
         authority to award punitive or any other type of damages not measured
         by a party's compensatory damages. Each party shall bear its own costs
         and expenses and attorneys' fees and an equal share of the arbitrators'
         and any administrative fees of arbitration. Except to the extent
         necessary to confirm an award or as may be required by law, neither a
         party nor an arbitrator may disclose the existence, content, or results
         of an arbitration without the prior written consent of both parties. In
         no event

                                       22
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         shall an arbitration be initiated after the date when commencement of a
         legal or equitable proceeding based on the dispute, controversy or
         claim would be barred by the applicable New York statute of
         limitations. As used in this Section, the term "Excluded Claim" shall
         mean a dispute, controversy or claim that concerns (a) the validity or
         infringement of a patent, trademark or copyright; or (b) any antitrust,
         anti-monopoly or competition law or regulation, whether or not
         statutory.

10.7     ENTIRE AGREEMENT. This Agreement and the Clinical Supply Agreement
         contain the entire understanding of the parties with respect to the
         license, development and commercialization of Compound and Product. All
         express or implied agreements and understandings, either oral or
         written, heretofore made by the parties on the same subject matter are
         expressly superseded by this Agreement. The Agreement may be amended,
         or any term hereof modified, only by a written instrument duly executed
         by both parties hereto.

10.8     HEADINGS. The captions to the several Articles and Sections hereof are
         not a part of the Agreement, but are merely a convenience to assist in
         locating and reading the several Articles and Sections hereof.

10.9     INDEPENDENT CONTRACTORS. It is expressly agreed that ISIS and MERCK
         shall be independent contractors and that the relationship between the
         two parties shall not constitute a partnership, joint venture or
         agency. Neither ISIS nor MERCK shall have the authority to make any
         statements, representations or commitments of any kind, or to take any
         action, which shall be binding on the other, without the prior consent
         of the other party.

10.10    WAIVER. The waiver by either party hereto of any right hereunder, or
         the failure to perform, or a breach by the other party shall 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.

10.11    COUNTERPARTS. The Agreement may be executed in two or more
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same instrument.

10.12    WAIVER OF RULE OF CONSTRUCTION. Each party has had the opportunity to
         consult with counsel in connection with the review, drafting and
         negotiation of this Agreement. Accordingly, the rule of construction
         that any ambiguity in this Agreement shall be construed against the
         drafting party shall not apply.



         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date(s) set forth below.

Merck & Co., Inc.                   Isis Pharmaceuticals, Inc.



BY:______________________           BY:____________________________



TITLE: __________________           TITLE: ________________________



DATE: ___________________           DATE: _________________________

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                                   SCHEDULE 1.5

                                      [ * ]

                                    SCHEDULE 1

                                      [ * ]

                                    SCHEDULE 2

                                      [ * ]

                                   SCHEDULE 2.1

                                      [ * ]

                                    SCHEDULE 3

                                      [ * ]

                                   SCHEDULE 4.3

                                      [ * ]


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                               ISIS PATENT RIGHTS

                              SCHEDULE 1.16 (a)(i)

                                      [ * ]

                                and 1.16 (a)(ii)

                                      [ * ]

                               and 1.16 (a)(iii)

                                      [ * ]





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                                  SCHEDULE 2.2

                                      [ * ]





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                               SCHEDULE 2.2.1 (b)

                                      [ * ]





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                                 SCHEDULE 2.2.6

                                      [ * ]






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                                  SCHEDULE 2.4

                                      [ * ]






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                                  SCHEDULE 7.2

                                      [ * ]





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