Document:

Exhibit 10.2

 

RESTATED
ISIS PHARMACEUTICALS, INC.

10B5-1 TRADING PLAN

 

This 10b5-1 Trading Plan,
(the “Trading Plan”), between ISIS PHARMACEUTICALS, INC.
(“Isis”) and HORWITZ &
ASSOCIATES, INC (“Broker”), is entered into effective September 30,
2005 (the “Effective Date”).  Capitalized
terms not otherwise defined herein will have the meanings given to them in Exhibit A
attached hereto.

 

Recitals.

 

(a)                                  This
Trading Plan is entered into between Isis and Broker for the purpose of
establishing a trading plan that complies with the requirements of Rule 10b5-1(c) under
the Exchange Act.

 

(b)                                  The
purpose of this Trading Plan is to provide a mechanism by which eligible
Sellers can orderly dispose of a portion of each Seller’s holdings of Stock, including Stock that such Seller has the right to acquire
under the Options.

 

(c)                                  Isis
and Broker hereby agree as follows:

 

Appointment.  Isis hereby appoints and
authorizes Broker to sell shares of Stock pursuant to the terms and conditions
set forth below and in the applicable Sellers Plan.  Subject to the terms and conditions set forth
below, Broker hereby accepts such appointment.

 

Sellers
Plans.  Each Seller may
establish up to three individual Sellers Plans with Broker in any Sales
Period.  In connection with such Sellers
Plans, each Seller will establish an account at Broker in the name of and for
the benefit of Seller (the “Plan Account”). 
Sales under each Sellers Plan cannot begin until the Broker receives (i) the
Plan Shares, to the extent such Plan Shares are currently owned by Seller, (ii) a
properly executed Seller Representation Letter and (iii) a properly
completed and executed Sellers Plan, including an acknowledgment by Isis.

 

Obligations
of Broker.  With
respect to each Sellers Plan, Broker will have the following obligations:

 

(a)                                  Broker
will sell the Plans Shares for the account of each Seller according to the
terms of the Seller’s Sellers Plan.

 

(b)                                  Broker
will not sell any Stock when broker is in possession of any material nonpublic
information concerning Isis or its securities.

 

(c)                                  Once
a Sellers Plan becomes effective, Broker will not allow Seller to exercise, any
influence over how, when or whether to effect sales of Stock pursuant to the
Sellers Plan.

 

1

 

(d)                                  Broker
will withdraw Stock from Seller’s Plan Account in order to effect sales of
Stock under Seller’s Sellers Plan. 
Broker will exercise Options to effect such sales according to the
Seller’s Option Priority Guidelines.

 

(e)                                  Broker
will deliver the proceeds from each sale of unrestricted Stock effected under a
Sellers Plan to Seller’s Account on a normal three-day settlement basis less
any commission, commission equivalent, mark-up or differential and other
expenses of sale to be paid to Broker. 
With respect to each sale of restricted Stock, Broker will deliver the
net proceeds from such sales as soon as reasonably practicable.

 

(f)                                    Broker
will, in connection with the exercise of Options, remit to Isis the exercise
price thereof along with such amounts as may be necessary to satisfy
withholding obligations. These amounts will be deducted from the proceeds of
the sale of the Stock.

 

(g)                                 To
the extent that any Stock remains in the Plan Account upon termination of the
Sellers Plan, Broker agrees to return such Stock promptly to the Seller.

 

(h)                                 Broker
agrees to conduct all sales pursuant to each Sales Plan in accordance with the
manner of sale requirement of Rule 144 of the Securities Act and in no
event will Broker effect any sale if such sale would exceed the then-applicable
amount limitation under Rule 144 or will violate the “short-swing profit”
provisions of Section 16 of the Exchange Act.  Broker will file Forms 144 on behalf of
Seller as required by applicable law.

 

(i)                                    Promptly
after each Sale, Broker will advise Seller in writing as to the number of
shares of Stock sold, the date of each sale and the sales price.

 

(j)                                    Broker
will suspend or terminate a Sellers Plan and cancel any pending sale upon
notice from Isis of a Suspension Event (such notice to specify termination or
suspension of the Sellers Plan).  In the
event of a suspension, Broker will cancel any open orders for sales of Plan
Shares and will cease placing orders for Sales of Plan Shares under the Sellers
Plan until Broker receives written notice from Isis stating that the relevant
Suspension Event is no longer in effect. 
Upon Broker’s receipt of notice from Isis, Broker may resume placing
orders for sales of the Plan Shares in accordance with the terms and conditions
of this Trading Plan and the applicable Sellers Plan; provided,
however, that Broker will not reinstate any orders cancelled due to
a suspension and will not place any orders that would have been placed during
the suspension.

 

(k)                                Broker
will not sell more than an aggregate of 30,000 shares on any single Trading Day
for any individual Seller under all the Sellers Plans established by such
Seller.  Notwithstanding the foregoing,
Broker may sell more than this specified limit if (i) such sale is
reasonably necessary to facilitate the exercise of Options that will expire
within three Trading Days of such sale and (ii) the Company’s Chief
Financial Officer has authorized such a trade according to the notice
provisions below.

 

(l)                                    Unless
a Seller’s Sellers Plan explicitly instructs Broker to do otherwise, if Broker
exercises an option because such Option was about to expire, Broker must sell
the shares of Stock issued upon the exercise of such Option within 5 Trading
Days of exercise at the then

 

2

 

prevailing market price for the Stock, regardless of the Minimum Sales
Prices set forth in the applicable Sellers Plan.

 

Termination;
Amendment.

 

(a)                                  Trading
Plan.  This Trading Plan may be
Terminated by Isis at any time upon written notice to Broker.  The parties hereto may amend this Trading
Plan in writing by mutual written agreement.

 

(b)                                  Voluntary
Termination of Sellers Plan.  Seller
may terminate a Sellers Plan only during the last five Trading Days of a Sales
Period by providing Broker and Isis advance written notice.  The terminations will become effective on September 30
of the Sales Period in which proper termination notice was given.

 

(c)                                  Automatic
Termination of Sellers Plan.  An
applicable Sellers Plan will automatically terminate on any of the following
dates:  (i) the date Broker is
required to terminate the Sellers Plan under Section 4(j) of this Trading
Plan, (ii) the 90th day following the date Broker receives
notice of the death of the Seller or of Seller’s termination from Isis, (iii) the
date Isis or any other entity publicly announces a tender or exchange offer
with respect to the Stock or a merger or acquisition of Isis, or (iv) the
date Broker receives notice of the commencement or impending commencement of
any proceeding relating to or triggered by Seller’s bankruptcy or insolvency.

 

(d)                                  Termination
For Breach.  Isis may terminate a
Sellers Plan immediately upon the breach of a representation or covenant
contained in the applicable Seller’s Seller Representation Letter.

 

(e)                                  No
Amendment of Sellers Plan.  Seller
may not amend a Sellers Plan.

 

General.

 

(f)                                    The
prices and share amounts set forth in this Trading Plan and in each Sellers
Plan will be automatically adjusted on a proportionate basis to take into
account any stock split, stock dividend or any change in the capitalization
similarly affecting the Stock of the Isis that occurs during the Sales Period.

 

(g)                                 This
Trading Plan, including exhibits, constitutes the entire agreement between the
parties with respect to this Trading Plan and supercedes any prior agreements
or understandings between the parties with regard to the Trading Plan.

 

(h)                                 Any
notice required to be given under this Trading Plan or a Sellers Plan will be
addressed to the relevant party at the address set forth below.

 

	
  To Broker:

  	
   

  	
  Horwitz & Associates, Inc

  
	
   

  	
   

  	
  2511 Garden Road, Suite C-225

  
	
   

  	
   

  	
  Monterey, CA
  93940

  
	
   

  	
   

  	
  Attn: Peter Albano

  
	
   

  	
   

  	
  Fax: (831) 648-1951

  

 

3

 

	
   

  	
   

  	
  Phone: (866) 648-8010

  
	
   

  	
   

  	
   

  
	
   

  	
  w/copy to:

  	
   

  
	
   

  	
   

  	
  Horwitz & Associates, Inc

  
	
   

  	
   

  	
  630 Dundee Road

  
	
   

  	
   

  	
  Northbrook, IL
  60062

  
	
   

  	
   

  	
  Attn: Executive office

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To Isis:

  	
   

  	
  Isis Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  1896 Rutherford Road

  
	
   

  	
   

  	
  Carlsbad, CA 92008

  
	
   

  	
   

  	
  Attn: Executive Vice President

  
	
   

  	
   

  	
  Fax:     760-268-4922

  
	
   

  	
   

  	
  Phone: 760-603-2460

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  Linda Powell

  
	
   

  	
   

  	
  Fax:     760-918-3593

  
	
   

  	
   

  	
   

  
	
  To Seller:

  	
   

  	
  The contact information
  specified in the

  
	
   

  	
   

  	
  applicable Seller
  Representation Letter.

  

 

Notice will be deemed
sufficiently given for all purposes upon the earlier of:  (a) the date of actual receipt; (b) if
mailed, three (3) calendar days after the date of postmark; (c) if
delivered by overnight courier, the next business day such overnight courier
regularly makes deliveries; or (d) if sent by facsimile, when the sender’s
facsimile system generates a message confirming successful transmission of the
total number of pages of the notice unless, within one business day after
the transmission, the recipient informs the sender that the recipient has not
received the entire notice.

 

(i)                                    This
Trading Plan may be signed in counterparts, each of which will be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.

 

(j)                                    If
any provision of this Trading Plan is or becomes inconsistent with any
applicable present or future law, rule or regulation, that provision will
be deemed modified or, if necessary, rescinded in order to comply with the
relevant law, rule or regulation. 
All other provisions of this Trading Plan will continue and remain in
full force and effect.

 

(k)                                This
Trading Plan and any Sellers Plan is not an employment contract and nothing in
such plans will create in any way whatsoever any obligation on a Seller’s part
to continue in the employ of Isis, or of Isis to continue Seller’s employment
with Isis.

 

(l)                                    In
the event of any conflict between the provisions of a Sellers Plan and those of
this Trading Plan, the provisions of this Trading Plan will control.

 

4

 

(m)                              The
parties’ rights and obligations under this Trading Plan will bind and inure to
the benefit of their respective successors, heirs, executors, and
administrators and permitted assigns.

 

5

 

IN WITNESS WHEREOF, the
undersigned have entered into this Trading Plan as of the date first written
above.

 

	
   

  	
  ISIS
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
  /s/ B. Lynne
  Parshall

  
	
   

  	
  B. Lynne
  Parshall

  
	
   

  	
  Executive Vice
  President

  
	
   

  	
   

  
	
   

  	
  HORWITZ &
  ASSOCIATES, INC

  
	
   

  	
   

  
	
   

  	
  /s/ Gerald A.
  Horwitz

  
	
   

  	
  Gerald A. Horwitz

  
	
   

  	
  Chief Executive
  Officer

  

 

6

 

EXHIBIT A

DEFINITIONS

 

“Daily Sales Amount” has the meaning set forth in the applicable
Sellers Plan.

 

“Effective Date” means, with respect to a Sellers Plan, the date the Seller
Representation Letter was executed by Seller and accepted by Broker.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Options” means the outstanding stock options issued by Isis listed in
the applicable Sellers Plan.

 

“Option Priority Guidelines” has the meaning set forth in the
applicable Sellers Plan.

 

“Minimum Sales Price” has the meaning set forth in the applicable
Sellers Plan.

 

“Plan Shares” means (i) the Stock and (ii) the Stock issuable
upon exercise of the Options, to be sold pursuant to the Sellers Plan.

 

“Rule 144” means Rule 144 under the Securities Act.

 

“Sales Period”  The first Sales
Period will begin on the effective date of this Trading Plan and will end on September 30,
2002.  Thereafter, Sales Periods will begin
every year on October 1 (beginning with October 1, 2002) and will end
on September 30 of the following year until this Trading Plan or the
applicable Sellers Plan is terminated.

 

“Sellers Plan” means a Sellers Plan in the form attached hereto as Exhibit B
entered into between Broker and a Seller.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Seller Representation Letter” is the seller representation letter, a
form of which is attached hereto as Exhibit C.

 

“Seller” means Isis’ executive officers, members of its Board of
Directors and other individuals specified by Isis who participate in the
Trading Plan and who have agreed to only sell Stock under the Trading Plan.

 

“Stock” means the common stock, $0.001 par value per share, of Isis.

 

“Suspension Event” means a legal, contractual or regulatory restriction
that is applicable to Seller or Seller’s affiliates that does not permit the
execution of sales made under a Sellers Plan (other than any such restriction
relating to Seller’s possession or alleged possession of material nonpublic
information about Isis or its securities subsequent to the execution of the
Sellers Plan), including, without limitation, (i) any restriction related
to a merger or acquisition, (ii) a stock

 

1

 

offering requiring an affiliate lock-up, that would prohibit any sale
pursuant to the Trading Plan, or (iii) a potential violation of Section 16
of the Exchange Act.

 

“Trading Day” means any day during the Sales Period that (i) the
Nasdaq Stock Market is open for business and the Stock trades regularly on such
day and (ii) Isis is open for business as a corporation.

 

2

 

EXHIBIT B

 

SELLERS PLAN

 

Effective Date: 

 

Seller’s Name:  

 

Seller’s Account Number: 

 

Commissions:

 

Plan Shares:

 

                 
shares of Stock owned by Seller; and

 

                 
shares of Stock issuable upon the exercise of the Options listed on the last page of
this Sellers Plan.

 

Option Priority Guidelines:

 

(Please Check Only One of The Following)

 

o                                    Exercise
first those Options with the earliest expiration date; or

 

o                                    Exercise
first those Options with the lowest exercise price.

 

(Please Check Only One of The Following)

 

o                                    To
complete sales under this Sellers Plan, Broker will
sell the Plan Shares owned by Seller first, before exercising any Options
(except if such Options are about to expire); or

 

o                                    To complete sales under this Sellers Plan, Broker
will sell the shares issuable upon exercise of the Options first, before
selling the Plan Shares owned by Seller.

 

No Expiration of In-the-Money Options:

 

In the event that
unexercised Options are about to expire, Broker will exercise such Options at
its discretion during the last:

 

(Please Check Only One of The Following)

 

o                                    5 Trading Days prior to the expiration date of the
Options

 

o                                    30 Trading Days prior to the expiration date of the
Options

 

o                                    60 Trading Days prior to the expiration date of the
Options

 

o                                                    Trading
Days prior to the expiration date of the Options

 

Broker will in no event exercise any Option if at the
time of exercise the exercise price of the Option is equal to or higher than
then current market price of the Stock.

 

1

 

Instructions:

 

During the Sales
Period, Broker will sell the Daily Sales Amount, if any, for the account of
Seller on each Trading Day under ordinary principles of best execution at the
then-prevailing market price; provided that Broker will not sell any shares of
Stock under a Sellers Plan at a price of less than the Minimum Sales Price.

 

If, consistent with ordinary principles of best execution, Broker
cannot sell the Daily Sales Amount on any Trading Day, then the amount of such
shortfall may be sold as soon as practicable on the immediately succeeding
Trading Day and on each subsequent Trading Day as is necessary to sell such
shortfall consistent with the ordinary principals of best execution.  If any shortfall exists after the close of
trading on the last Trading Day prior to the termination of this Trading Plan
or the applicable Sellers Plan, Broker’s obligation and authorization to sell
such shares will terminate.

 

Minimum Sales Price:

 

o                                    $          per
share (before deducting any commission, commission equivalent, mark-up or
differential and other expenses of sale); or

 

o                                    The
greater of (i) the 20-day trailing average closing sale price of the
Stock, as reported by Bloomberg (or, if such trailing average price is not
reported by Bloomberg, the 20-day trailing average closing sale price as
calculated by Broker, whose calculation shall be final and binding absent gross
error), or (ii) $          
per share (before deducting any commission, commission equivalent, mark-up or
differential and other expenses of sale); or

 

o                                    For
each number of shares listed on the table below, the Minimum Sales Price will
be the price opposite such number of shares.

 

	
  Number of Shares

  	
   

  	
  Minimum Sales Price

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

2

 

Daily Sales Amount   (please check only one of the
following):

 

o                                    Broker
will set the Daily Sales Amount in its sole discretion; or

 

o                                                     shares
of Stock; or

 

o                                    an
amount of Stock resulting in aggregate proceeds (after deducting any commission,
commission equivalent, mark-up or differential, other expenses of sale,
exercise prices (if any), withholding taxes and other expenses of exercise) of
$         ; or

 

o                                                     shares
of Stock, except if          
or more shares of Stock have been sold under this Sellers Plan within the          
days preceding the current Trading Day, then the Daily Sales Amount will be
zero shares.

 

Reload Feature

 

o                                    On
the first day of each Sales Period, unless this Sellers Plan is otherwise
terminated, new shares of stock will be added as Plan Shares to this Sellers
Plan equal to the greater of (i) the number of Plan Shares in the
preceding Sales Period minus any shares not sold pursuant to the Sellers Plan
during the preceding Sales Period or (ii) the number of shares of Stock
subject to stock options held by Seller that will expire during the then
current Sales Period.  If necessary to
reload the Plan Shares (as described above), the Options will be updated to add
the earliest to expire stock options of the Seller until the Plan Shares have
been reloaded. Notwithstanding the foregoing, Options will not be added to this
Sellers Plan that will not vest within the then current Sales Period.

 

ESPP Shares

 

o                                    If
Seller purchases shares through the Isis Employee Stock Purchase Plan at any
time during the Sales Period, the newly purchased shares will automatically
become part of this Sellers Plan as Plan Shares and Broker will sell such
shares according to the following instructions:

 

3

 

Other Instructions:

 

4

 

Options:

 

	
  Option Number

  	
   

  	
  Number of Shares

  	
   

  	
  Exercise Price

  	
   

  	
  Expiration Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

5

 

EXHIBIT C

SELLER REPRESENTATION LETTER

Seller
Representation and Covenant Letter

 

Date:                    

 

Horwitz &
Associates, Inc.

2511 Garden Road, Suite C-225

Monterey, CA 93940

Attn: Peter Albano

 

Dear Peter:

 

In consideration of your
accepting orders to sell the Stock of Isis Pharmaceuticals, Inc. (“Isis”)
under the Isis Pharmaceuticals 10b5-1 Trading Plan (the “Trading Plan”) and the
Sellers Plan (as defined below), the Seller makes the representations and
agrees to the covenants set forth below.

 

All capitalized terms
that are not otherwise defined herein shall have the meanings ascribed to them
in the Trading Plan.  The terms of the
Trading Plan are incorporated herein by reference.  In the event of any conflict between the
provisions of this letter and the Trading Plan, the provisions of the Trading
Plan will control.

 

Seller hereby appoints
and authorizes Broker to sell shares of Stock pursuant to the terms and
conditions of the Trading Plan and the Sellers Plan attached hereto and
incorporated herein by reference as Exhibit I (the “Sellers Plan”).  Broker hereby accepts such appointment.

 

Seller Representations.

 

1.                                      Sales
of Stock under the Sellers Plan have been approved by an authorized
representative of Isis.

 

2.                                      As
of the date hereof, Seller is not aware of any material nonpublic information
concerning Isis or its securities. Seller is entering into the Sellers Plan in
good faith and not as part of a plan or scheme to evade compliance with the
federal securities laws.

 

3.                                      The
Stock to be sold under the Sellers Plan is owned free and clear by Seller
(subject, in the case of shares underlying Options, only to the compliance by
Seller with the exercise provisions of such options) and is not subject to any
agreement granting any pledge, lien, mortgage, hypothecation, security
interest, charge, option or encumbrance or any other limitation on disposition,
other than those which may have been entered into between Seller and Broker or
imposed by Rules 144 or 145 under the Securities Act.

 

4.                                      Seller
has had an opportunity to discuss the Sellers
Plan with his or her own advisors as to the legal, tax, business, financial and
related aspects of the Sellers Plan and has determined that the Sellers Plan
meets the affirmative defense criteria set forth in Rule 10b5-1(c).

 

1

 

Seller
has not relied upon Broker or Isis (or any person affiliated with Broker or
Isis) in connection with, Seller’s adoption and implementation of the Sellers
Plan.

 

5.                                      Seller
acknowledges and agrees that, once the Sellers Plan becomes effective, Seller
does not have, and shall not attempt to exercise, any influence over how, when
or whether to effect sales of Stock pursuant to the Sellers Plan.

 

Seller
Covenants.

 

1.                                      While
the Sellers Plan is in effect, Seller agrees not to (i) buy or sell any
securities of Isis outside of the transactions contemplated by the Trading Plan
and purchases pursuant to Isis’ Employee Stock Purchase Plan, (ii) enter
into or alter any corresponding or hedging transaction or position with respect
to the Stock covered by the Sellers Plan (including, without limitation, with
respect to any securities convertible or exchangeable into the Stock), and (iii) alter
or deviate from the terms of the Sellers Plan.

 

2.                                      Seller
agrees to deliver to Broker the Plan Shares pursuant to the Sellers Plan to be
placed into Seller’s Plan Account prior to the commencement of sales under the
Sellers Plan.

 

3.                                      Seller
agrees to make appropriate arrangements with Isis and its transfer agent and
stock plan administrator to permit Broker to furnish notice to Isis of the
exercise of the Options and to have underlying shares delivered to Broker as
necessary to effect sales under the Sellers Plan. Seller hereby authorizes
Broker to serve as Seller’s agent and attorney-in-fact and, in accordance with
the terms of the Sellers Plan, to exercise the Options. Seller agrees to
complete, execute and deliver to Broker cashless exercise forms, in sufficient
form to allow for the exercise of Options pursuant to the Sellers Plan at such
times and in such numbers as Broker may reasonably request.

 

4.                                      Seller
will not, directly or indirectly, communicate any information relating to the
Stock or Isis to any employee of Broker or its affiliates who is involved, directly
or indirectly, in executing the Sellers Plan at any time while the Sellers Plan
is in effect.

 

5.                                      Seller
agrees to notify Broker’s compliance office by
telephone or facsimile as soon as practicable if
Seller becomes aware of the occurrence of any Suspension Event. Such notice
will indicate the anticipated duration of
the restriction, but will not include any other information
about the nature of the restriction or its applicability to Seller and will not in any way communicate any material nonpublic
information about Isis or its securities to Broker.

 

6.                                      Seller
understands and agrees that so long as it is an “affiliate” of Isis for
purposes of Rule 144 under the Securities Act, all sales under the Plan
will be in accordance with Rule 144. 
Seller agrees not to take any action that would cause Seller to
aggregate sales under the Sellers Plan with sales of other securities of the
issuer pursuant to Rule 144, and not to take any action that would cause
the sales under the Plan not to comply with Rule 144.

 

7.                                      Seller
agrees to complete, execute and deliver to Broker Forms 144 for the sales to be
effected under the Sellers Plan at such times and in such numbers as Broker
reasonably requests.  The “Remarks” section of
each Form 144 will state that the sale is being made

 

2

 

pursuant
to a previously adopted plan intended to comply with Rule 10b5-1(c) and
will indicate the date the Sellers Plan was adopted and that the representation
is made as of such date.

 

8.                                      Seller
agrees to make all filings, if any, required under Sections 13(d), 13(g) and
16 of the Exchange Act in a timely manner, to the extent any such filings are
applicable to Seller.

 

9.                                      Seller
agrees that Seller will at all times during the Sales Period, in connection
with the performance of the Sellers Plan, comply with all applicable laws,
including, without limitation, Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

 

10.                               Seller
will notify Broker and Isis of any other purchase or sale transactions
involving securities of Isis that are not contemplated by the Trading Plan.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [name]

  
	
   

  	
  [address]

  
	
   

  	
  [telephone]

  
	
   

  	
  [fax]

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agreed:

  	
  Acknowledged:

  
	
   

  	
   

  
	
  Horwitz &
  Associates, Inc

  	
  Isis Pharmaceuticals, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B. Lynne
  Parshall

  
	
  By:  

  	
   

  	
   

  	
  Executive Vice
  President

  
	
   

  	
   

  
	
  Its:  

  	
   

  	
   

  	
   

  
	
   

  	
   

  
								

 

3Exhibit 10.3

 

CONFIDENTIAL TREATMENT REQUESTED

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

 

SECOND
AMENDED AND RESTATED COLLABORATION AGREEMENT

 

BETWEEN

 

ELI LILLY
AND COMPANY

 

AND

 

ISIS
PHARMACEUTICALS, INC.

 

August 5,
2005

 

 

SECOND
AMENDED AND RESTATED COLLABORATION AGREEMENT

 

THIS SECOND AMENDED AND RESTATED COLLABORATION
AGREEMENT (the “Agreement”)
executed on August 5, 2005 (the “Second Restatement
Execution Date”) and effective as of August 25, 2005 (the “Second Restatement Date”), by and
between ELI LILLY AND COMPANY, a corporation
organized and existing under the laws of Indiana and its Affiliates (together “Lilly”), and ISIS
PHARMACEUTICALS, INC., a corporation organized and existing under
the laws of Delaware (“Isis”).

 

RECITALS

 

A.                                   Isis
is engaged in the research and development of antisense oligonucleotides and
has accumulated considerable knowledge in the field of antisense technology,
including processes and techniques relating to the design, synthesis and
research of antisense oligonucleotides for use in gene functionalization and
target validation and as therapeutic products.

 

B.                                     Lilly
has expertise in the research, development, distribution and sale of
prophylactic and therapeutic products for human use.

 

C.                                     Lilly
and Isis entered into a collaboration agreement (the “Original
Agreement”) effective as of the Effective Date to identify,
characterize and/or develop antisense oligonucleotides that modulate the
expression of biological molecules and to characterize the effect of such
modulation to validate gene targets for drug discovery, including antisense
drug discovery.

 

D.                                    Lilly
and Isis amended and restated the Original Agreement effective as of the
Restatement Date (including all amendments thereto, the “Amended
and Restated Agreement”).

 

E.                                      Lilly
and Isis amended the Amended and Restated Agreement by agreement dated June 17,
2002.

 

F.                                      Lilly
and Isis extended the Oncology Term and further amended the Amended and
Restated Agreement by agreement dated May 3, 2004 (the “May 3, 2004 Agreement”).

 

G.                                     Lilly
and Isis now desire to extend the Collaboration Term with respect to the
Antisense Drug Discovery Program and the drug discovery Target Validation
Program, both in the Collaboration Therapeutic Area of oncology, and to amend
and restate certain terms of the Amended and Restated Agreement.

 

1

 

AGREEMENT

 

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

 

ARTICLE 1

DEFINITIONS; AMENDMENT AND RESTATEMENT

 

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

 

1.2                                                         Amendment and Restatement.  Effective as of the Second Restatement Date,
this Agreement restates and supersedes the Original Agreement and the Amended
and Restated Agreement as each has been amended through the Second Restatement
Date.  The terms and conditions of the
Original Agreement shall apply for the period from the Effective Date until the
Restatement Date unless otherwise provided by the Amended and Restated
Agreement (and any amendment thereto) or this Second Amended and Restated
Agreement.  The terms and conditions of
the Amended and Restated Agreement (and any amendment thereto) shall apply for
the period from the Restatement Effective Date until the Second Restatement
Date unless otherwise provided by this Second Amended and Restated Agreement.

 

ARTICLE 2

COLLABORATION OVERVIEW AND GOVERNANCE

 

2.1                                                         The
Collaboration.  Lilly
and Isis hereby agree to undertake the Collaboration during the Extended
Collaboration Term under the terms and conditions set forth in this
Agreement.  The Collaboration shall
consist of the Target Validation Program and the Antisense Drug Discovery
Program during the Extended Collaboration Term as directed by the Collaborative
Research Plan.

 

2.2                                                         [DELETED].

 

2.3                                                         [DELETED].

 

2.4                                                         [DELETED].

 

2.5                                                         Governance
- Executive Committee.  The
strategic direction and overall management of the Collaboration during the
Extended Collaboration Term shall be the responsibility of the Executive
Committee.  The Executive Committee shall
consist of the three (3) members from each Party listed in Schedule 2.5.  The Executive Committee may name additional
members to the Executive Committee from time to time so long as each Party has
an equal number of members.  Each Party
will designate a member who will be the primary contact on the Executive
Committee for that Party.  The designated
Lilly representative shall be responsible for scheduling the meeting of the
Executive Committee for that purpose. 
Either

 

2

 

Party can change its representatives
on the Executive Committee by written notice to the other Party.

 

2.5.1                        Executive Committee Meetings.  During the
Extended Collaboration Term and for one (1) year thereafter the Executive
Committee shall meet at least every three (3) months to
review the research carried out under the Collaboration and to consider
modifications to the strategy and goals of the Target Validation Program and
the Antisense Drug Discovery Program.  In
addition, the Executive Committee may meet on an ad hoc basis. The Parties
shall mutually agree upon the times and places for such meetings, alternating
between Indianapolis, Indiana and Carlsbad, California, or such other location
as members of the Executive Committee shall agree.  Each Party shall bear its own costs
associated with holding and attending such meetings.  If mutually agreed by the Parties, such
meetings may be held by videoconference or teleconference.  An agenda shall be agreed upon by the
Executive Committee members and be distributed to the Parties no less than one (1) week
before any semiannual meeting.  If a
representative of a Party on the Executive Committee is unable to attend a
meeting of the Executive Committee, such Party may designate an alternate to
attend such meeting and vote on behalf of such missing representative.  In addition, each Party may, at its
discretion, invite nonvoting employees, consultants or advisors (which
consultants and advisors shall be under an obligation of confidentiality no less
stringent than those terms set forth herein) to attend any meeting of the
Executive Committee.  Minutes shall be
kept of all Executive Committee meetings by the hosting Party and sent to all
members of the Executive Committee for review and approval within seven (7) days
after each meeting.  Minutes shall be
deemed approved unless any member of the Executive Committee objects to the
accuracy of such minutes by providing written notice to the other members of
the Executive Committee within ten (10) days of receipt of the minutes;
provided, however, that in the event of any such objection by a Party that the
Parties are unable to resolve, such minutes shall reflect such unresolved
dispute.

 

2.5.2                        Executive Committee Responsibilities.  The
Executive Committee shall have the following responsibilities:

 

(a)                                  to
review the Collaborative Research Plan from a strategic perspective;

 

(b)                                 to
review the progress and results of the Collaboration to ensure that the Parties
are meeting their commitments for both human and financial support and are each
fulfilling all of their respective contractual obligations;

 

(c)                                  to
attempt to resolve any disagreements between the Parties with respect to the
research conducted under the Collaboration;

 

(d)                                 to
optimize the value of the intellectual property arising from the Collaboration.

 

(e)                                  to
review the Collaborative Research Plan from a scientific and operational
perspective;

 

3

 

(f)                                    to
make changes to the portions of the Collaborative Research Plan relating to the
Target Validation Program and the Antisense Drug Discovery Program as it deems
necessary to accomplish the purpose of the Collaboration;

 

(g)                                 to
prioritize and monitor progress of antisense lead identification for the Target
Validation Program and Drug Discovery Program; provided,
however, that if there is a disagreement concerning the
prioritization of a Validation Target, such disagreement shall be decided by
Lilly;

 

(h)                                 to
review the qualifications of the Collaboration FTEs to ensure that the Parties
are meeting the intent of the Collaborative Research Plan;

 

(i)                                     to
approve changes to the allocation of Collaboration Funds set forth in the
Collaborative Research Plan between the Target Validation Program and the
Antisense Drug Discovery Program;

 

(j)                                     to
review and approve the use of any Third Party in the Collaboration and expenses
related thereto, including review and approval of any related Third Party
contract;

 

(k)                                  to
review and monitor all results of the work performed under Collaboration,
including scientific efforts of both Parties, and providing prioritization,
oversight and direction regarding such work in accordance with the
Collaborative Research Plan;

 

(l)                                     to
adopt and modify the Critical Success Factors related to a Collaboration
Therapeutic Area either generally or specifically with respect to a Validation
Target or a Drug Discovery Target as documented by approved Executive Committee
minutes;

 

(m)                               to
determine whether a Validation Target is an Accepted Validation Target or
Rejected Validation Target or Abandoned Validation Target;

 

(n)                                 to
designate Drug Discovery Targets and Validation Targets; and

 

(o)                                 to
make a determination of whether a Drug Discovery ASO Compound meets the
criteria for designation as a Development Candidate and making such designations.

 

2.5.3                        Executive Committee Decisions.  Decisions
of the Executive Committee shall be made by unanimous vote, with each member
having one (1) vote.  No vote of the
Executive Committee may be taken unless all members of the Executive Committee
vote.  If
the Executive Committee is unable to reach a unanimous vote on any matter, then
the matter shall be referred to [***].

 

2.5.4                        Executive Committee Quarterly Status Reports.  During the
Extended Collaboration Term and upon expiration thereof the Executive Committee
will prepare a quarterly status report that generally summarizes the research
and development efforts conducted by each Party under the Collaboration during
the two (2) previous Calendar Quarters. 
The report shall include, without limitation, a general summary of
important events, progress on critical

 

4

 

success objectives, any
milestones reached, personnel changes, learning points and other matters that
the Executive Committee may deem appropriate. 
The Executive Committee shall establish goals and objectives for the
Collaboration.

 

2.6                                                         [DELETED].

 

2.6.1                        [DELETED].

 

2.6.2                        [DELETED]
.

 

2.6.3                        [DELETED].

 

2.7                                                         [DELETED]
..

 

2.7.1                        [DELETED].

 

2.7.2                        [DELETED].

 

2.8                                                         Dissolution
of the Committees.  Upon
expiration of the Initial Collaboration Term all committees other than the
Executive Committee shall dissolve.  The
Executive Committee shall cease having regular meetings twelve (12) months
after expiration or termination of the Extended Collaboration Term but shall
meet on an ad hoc basis
for so long thereafter as is necessary

 

2.9                                                         Alliance
Managers.  Each
Party shall designate one (1) representative to coordinate the activities
of the Parties under the Collaboration (the “Alliance
Managers”).  The
Alliance Managers are listed on Schedule 2.9.  The Alliance Managers’ responsibilities shall
include maintenance of a current list of Validation Targets (including Rejected
Validation Targets and Accepted Validation Targets), Drug Discovery Targets and
Reserved Targets, coordinating meetings of the Executive Committee and
otherwise facilitating the activities of the Parties in the course of the
Collaboration under this Agreement.  Each
Party may change its Alliance Manager by written notice to the other Party.

 

ARTICLE 3

THE COLLABORATION

 

3.1                                                         Collaboration
Staffing.  Isis and
Lilly employees involved in the Collaboration will conduct the research
activities in a manner as required to maintain progress on the objectives of
the Collaboration as set forth herein and in the Collaborative Research
Plan.  To achieve these objectives, Isis
and Lilly will assign qualified employees as set forth in the Collaborative
Research Plan.  During the Extended
Collaboration Term, Isis shall commit the number of Isis Collaboration FTEs to
the Antisense Drug Discovery Program as specified in the Collaborative Research
Plan.  By unanimous decision of the
Executive Committee the number of FTEs committed to the Collaboration may be
increased or decreased from the levels specified in the Collaborative Research
Plan.  Lilly shall apply an appropriate
number of FTEs to achieve the objectives set out for Lilly in the Collaborative
Research Plan.  FTEs applied by Lilly to
carry

 

5

 

out the work set forth in
the Collaborative Research Plan shall not be considered to be Lilly
Collaboration FTEs and such FTEs shall not be reimbursed with Collaboration
Funds.

 

3.2                                                         Subcontracting.  Except to the extent approved by the
Executive Committee or as otherwise expressly permitted in the Collaborative
Research Plan, neither Party shall subcontract to a Third Party any portion of
the activities assigned to it under the Collaborative Research Plan, other than
through the use of on site contract employees. 
To the extent such subcontracting is approved, prior to engaging a Third
Party, Isis or Lilly, as applicable, shall first obtain a written agreement
with such Third Party containing appropriate confidentiality and non-use
provisions as determined by the Parties and written assignments to Isis or
Lilly, as applicable, of all Patent Rights and Know-How that such
subcontractors may develop by reason of work performed under such
contract.  Moreover, any Third Party
subcontractor shall be required to perform its services in accordance with any
applicable generally accepted professional standards as well as standards
designated by the Executive Committee (if any) and with any applicable codes, rules and
regulations.

 

3.3                                                         Staff
Availability.  Each
Party shall make its employees, and permitted subcontractors engaged in the
Collaboration reasonably available upon reasonable notice during normal
business hours at their respective places of employment to consult with the
other Party on issues arising during Collaboration and in connection with any
request from any regulatory agency, including those relating to regulatory,
scientific, and technical issues.

 

3.4                                                         Facility
Visits. 
Representatives of Lilly and Isis may, upon reasonable notice during
normal business hours, (a) visit the facilities where the Collaboration is
being conducted, including by Third Parties, (b) consult informally,
during such visits and by telephone, with personnel for the other Party
performing work on the Collaboration, and (c) with the other Party’s prior
approval, which approval shall not be unreasonably withheld, visit the sites of
any experiments or tests being conducted by, or on behalf of, such other Party
in connection with the Collaboration.  On
such visits, an employee of the Party being visited shall accompany the
employee(s) of the visiting Party.  If
requested by a Party, the other Party shall cause appropriate individuals
working on the Collaboration to be reasonably available for meetings at times
and places reasonably convenient to the Party subject to such request.

 

3.5                                                         Exchange
of Information.  Isis
will promptly make available and disclose to Lilly such information regarding
the sequence, design, synthesis and screening of Validation ASO Compounds and
Drug Discovery ASO Compounds generated by Isis in carrying out the
Collaboration as set forth in the Collaborative Research Plan.  All discoveries or inventions made in the
course of the Collaboration by a Party will be promptly disclosed to the other
Party.  At a Party’s request, the other Party
will provide written reports of any studies performed by such other Party as
part of the Collaboration required to support regulatory submissions relating
to Products to be made by such first Party or its Sublicensees and will allow
such first Party and its Sublicensees to use the data included in such reports
to support such submissions.  The Parties
are encouraged to communicate often by telephone, electronic mail or other
mechanisms to keep each Party fully advised of the activities being carried out
by a Party under the Collaboration.

 

3.6                                                         Records.  Isis and Lilly will each maintain records in
sufficient detail and in good scientific and business manner appropriate for
purposes such as patent and regulatory

 

6

 

matters, which will be
complete and accurate and will fully and properly reflect all work done and
results achieved in the performance of the Collaboration including prompt
signing and corroboration of laboratory notebooks and conception documents.

 

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

 

ARTICLE 4

THE REAGENT PROVISION PROGRAM

 

4.1                                                         [DELETED].

 

4.2                                                         [DELETED].

 

4.3                                                         [DELETED].

 

4.4                                                         [DELETED].

 

4.5                                                         [DELETED].

 

4.6                                                         [DELETED].

 

4.7                                                         [DELETED].

 

ARTICLE 5

THE DRUG DISCOVERY TARGET VALIDATION PROGRAM

 

5.1                                                         Description
and Term.  The
drug discovery Target Validation Program commenced on the Effective Date and
shall continue to be conducted by Lilly and Isis during the Extended
Collaboration Term in accordance with the Collaborative Research Plan.

 

5.2                                                         Target
Designation. 
Targets to be analyzed in the course of the drug discovery Target
Validation Program shall be selected by Lilly in the Collaboration Therapeutic
Area of oncology and designated as Validation Targets in accordance with this Section 5.2.  Lilly shall provide written notice to Isis
identifying each Target that it wishes to designate as a Validation Target (a “Proposed Validation Target”).  Within [***] days after such notice, Isis
shall provide written notice to Lilly indicating whether such Proposed
Validation Target is subject to any agreement between Isis and a Third Party
under which such Third Party has or may acquire rights to ASO Products directed
to such Proposed Validation Target, or whether Isis has an Isis Internal
Program with respect to such Proposed Validation Target or ASO Products
directed thereto.

 

7

 

5.2.1                        If a Proposed Validation Target is not subject to
an agreement between Isis and a Third Party under which such Third Party has or
may acquire rights to ASO Products directed to such Proposed Validation Target
and Isis does not have an Isis Internal Program with respect to such Proposed
Validation Target or ASO Products directed thereto, then such Proposed
Validation Target shall be deemed a Validation Target and shall be made part of
the Target Validation Program.

 

5.2.2                        If a Proposed Validation Target is subject to an
agreement between Isis and a Third Party under which such Third Party has or
may acquire rights to ASO Products directed to such Proposed Validation Target
[***].

 

5.2.3                        [***]

 

5.3                                                         Target
Validation Program. 
Validation Targets and Validation ASO Compounds directed thereto shall
be analyzed under the Target Validation Program with the aim of achieving the
applicable Critical Success Factors agreed to by the Executive Committee.  All results generated in the course of Target
Validation Program shall be promptly provided to a member of the Executive
Committee for the other Party by means of a written report generated by the
Parties and by placing such results in a shared database.  [***].

 

5.3.1                        As of the Second Restatement Date there are no
Validation Targets under evaluation in the Target Validation Program in any of
the Collaboration Therapeutic Areas.  The
Executive Committee may agree to add Validation Targets to the Collaborative
Research Plan according to the procedure set forth in Section 5.2 but only
in the Collaboration Therapeutic Area of oncology.

 

5.4                                                         Executive
Committee Review.  At
the next Executive Committee meeting following the completion of the evaluation
of a Validation Target under the Target Validation Program, the Executive
Committee shall review the results generated with respect to such Validation
Target and shall determine whether such Validation Target has achieved the
Critical Success Factors for such Validation Target.  If the Executive Committee determines that a
Validation Target meets the Critical Success Factors, such Validation Target
shall be deemed an “Accepted Validation
Target.”  If
the Executive Committee determines that a Validation Target does not meet the
Critical Success Factors, such Validation Target shall be deemed a “Rejected Validation Target.”

 

5.5                                                         Accepted
Validation Targets. 
[***].

 

5.5.1                        Isis shall provide written notice to Lilly [***].

 

5.5.2                        Isis shall provide written notice to Lilly if
[***].

 

5.5.3                        The Accepted Validation Targets as of the Second
Restatement Execution Date are listed in Schedule 5.5.3.

 

5.6                                                         Rejected
Validation Targets. 
[***].

 

5.6.1                        [***].

 

8

 

5.6.2                        [***].

 

5.6.3                        The Rejected Validation Targets as of the Second
Restatement Execution Date are listed in
Schedule 5.6.3.

 

5.7                                                         Lilly
Rights Regarding Other Targets.  [***]

 

5.8                                                         Exclusive
Targets. 
During the Target Validation Program Term Lilly may elect to designate
any Validation Target, respectively, an “Exclusive
Target” as described in this Section 5.8.  Lilly shall provide Isis with a written
description of each Target that Lilly desires to designate as an Exclusive
Target.  The date upon which Isis
receives such notice from Lilly shall be the “Target
Notice Date.”  [***]

 

5.9                                                         Validation
ASO Products.  Lilly
shall have an option to obtain one or more licenses with respect to Validation
ASO Products in accordance with Section 8.2.2.

 

5.10                                                   Lilly
Confidential Information.  All information provided to Isis by Lilly
with respect to a Validation Target shall be considered the Confidential
Information of Lilly and shall be subject to the obligations of Article 10
of this Agreement, including any nucleic acid or amino acid sequence of a
Validation Target that is provided to Isis by Lilly. As long as such information
is Confidential Information, Isis shall use such Confidential Information of
Lilly only (a) in the course of the Collaboration, (b) in Isis’
internal antisense drug discovery efforts as expressly permitted by this
Agreement, or (c) as otherwise expressly permitted by this Agreement, but
for no other purpose.

 

5.11                                                   Use and
Disclosure.  Use
of Validation ASO Compounds or Validation Targets by a Party as expressly
permitted by this Agreement shall not be considered part of the Collaboration
unless such use is carried out as specifically provided in the Collaborative
Research Plan.  Know-How generated
outside the course of the Collaboration by Lilly or Isis as expressly permitted
by this Agreement, including through use of Validation ASO Compounds, Validation
Non-ASO Compounds, or Validation Targets, shall not be Lilly Collaboration
Know-How or Isis Collaboration Know-How, respectively, and any resulting Patent
Rights shall not be Lilly Collaboration Patent Rights or Isis Collaboration
Patent Rights, respectively.

 

5.12                                                   Abandoned
Validation Targets.  The
Executive Committee shall have the authority to designate one or more
Validation Target(s) as “Abandoned Validation
Target(s)” if the Executive Committee determines that no
further work aimed at achieving the applicable Critical Success Factors for any
such Validation Target should be carried out under the Target Validation
Program.  Upon designation of a
Validation Target as an Abandoned Validation Target no further work shall be
conducted under the Validation Program on such Abandoned Validation
Target.  Abandoned Validation Targets
shall not be considered to be Validation Targets for purposes of the
Agreement.  The terms of the Agreement
with respect to Validation Targets, including ASO Compounds and Non-ASO
Compounds directed thereto, shall not be applicable to any such Abandoned
Validation Targets, including ASO Compounds and Non-ASO Compounds directed
thereto, except as specifically provided otherwise in this Section 5.12.
The terms of Section 5.6.2 of the Agreement with respect to Rejected
Validation Targets and ASO Compounds directed thereto shall be applicable to
all Abandoned Validation Targets and

 

9

 

ASO Compounds directed
thereto.  Lilly will have the right to
designate any Abandoned Validation Target as an Exclusive Target, Reserved
Target, or Validation Target in accordance with the terms of Sections 5.8, 6.8
and 5.2, respectively, of the Agreement (a “Designation Event”).  For purposes of clarity, (i) there are
no residual milestone or royalty payment obligations owing either Party to the
other with respect to Abandoned Validation Targets, including ASO Compounds and
Non-ASO Compounds directed thereto, unless a Designation Event occurs and only
if specifically required by this Agreement and (ii) the LillyRight of
First Negotiation under Section 8.3.3 will not apply to Abandoned
Validation Targets, including ASO Compounds and Non-ASO Compounds directed
thereto.  The Abandoned Validation
Targets as of the Second Restatement Execution Date are listed in Schedule 5.12.

 

ARTICLE 6

THE ANTISENSE DRUG DISCOVERY PROGRAM

 

6.1                                                         Description
and Term.  The
Antisense Drug Discovery Program shall continue to be conducted by Isis and
Lilly during the Antisense Drug Discovery Term in accordance with the
Collaborative Research Plan.  The
Antisense Drug Discovery Term commenced on the Effective Date and shall
continue until the expiration of the Extended Collaboration Term, unless Lilly
exercises its option to extend the Antisense Drug Discovery Term, as provided
in Section 13.1, the Parties otherwise mutually agree to extend or
terminate the Antisense Drug Discovery Program, or the Collaboration is
terminated in accordance with Article 13. 
Lilly and Isis shall use commercially reasonable efforts to develop Drug
Discovery ASO Compounds into Development Candidates in accordance with the
Collaborative Research Plan.  The
Collaborative Research Plan includes the Critical Success Factors for the
Antisense Drug Discovery Program.  By
execution of this Agreement the Critical Success Factors are approved by each
Party.  The Executive Committee is
responsible for implementing the Collaborative Research Plan, and any
modifications or amendments thereto, consistent with the terms of this
Agreement.

 

6.2                                                         Drug
Discovery Target Designation.

 

6.2.1                        Targets Available for Designation as Drug Discovery
Targets.  During the Antisense Drug Discovery Term, the
Executive Committee shall designate the Drug Discovery Targets to be analyzed
under the Antisense Drug Discovery Program in the
Collaboration Therapeutic Area of oncology. 
[***]  Targets designated as Drug
Discovery Targets during the Antisense Drug Discovery Term may include any
Target that is suspected of playing a role in the Collaboration Therapeutic
Area of oncology, including Reserved Targets, Reagent Targets, Accepted
Validation Targets, Exclusive Targets, Rejected Validation Targets, and other
Targets that the Executive Committee determines to be of interest based on the
scientific merits of applying Antisense Technology to modulate such Target;
[***].  The Drug Discovery Targets
provided by Isis for the Collaboration Therapeutic Area of oncology and the
stage of development of such Targets as of the Second Restatement Date (i.e., whether
such Target is a Stage 1, Stage 2 or Stage 3 Drug Discovery Target) are
identified in Schedule 6.2, which may be amended from time to time by
agreement of the Parties.

 

10

 

6.2.2                        Disagreements Regarding Drug Discovery Target
Designation.  If the Executive Committee cannot agree on
whether to designate a Target a Drug Discovery Target, [***].

 

6.2.3                        Restriction on Isis’ Right to Use Drug Discovery
Targets.  Except as otherwise expressly permitted by this
Agreement, Isis shall not (i) conduct any research on any Drug Discovery
Target or any ASO Compound directed thereto, outside the course of the
Collaboration either on its own or for a Third Party or (ii) grant or
assign any rights to a Third Party with respect to any Drug Discovery Target or
ASO Compound directed thereto, in each case, while such Drug Discovery Target
is the subject of an Active Program.

 

6.3                                                         Further
Designation as Stage 1, 2 or 3 Drug Discovery Target.  Concurrently with the designation by the
Executive Committee of a Target as a Drug Discovery Target, the Executive
Committee shall also designate such Target as a Stage 1 Drug Discovery Target,
Stage 2 Drug Discovery Target, or Stage 3 Drug Discovery Target, as
appropriate.

 

6.4                                                       Development
Candidate Designation.

 

6.4.1                        During the Antisense Drug Discovery Term.  During the
Antisense Drug Discovery Term if in the opinion of a Party, a Drug Discovery
ASO Compound has met the Critical Success Factors set out in the Collaborative
Research Plan and such Drug Discovery ASO Compound is
ready for IND-enabling toxicology studies, such Party may recommend to the
Executive Committee that such Drug Discovery ASO Compound be designated a
Development Candidate and, at the next meeting of such Committee, the Committee
shall vote on such matter.  If the
Executive Committee determines that a Drug Discovery ASO Compound has met the
Critical Success Factors, then such Drug Discovery ASO Compound shall be
considered to be a “Development
Candidate.”  Lilly shall
have the option to license each Development Candidate in accordance with Section 8.2.3.

 

6.4.2                        After the Antisense Drug Discovery Term.  Subject to
Section 6.5, after the Antisense Drug Discovery Term Lilly shall make the
decision of whether a Drug Discovery
ASO Compound corresponding to a Drug Discovery Target that is the subject of an
Active Program shall be designated a Development Candidate, using criteria
substantially similar to those used by the Executive Committee during the
Antisense Drug Discovery Term and the Extended Collaboration Term.  Lilly shall have the option to license each
Development Candidate in accordance with Section 8.2.3.

 

6.5                                                         Continued
Development of Drug Discovery Targets After the Antisense Drug Discovery Term.  Within ten (10) days following expiration
or termination (subject to Article 13) of the Antisense Drug Discovery
Term and again on the [***] anniversary of such expiration or termination,
Lilly shall provide Isis with written notice of those Drug Discovery Targets
with respect to which Lilly intends to continue an Active Program.  In addition, from the date that is [***]
months following such expiration or termination of the Antisense Drug Discovery
Term until the [***] anniversary of the expiration or termination (subject to Article 13)
of the Antisense Drug Discovery Term Lilly shall provide Isis with semiannual
written reports describing the work conducted in the previous six (6) months
on each such Drug Discovery Target and Drug Discovery ASO Compounds directed
thereto in sufficient detail to

 

11

 

permit Isis to verify that
Lilly is maintaining an Active Program with respect thereto and notifying Isis
of any such Drug Discovery Target with respect to which Lilly has discontinued
an Active Program; provided, however, such
reports shall be given annually once such Drug Discovery Target has been
licensed by Lilly under Section 8.2.3. 
Subject to the provisions of Article 13, for so long as Lilly
maintains an Active Program with respect to a Drug Discovery Target after the
expiration or termination of the Antisense Drug Discovery Term (but in no event
to exceed [***] years after such expiration or termination), Lilly shall have
the right to continue to perform research and development on such Drug
Discovery Target and Drug Discovery ASO Compounds directed thereto.

 

6.5.1                        Active Programs.  As of the
Second Restatement Execution Date there are no Active Programs in any of the
Collaboration Therapeutic Areas other than those in the Collaboration
Therapeutic Area of oncology.  As of the
Second Restatement Date the Active Programs in the Collaboration Therapeutic
Area of oncology are listed in Schedule 6.5.1.

 

6.6                                                         Development
and Commercialization of Development Candidates.  Unless agreed otherwise by the Executive
Committee and subject to Section 8.2.3, Lilly shall be solely responsible
for all development and commercialization activities relating to Development
Candidates.

 

6.7                                                         Abandoned
Drug Discovery Targets. 
During the Antisense Drug Discovery Term, the Executive Committee may
designate a Drug Discovery Target as an “Abandoned
Drug Discovery Target” if such committee concludes that such Drug
Discovery Target should no longer be the subject of an Active Program as part
of the Collaboration.  [***].

 

6.7.1                        Effective as of Second Restatement Date, the [***]
metabolics Targets listed Schedule 6.7.1 shall be deemed Abandoned Drug Discovery Targets.

 

6.7.2                        The Abandoned Drug Discovery Targets as of the
Second Restatement Execution Date (including
the [***] metabolics Targets listed Schedule 6.7.1) are listed in Schedule 6.7.2.

 

6.8                                                         Reserved
Targets. 
During the Extended Collaboration Term Lilly may designate any Target
related to a Collaboration Therapeutic Area as a “Reserved Target,” [***].  Lilly shall provide written notice to Isis
identifying each Target that Lilly desires to designate as a Reserved
Target.  The date upon which Isis
receives such notice shall be deemed the “Reserved
Target Notice Date.”  [***]

 

6.9                                                         Limitation
on Number of Drug Discovery Targets and Reserved Targets.  During the Extended Collaboration Term, the
total number of Reserved Targets shall not [***]. Within [***] days after the
expiration of the Extended Collaboration Term, Lilly shall decrease the total
number of Reserved Targets to [***] and such [***]. Reserved Targets shall be
limited to Targets in the Collaboration Therapeutic Area of oncology. Effective
as of the [***] anniversary of the expiration of the Extended Collaboration
Term, no Target shall be deemed a Reserved Target for purposes of this
Agreement.

 

6.9.1                        The Reserved Targets as of the Second Restatement
Execution Date are listed in Schedule 6.9.1.

 

12

 

ARTICLE 7

DEVELOPMENT, COMMERCIALIZATION, MANUFACTURING AND SUPPLY

 

7.1                                                         Research
Supply.  Isis
shall supply Validation ASO Compounds and Drug Discovery ASO Compounds to Lilly
as set forth in the Collaborative Research Plan.  In the event that Lilly elects to obtain additional
quantities of a Validation ASO Compound and/or Drug Discovery ASO Compound for
use outside of the Collaboration, Lilly shall so inform Isis in writing
specifying the additional quantity desired by Lilly.  Isis shall promptly provide Lilly such
additional quantities of such Validation ASO Compound and/or Drug Discovery ASO
Compound in accordance with the specifications set out in the Collaborative
Research Plan. Within [***] days after receipt of such Validation ASO Compound,
and/or Drug Discovery ASO Compound, Lilly shall pay Isis [***] (inclusive of
all shipping, freight and other delivery charges) for the first gram (or
fraction thereof) of such additional Validation ASO Compound or Drug Discovery
ASO Compound requested by and delivered to Lilly in any one order.  For any quantities of Validation ASO Compound
or Drug Discovery ASO Compound requested by and delivered to Lilly above [***]
in any one order Lilly shall pay for such extra quantity in an amount equal to
[***] per gram or fraction thereof within [***] after receipt of such
additional quantities of Validation ASO Compound, and/or Drug Discovery ASO
Compound.

 

7.2                                                         Clinical
Supply.  Upon
request by Lilly, Isis will supply all of Lilly’s requirements of any
Validation ASO Compound and/or Drug Discovery ASO Compound required by Lilly
(not to exceed [***] such ASO Compounds per year, nor to exceed [***] kilograms
of all ASO Compounds provided under this Section 7.2 per year) through the
completion of Phase II Clinical Trials on such Validation ASO Compound or Drug
Discovery ASO Compound.  Isis will also
provide any information and documentation on such Validation ASO Compound or
Drug Discovery ASO Compound that is required by regulatory authorities.  Isis will supply any such Validation ASO
Compound or Drug Discovery ASO Compound pursuant to mutually agreed upon
specifications.  The Parties will
negotiate in good faith on the terms of a clinical supply agreement containing
these and other customary terms.  If Isis
is not able to supply a Validation ASO Compound or Drug Discovery ASO Compound
to Lilly or if Lilly determines to obtain supply of any such Validation ASO
Compound or Drug Discovery ASO Compounds from a Third Party, then Isis will, at
Lilly’s request and expense, promptly transfer all necessary technology and
technical assistance and grant all necessary rights and licenses to permit
Lilly, a Lilly Sublicensee, or Third Parties on behalf of Lilly or a Lilly
Sublicensee, to manufacture and supply such Validation ASO Compound and Drug
Discovery ASO Compounds (a “Supply Transfer”).  Notwithstanding the foregoing, for every
Supply Transfer by Lilly or a Lilly Sublicensee, the following conditions apply
(A) Lilly will obtain an agreement from any Lilly Sublicensee or Third
Party that receives Isis’ technology as part of a Supply Transfer that such
Lilly Sublicensee or Third Party can only use such technology on behalf of
Lilly in connection with the relevant Validation ASO Compound and Drug
Discovery ASO Compounds, and will keep such technology confidential and (B) Lilly
will promptly notify Isis in writing identifying the Isis technology disclosed
to a Lilly Sublicensee or Third Party as part of a Supply Transfer and
identifying by name each such Lilly Sublicensee or Third Party and (C) Lilly
will enforce the obligations of confidentiality and nonuse set forth in the
agreement referred to above in Section 7.2(A).

 

13

 

7.3                                                         Development
and Commercialization.  Lilly
shall be solely responsible for all development and commercialization of Lilly
Products, including toxicology, clinical development, regulatory, manufacturing
and commercialization efforts, except as agreed otherwise by the Parties.  Lilly and its Sublicensees shall have the
sole right and responsibility for the preparation of any regulatory filings
required in order to conduct clinical trials on Lilly Products in the
Territory, together with the preparation of suitable applications for marketing
approval in the Territory and shall be the owner and party of record of all such
regulatory filings.  Isis shall cooperate
with Lilly, at Lilly’s expense, as Lilly reasonably requires in preparing such
regulatory filings including, without limitation, any and all data contained
therein.

 

7.4                                                         STAT3
Material Supply.  Upon
request by Lilly, Isis will supply Lilly with up to [***] grams of the ASO
Compound directed to the STAT3 Target which was produced in accordance with
Good Manufacturing Practices and is located at Isis’ facilities as of the
Second Restatement Execution Date (“STAT3
ASO Compound”).  Isis
will supply all such STAT3 ASO Compound in amounts requested by Lilly (not to
exceed a total of [***] grams) through the initiation of [***] on such STAT3
ASO Compound; provided, however, that
Lilly may purchase such STAT3 ASO Compound in no more than [***] installments,
the last installment of which may be requested by Lilly no later than sixty
(60) days after such STAT3 ASO Compound achieves [***].  Lilly shall pay Isis [***]gram [***] for the
amount of STAT3 ASO Compound requested by Lilly. Isis will also provide any
information and documentation on such STAT3 ASO Compound that is requested by
Lilly and that is required by, or useful to, regulatory authorities at no
additional cost to Lilly; provided, however, that
Isis shall not be required to create any such documentation for Lilly, unless
otherwise agreed by the Parties. Lilly acknowledges that the STAT3 ASO Compound
is provided “AS IS,” without any warranty of any kind, express or implied,
including any warranty of merchantability or fitness for a particular purpose.

 

ARTICLE 8

GRANT OF RIGHTS

 

8.1                                                         Licenses
to Lilly.

 

8.1.1                        Research Licenses.  Subject to
the terms and conditions of this Agreement, Isis hereby grants to Lilly:

 

(a)                                  a
co-exclusive (with Isis), nonsublicensable, royalty free license during the
Collaboration Term under the Isis Collaboration Technology solely to the extent
necessary or appropriate to carry out Lilly’s responsibilities under the
Collaborative Research Plan;

 

(b)                                 a
non-exclusive, nonsublicensable, royalty free license, under the Isis
Technology (i) solely to the extent necessary or appropriate to carry out
Lilly’s responsibilities under the Collaborative Research Plan and (ii) to
use Reagent ASO Compounds for internal research purposes (which shall include,
without limitation, research conducted in connection with bona fide collaboration arrangements
between Lilly and Third Parties); and

 

14

 

(c)                                  an
exclusive, nonsublicensable, royalty free license under the Isis Collaboration
Blocking Patents, and a non-exclusive, nonsublicensable, royalty free license
under the Isis Collaboration Technology other than the Isis Collaboration
Blocking Patent Rights, in each case to conduct research outside the course of
the Collaboration in the Non-ASO Field in the Territory.

 

8.1.2                        Product Licenses.  Subject to
the terms and conditions of this Agreement, Isis hereby grants to Lilly (i) an
exclusive license, including the right to sublicense, under the Isis
Collaboration Blocking Patents,
and (ii) a non-exclusive license, including the right to sublicense, under
the Isis Collaboration Technology other than the Isis Collaboration Blocking
Patents, in each case to make, use, import, sell and offer to sell Reagent
Non-ASO Products, Validation Non-ASO Products, and Drug Discovery Non-ASO
Products in the Territory.  Such licenses
shall be royalty-bearing as expressly provided by this Agreement.

 

8.2                                                         Lilly
Product Options.

 

8.2.1                        Option to Isis Blocking Patent Rights for Reagent
Non-ASO Products.  Subject to the terms and conditions of this
Agreement, Isis hereby grants to Lilly an option, exercisable on a Reagent
Non-ASO Compound-by-Reagent Non-ASO Compound basis, to obtain a non-exclusive
royalty-bearing licenses under the Isis Blocking Patent
Rights to develop, make, use, import, offer for sale and sell Reagent Non-ASO
Products in the Territory; such license(s) shall include the right to grant
sublicenses solely for the purpose of developing, making, using, importing,
offering for sale and selling the applicable Reagent Non-ASO Product.  Lilly may exercise an option granted pursuant
to this Section 8.2.1 at any time during the term of this Agreement by
providing written notice to Isis that includes a description of the Isis
Blocking Patent Rights for which Lilly desires to obtain such non-exclusive
license. Any license granted to Lilly pursuant to exercise of an option under
this Section 8.2.1 shall be royalty-bearing in accordance with Section 9.3.1(b) hereof.

 

8.2.2                        Option to Reagent Targets and Validation Targets and
Exclusive Targets.

 

(a)                                  Grant of Option.  Subject to the terms and conditions of this
Agreement, Isis hereby grants to Lilly an option, exercisable on a Reagent
Target-by-Reagent Target or Validation Target-by-Validation Target basis, as
applicable, to obtain an exclusive, royalty-bearing license, including the
right to sublicense, under the Isis Collaboration Technology and the Isis
Technology to develop, make, use, import, offer for sale and sell Reagent ASO
Products containing one or more Reagent ASO Compounds directed to such Reagent
Target or Validation ASO Products containing one or more Validation ASO
Compounds directed to such Validation Target, as applicable, in the Territory.

 

(b)                                 Exercise of Option.  Lilly may exercise an option granted pursuant
to this Section 8.2.2 with respect to (i) any Reagent Target during
the [***] year period commencing upon delivery to Lilly of a Reagent ASO
Compound directed to such Reagent Target and (ii) any Validation Target,
except Abandoned Validation Targets, during the Initial Collaboration Term and
[***] year thereafter for Validation Targets in Collaboration Therapeutic Areas
other than oncology and during the Target Validation Program Term and

 

15

 

[***] year thereafter for
Validation Targets in the Collaboration Therapeutic Area of oncology, in each
case, by providing written notice to Isis that includes a description of such
Reagent Target or Validation Target, as applicable.  The date that Isis receives such notice shall
be deemed the “Section 8.2.2 Exercise
Notice Date.”  Within
[***] days following the Section 8.2.2 Exercise Notice Date for a Reagent
Target or Validation Target, Isis shall notify Lilly whether or not Isis has
granted or assigned any rights to any Third Party as permitted by this
Agreement with respect to such Reagent Target or Validation Target, or any ASO
Compounds directed thereto as of the Section 8.2.2 Exercise Notice Date
and the nature of the rights so granted, if any, or whether Isis has an Isis
Internal Program with respect to such Reagent Target or Validation Target.  Isis shall have no obligation to disclose to
Lilly the identity of any such Third Party to which rights or licenses have
been granted.  If Isis has not granted
any such rights or license and does not have an Isis Internal Program with
respect to such Target as of the Section 8.2.2 Exercise Notice Date, then
Isis shall grant to Lilly, and is hereby deemed to grant to Lilly, the license
described above in this Section 8.2.2 with respect to such Reagent Target
or Validation Target as of the Section 8.2.2 Exercise Notice Date and
Lilly shall be obligated to make payments to Isis with respect to such Reagent
ASO Product or Validation ASO Product directed to such Reagent Target or
Validation Target, as applicable, in accordance with Section 9.3.3.  It is understood and agreed that a Reagent
Target or Validation Target may not be available to be licensed by Lilly under
this Section 8.2.2 if: (i) Isis has previously granted a Third Party
exclusive rights with respect to such Reagent Target and all ASO Compounds
directed thereto or Validation Target and all ASO Compounds directed thereto,
or (ii) Isis has an Isis Internal Program with respect to the Reagent
Target or Validation Target.  The Reagent
Targets and the date of delivery to Lilly of a Reagent ASO Compound directed to
each such Reagent Target are listed in Schedule 8.2.2.

 

(c)                                  Diligence and Reporting.  In order to maintain any license granted to
Lilly under this Section 8.2.2 with respect to a Reagent Target or
Validation Target, Lilly must (i) maintain an Active Program with respect
to such Reagent Target or Validation Target, (ii) achieve Program Sanction
Approval on Reagent ASO Compounds or Validation ASO Compounds directed to such
Reagent Target or Validation Target, as applicable, in no more than [***]
months from the time of licensing of such Target by Lilly and (iii) consider
a Reagent ASO Compound directed to such Reagent Target or a Validation ASO
Compound directed to such Validation Target under Lilly’s formal review process
for Candidate Selection in no more than [***] months from Program Sanction
Approval.  In the event that any of the
foregoing diligence obligations is not met by Lilly with respect to a Reagent
Target or Validation Target or ASO Compound directed thereto, the license
granted to Lilly under this Section 8.2.2 with respect to such Reagent
Target or Validation Target and ASO Compounds directed thereto shall
terminate.  Lilly shall provide Isis with
annual written reports that include a description of the research, development
and commercialization activities by Lilly on any Reagent Target or Validation
Target (and ASO Compounds directed thereto) licensed by Lilly under this Section 8.2.2.  Lilly shall provide prompt written notice to
Isis when it ceases to have an Active Program on any Reagent Target or
Validation Target licensed by Lilly pursuant to this Section 8.2.2 and
thereafter such license shall terminate. 
Within [***] months of such notice from Lilly, or within [***] months of
termination of this Agreement by Isis pursuant to Section 13.4 or 13.5,
Isis shall provide written notice to Lilly if it desires to develop an ASO
Product to such Reagent Target or Validation Target and receive from Lilly
summary reports on completed IND-enabling toxicology studies and completed
clinical trials for the ASO Compound

 

16

 

related to such Reagent
Target or Validation Target.  Lilly shall
provide such summary reports promptly after receiving such notice from
Isis.  If Isis fails to provide such
notice within such [***] month period Lilly shall have no obligation to provide
such summary reports to Isis.  For
purposes of clarity, if Isis fails to request such summary reports from Lilly
for a Reagent Target or Validation Target for which Lilly ceases to have an
Active Program, Isis may still develop an Isis Drug Discovery ASO Product to
such Reagent Target or Validation Target, subject to the Lilly Right of First
Negotiation under Section 8.3 and other applicable terms of this
Agreement.

 

8.2.3                        Option to Drug Discovery ASO Targets.

 

(a)                                  Grant of Option.  Subject to the terms and conditions of this
Agreement, Isis hereby grants to Lilly an exclusive option, exercisable on a
Drug Discovery Target-by-Drug Discovery Target basis, to obtain an exclusive,
royalty-bearing license, including the right to sublicense, under the Isis
Collaboration Technology and the Isis Technology to develop, make, use, import,
offer for sale and sell Drug Discovery ASO Products containing one or more Drug
Discovery ASO Compounds directed to such Drug Discovery Target in the
Territory.

 

(b)                                 Exercise of Option.  Lilly’s option under this Section 8.2.3
with respect to any Drug Discovery Target shall be exercisable during the
Antisense Drug Discovery Term and for so long thereafter (not to exceed [***]
as Lilly has an Active Program with respect thereto or to the Drug Discovery
Target, provided, however, that
such option shall, in any event, expire upon the earliest to occur of (i) [***]
days after a Drug Discovery ASO Compound directed to such Drug Discovery Target
achieves Candidate Selection or (ii) [***] after the date that a Drug
Discovery ASO Compound directed to such Drug Discovery Target was designated a
Development Candidate.  Lilly may
exercise an option granted pursuant to this Section 8.2.3 by providing
written notice to Isis that includes a description of the Drug Discovery Target
for which Lilly desires to obtain such exclusive license.  The date that Isis receives such notice shall
be deemed the “Section 8.2.3 Exercise
Notice Date.”  The
exclusive license described above in this Section 8.2.3 shall be deemed
granted to Lilly on the Section 8.2.3 Exercise Notice Date and Lilly shall
be obligated to make payments to Isis with respect to Drug Discovery ASO
Products directed to such Drug Discovery Target in accordance with Section 9.3.4.  If Lilly fails to timely exercise its option
under this Section 8.2.3, then thereafter the Drug Discovery Target
corresponding to such the Drug Discovery ASO Compound shall be deemed an
Abandoned Drug Discovery Target; provided, however,
that prior to the expiration of Lilly’s option under this Section 8.2.3
with respect to such Drug Discovery Target, Lilly shall have the right to
designate such Drug Discovery Target as a Reserved Target for no more than
[***], subject to the provisions of Sections 6.8 and 6.9.

 

(c)                                  Diligence and Reporting.  In order to maintain any license granted to Lilly
under this Section 8.2.3 with respect to a Drug Discovery Target, Lilly
must maintain an Active Program on such Drug Discovery Target, and as long as
Lilly has an Active Program with respect to a Drug Discovery Target Isis shall
not conduct any research on its own or with a Third Party on such Drug
Discovery Target or any ASO Compound directed to such Drug Discovery
Target.  In the event that the foregoing
diligence obligation is not met by Lilly with respect to a Drug Discovery
Target or Drug Discovery ASO Compounds directed thereto, the license granted to
Lilly under this Section 8.2.3 with respect to such Drug Discovery Target

 

17

 

shall terminate.  Lilly shall provide Isis with annual written
reports that include a description of the research, development and
commercialization activities by Lilly on any Drug Discovery Target and Drug
Discovery ASO Compounds related thereto licensed by Lilly under this Section 8.2.3.  Lilly shall provide prompt written notice to
Isis when it ceases to have an Active Program on any Drug Discovery Target or
Drug Discovery ASO Compounds directed thereto licensed by Lilly pursuant to
this Section 8.2.3 and thereafter such license shall terminate.  Within [***] months of such notice from
Lilly, or within [***] months of termination of this Agreement by Isis pursuant
to Section 13.4 or 13.5, Isis shall provide written notice to Lilly if it
desires to develop an ASO Product to such Drug Discovery Target and whether it
desires to receive from Lilly summary reports on completed IND-enabling
toxicology studies and completed clinical trials for the ASO Compound related
to such Drug Discovery Target.  Lilly
shall provide such summary reports promptly after receiving such notice from Isis.  If Isis fails to provide such notice within
such [***] month period Lilly shall have no obligation to provide such summary
reports to Isis.  For purposes of
clarity, if Isis fails to requests such summary reports from Lilly for a Drug
Discovery Target or Drug Discovery ASO Compounds the license to which is
terminated as described above in this Section 8.2.3(c), Isis may develop
an Isis Drug Discovery ASO Product to such Drug Discovery Target, subject to
the Lilly Right of First Negotiation under Section 8.3 and other
applicable terms of this Agreement.

 

8.3                                                         Lilly’s
Right of First Negotiation.  Isis hereby grants to Lilly a right of first
negotiation (the “Lilly Right of First
Negotiation”) to obtain from Isis an exclusive,
worldwide, license under the Isis Collaboration Technology and the Isis
Technology regarding (a) Isis Products directed to Abandoned Drug
Discovery Targets, Exclusive Targets, Lilly-Blocked Targets (subject to Section 6.2.2)
or Accepted Validation Targets that (i) Isis elects to partner or develop
or commercialize in collaboration with a Third Party or (ii) are developed
by Isis and achieve Phase III Study Initiation. 
The Lilly Right of First Negotiation shall be exercisable by Lilly
during the term of this Agreement and shall operate as follows:

 

8.3.1                        Isis shall promptly notify Lilly in writing (the “Isis Notification”) of (i) its intention to negotiate with or
seek a collaborator for the commercialization of any Isis Product directed to
an Abandoned Drug Discovery Target or Accepted
Validation Target or any Isis Reagent ASO Products and/or (ii) when any
Isis Product directed to an Abandoned Drug Discovery Target, Exclusive Targets,
Lilly-Blocked Targets or Accepted Validation Target achieves Phase III Study
Initiation.  The Isis Notification shall
include a description of the Isis Product that includes summaries of
preclinical, toxicological and available clinical data and patent information
of the level of detail included in a Clinical Investigators Brochure and, for
Isis Products that achieve Phase III Study Initiation, a written report setting
out the Phase II Clinical Trial Protocol and the Clinical Investigative
Brochure for the Phase III Clinical Trials, in order to permit Lilly to
evaluate its interest in exercising its rights under this Section 8.3.  All information contained in the Isis
Notification shall be considered Confidential Information of Isis and subject
to Article 10 and shall be used by Lilly solely for the purpose of
evaluating its interest in exercising its rights under this Section 8.3.

 

8.3.2                        Lilly shall notify Isis within [***] days after
receipt of the Isis Notification (the “Lilly Response Period”), indicating its interest, if any, in initiating
discussions regarding an agreement with Isis with respect to the commercialization
of such Isis Product.

 

18

 

8.3.3                        In the event that Lilly notifies Isis prior to the
termination of the Lilly Response Period that it has an interest in the
commercialization of such Isis Product
(a “Lilly
Expression of Interest”), then the
Parties shall negotiate exclusively in good faith reasonable terms that are
intended to form the basis of a final agreement for a period of up to the
longer of (i) [***] days from the date of Isis’s receipt
of the Lilly Expression of Interest or (ii) [***] days from the Isis
Notification.

 

8.3.4                        In the event that (i) Lilly fails to notify
Isis prior to the termination of the Lilly Response Period, or (ii) Lilly
notifies Isis prior to the termination of the Lilly
Response Period that it has no interest in collaborating with Isis in the
commercialization of such Isis Product, or (iii) the Parties fail to reach
agreement on the terms that are intended to form the basis of a final agreement
within [***] days of the Isis Notification, or (iv) the Parties fail to
reach a final agreement within [***] days following the date on which the
Parties reach agreement on the terms that are intended to form the basis of a
final agreement, then Isis shall thereafter be free to develop such Isis
Product on its own or to initiate discussions with potential alternative
partners with respect to the commercialization of such Isis Product; provided, however, that in the
event Isis enters into discussions with alternative partner the following
provisions shall apply:

 

(a)                                  [***]  For the purpose of calculating net present
value under this Section 8.3.4 the following timing definitions will
apply:

 

(i)                                     [***]
and

 

(ii)                                  [***]
and

 

(b)                                 [***]

 

8.3.5                        Isis shall disclose the terms of any such proposed
Third Party agreement terms to Lilly, and in the event that Lilly disputes that
such terms meet the requirements of this Section 8.3, then an independent
Third Party with the requisite expertise, selected by the Parties, shall make
such determination.  The expense of such
independent Third Party shall be shared equally by the Parties.  In the event that any Third Party terms
include non-monetary consideration (e.g., licensing of patent rights), then
such independent Third Party shall value such non-monetary consideration as
well as any other terms offered by such Third Party and decide whether as a
whole the Third Party offer exceeds the Lilly offer as set forth above.

 

8.3.6                        If a Third Party offer for the Isis Product
exceeds the Lilly offer by the guidelines outlined in Section 8.3.4 and is
accepted by Isis, Lilly shall receive from Isis the milestones and running
royalty that would be owed by Isis to Lilly under Section 9.6.

 

8.3.7                        In the event that Lilly provides Isis with a
timely offer of terms, pursuant to Section 8.3.3 (the “Lilly Offered Terms”), but Isis does not enter into an agreement with
Lilly or reach a mutually agreed-upon term sheet that represents a firm
commitment from a Third Party approved by an officer of the company of such
Third Party with respect to the commercialization
of such ASO Product pursuant to the provisions of Section 8.3.4 within
[***] months of the receipt by Isis of the Lilly Offered Terms, then the Lilly
Right of First Negotiation with respect to such ASO Product shall be revived.

 

19

 

8.3.8                        For each of the [***] Abandoned Drug Discovery
Targets listed in Schedule 6.7.1 of this Agreement, the Lilly Right of First
Negotiation shall not be applicable for a period of [***]
months from the Second Restatement Date. 
All other terms and conditions of this Agreement with respect to any
Abandoned Drug Discovery Target shall remain in effect.  If Isis fails to enter into an agreement with
a Third Party whereby Isis exclusively licenses the Isis right to commercialize
ASO Products directed to any such Abandoned Drug Discovery Target listed in Schedule 6.7.1 of this Agreement within [***] months from the
Second Restatement Date, the Lilly Right of First Negotiation and all other terms
of this Section 8.3, other than this Section 8.3.8, shall immediately
become effective and applicable to any such unlicensed Abandoned Drug Discovery
Targets.

 

8.4                                                         Licenses
to Isis.

 

8.4.1                        Research Licenses.  Subject to
the terms and conditions of this
Agreement, Lilly hereby grants to Isis:

 

(a)                                  a
co-exclusive (with Lilly), nonsublicensable, royalty free license during the
Collaboration Term under the Lilly Collaboration Technology solely to the
extent necessary or appropriate to carry out Isis’ responsibilities under the
Collaborative Research Plan;

 

(b)                                 an
exclusive, nonsublicensable, royalty-free license under the Lilly Collaboration
Technology in the ASO Field in the Territory to conduct research outside the
course of the Collaboration; provided, however,
that such license shall automatically terminate for any particular Lilly
Collaboration Patent Right that covers a Reagent ASO Product, Validation ASO
Product, or Drug Discovery ASO Product upon the licensing of the related
Reagent Target, Validation Target or Drug Discovery Target by Lilly under
Sections 8.2.1, 8.2.2 or 8.2.3.

 

8.4.2                        Product Licenses.  Subject to
the terms and conditions of this Agreement, Lilly hereby grants to Isis an
exclusive, royalty-bearing license, including the right to sublicense,
under Lilly Collaboration Technology to develop, make, have made, use, import,
offer for sale and sell Isis Validation ASO Products and Isis Drug Discovery
ASO Products in the Territory.  Isis
shall provide Lilly with annual written reports that include a description of
the research, development and commercialization activities by Isis on any Isis
Validation ASO Products or Isis Drug Discovery ASO Products licensed by Isis
under this Section 8.4.2.

 

8.5                                                         Isis
Option to License Lilly Non-Collaboration ASO Patent Rights.  Subject to the terms and conditions of this
Agreement, including this Section 8.5, [***]. During the Reagent Provision
Term plus [***] years thereafter Isis may acquire the Isis Option with respect
to any such Reagent Target as set forth below:

 

(i)                                     [***].

 

(ii)                                  [***]  Isis shall be limited as to the number of
Reagent Targets with respect to which it may make such inquiries as follows:

 

(1)                                  Until
the expiration of [***] months after the Effective Date, Isis may not make any
such inquiries;

 

20

 

(2)                                  During
the [***] months following the period described in Section 8.5(ii)(1),
Isis may inquire on the status of up to [***]. Reagent Targets;

 

(3)                                  During
the [***] months following the period described in Section 8.5(ii)(2),
Isis may inquire on the status of up to [***]. 
Reagent Targets; and

 

(4)                                  During
the [***] months following the period described in Section 8.5(ii)(3) and
during each successive twelve [***] month period thereafter until the
expiration of the [***] year following expiration of the Reagent Provision
Term, Isis may inquire on the status of up to [***] Reagent Targets per [***]
month period.

 

Isis may make such
inquiries under this Section 8.5(ii) no more than [***] times per year;
provided, however, [***].  Within five (5) days of receipt of any
such notice from Isis under this Section 8.5(ii), the Third Party Reviewer
shall notify Isis in writing whether such Reagent Target is an Excluded Reagent
Target.

 

(iii)                               On
or after such time as any Reagent Target validated and functionalized by Isis
in its own internal drug discovery programs has reached [***].

 

(iv)                              Isis
may exercise each Isis Option granted under Section 8.5(iii) at any
time following such grant during the Reagent Provision Term plus [***] years
upon written notice to Lilly.  Any
license granted to Isis pursuant to exercise of an Isis Option under this Section 8.5
shall be royalty-bearing in accordance with Section 9.6.1 hereof.

 

(v)                                 Isis
shall provide Lilly with annual written reports that include a description of
the research, development and commercialization activities by Isis on any Isis
Validation ASO Products or Isis Non-Collaboration ASO Products licensed by Isis
under this Section 8.5.

 

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

 

8.7                                                         [DELETED].

 

8.8                                                         [DELETED].

 

8.9                                                         Manufacturing
Improvements. 
During the first [***] years of the term of this Agreement, the Parties
will meet at least annually to review Manufacturing Improvements developed by
either of the Parties outside of the course of the Collaboration. [***].

 

8.9.1                        The entire right, title, and interest in and to
all Manufacturing Improvements developed or invented solely by employees or
consultants of Lilly during the term of this Agreement will be the sole and
exclusive property of Lilly.  [***].

 

21

 

8.9.2                        The entire right, title, and interest in and to
all Manufacturing Improvements developed or invented solely by employees or
consultants of Isis during the term of this Agreement will be the sole and
exclusive property of Isis.  [***].

 

8.9.3                        The entire right, title, and interest in and to
all Manufacturing Improvements developed or invented jointly by employees or
consultants of Isis and Lilly during the term of this Agreement will be the joint
property of Isis and Lilly.  Each Party
will have an undivided joint ownership interest in such Manufacturing
Improvements, and may license its rights under such Manufacturing Improvements
for its own account and without the consent of the other Party, subject to the
licenses granted to Lilly under Sections 8.1 and 8.2.

 

8.10                                                   Negative
Covenant of Isis.  Isis
hereby agrees that, for so long as a particular Validation Target or Drug
Discovery Target is subject to restrictions on Isis’ use of such Target outside
the Collaboration pursuant to Section 5.3, 5.5, 5.6, 5.8, 6.2.3 or 6.8, as
applicable, or is subject to an exclusive license granted to Lilly under Section 8.2.2,
8.2.3, 8.3, 8.11 or 8.12 Isis shall not [***]. 
Upon mutual written agreement of the Parties during the Extended
Collaboration Term, the Target Validation Program and/or Antisense Drug
Discovery Program, as applicable, may be expanded to include activities
directed to [***].

 

8.11                                                   STAT3 License Grant.

 

8.11.1                  Subject to the terms and conditions
of this Agreement, Isis hereby grants to Lilly an exclusive, royalty-bearing
license, including the right to sublicense, under the Isis Collaboration
Technology and the Isis Technology to develop, make, use, import, offer for
sale and sell ASO Products containing one or more ASO Compounds directed to the
Target known as STAT3 (the “STAT3 Target”) in the Territory. 
Effective as of the Second Restatement Execution Date, the STAT3 Target
shall be deemed a [***] licensed by Lilly under Section 8.2.3(b) and
subject to all applicable terms of this Agreement, except as otherwise
expressly permitted in this Agreement.

 

8.11.2                  Notwithstanding anything to the contrary in Section 9.3.4(a) of
this Agreement, [***] license fee shall be payable by Lilly to Isis for the
license granted to Lilly under Section 8.11.1.

 

8.11.3                  In addition to any milestone payments payable by
Lilly to Isis under Section 9.3.4(b), and subject to all other terms and
conditions thereof, Lilly will pay to Isis a milestone payment in the amount of
[***] within thirty (30) days after achievement of Candidate Selection for the
first Drug Discovery ASO Compound being developed as a Drug Discovery ASO
Product that is directed to the STAT3 Target.

 

8.11.4                  If a Drug Discovery ASO Compound being developed
as a Drug Discovery ASO Product that is directed to the STAT3 Target does not
achieve [***] on or before [***] (the “STAT3 [***] Target Date”), the license
granted to Lilly under Section 8.11.1 shall terminate; provided, however, that if such
[***] will not be achieved by the STAT3 Candidate
Selection Target Date due to scientific or regulatory issues, including but not
limited to: [***], Lilly shall so inform Isis before the STAT3 [***] Target
Date and the license granted to Lilly under Section 8.11.1 shall not
terminate.  The Executive Committee shall
thereafter promptly 

 

22

 

determine (i) a
course of action including a detailed timetable of activities required to
resolve such scientific or regulatory issue and (ii) an appropriate
extension of time for STAT3 Candidate Selection Target Date.  This Agreement shall be amended to reflect
the determination of the Executive Committee with regard to the extension of
the STAT3 Candidate Selection Target Date.

 

8.11.5                  In addition to any extension of the STAT3 [***]
Target Date under Section 8.11.6, Lilly shall have the option of extending
the STAT3 [***] Target Date for up to [***] consecutive [***] day periods by
paying Isis [***] for each such [***] day period.  All such fees shall be fully creditable
against any payment later due from Lilly under Section 8.11.3 and Section 8.11.6.  Lilly may exercise each such option under
this Section 8.11.5 by providing written notice to Isis before the STAT3
[***] Target Date or the expiration of any extensions thereof under Section 8.11.4
or this Section 8.11.5.  Any fee
that becomes payable by Lilly to Isis under this Section 8.11.5 shall be
paid by Lilly within [***] days of the written notice provided to Isis under
this Section 8.11.5.

 

8.11.6                  Lilly shall have the right to eliminate the
requirement to achieve Candidate Selection for the first Drug Discovery ASO
Compound being developed as a Drug Discovery ASO Product that is directed to
the STAT3 Target by the STAT3 [***] Target Date or any extension thereof by
providing written notice to Isis and paying Isis the amount that would
otherwise become payable to Isis under Section 8.11.3 as if the first Drug
Discovery ASO Compound being developed as a Drug Discovery ASO Product that is
directed to the STAT3 Target achieved [***]. Such amount shall be paid by Lilly
within [***] days of the written notice provided to Isis under this Section 8.11.5.
Any payment made by Lilly to Isis under this Section 8.11.6 shall be fully
creditable against the milestone payment that becomes payable by Lilly to Isis
under Section 8.11.3.

 

8.11.7                  Isis shall allow Lilly to conduct reasonable due
diligence (e.g., intellectual property, regulatory and scientific
due diligence) on the STAT3 Target and the
STAT3 ASO Compound following the Second Restatement Effective Date.

 

8.12                                                   Target
Option

 

8.12.1                  Subject to the terms and conditions of this
Agreement, and in addition to the options granted in Section 8.2 of this
Agreement, Isis hereby grants to Lilly the right to obtain up to [***]
exclusive options, on a Target-by-Target basis, to obtain an exclusive,
royalty-bearing license, under (i) the Isis Collaboration Technology and
the Isis Technology and (ii) the Isis Special Technology (subject to
8.12.4), to develop, make, use, import, offer for sale and sell ASO Products
containing one or more ASO Compounds directed to the applicable Target in the
Territory.

 

8.12.2                  Lilly’s may obtain one or more options under Section 8.12
for a period of [***] years after the
expiration of Initial Collaboration Term. 
Lilly may inquire of Isis whether an option is available under this Section 8.12
by providing written notice to an Isis designee (the “Isis Designee”) that includes a description of up to [***]
Targets for which Lilly may desire to obtain such option (the
“Section 8.12.2 Option
Notice”).  The date that the Isis Designee receives such
notice shall be deemed the “Section 8.12.2
Option Notice Date.”  Within ten (10)

 

23

 

business
days following the Section 8.12.3 Option Notice Date for a particular
Target, the Isis Designee will determine whether or not Isis has [***].  Within twenty (20) business days following
the Section 8.12.2 Option Notice Date, but no sooner than
of (10) business days thereafter, Lilly shall contact the Isis Designee
and identify which of the [***] Targets described in the Section 8.12.2
Option Notice(each a “Potential Optioned Target”) Lilly desires to obtain an option on under Section 8.12.  If
Isis has not [***] as of the Section 8.12.2 Option Notice Date, then any
such Potential Optioned Target shall be deemed an “Optioned Target” as of the Section 8.12.2 Option Notice
Date.  Each Party shall confirm the
identity of each Optioned Target by written
notice to the other Party.  The Isis
Designee shall be an attorney in the Isis legal department or outside counsel
representing Isis and shall sign a confidentiality agreement whereby such Isis
Designee shall be obligated not to disclose to any other person or Party or to
use for any purpose other than the purpose of providing notice to Lilly under
this Section 8.12.2, all information provided by Lilly in its written
notice to Isis under this Section 8.12.2.

 

8.12.3                  An option obtained by Lilly under this
Section 8.12 shall be exercisable only during a period of [***] for all
other Optioned Targets.  During such
option period Isis shall allow Lilly to conduct intellectual property due
diligence on Patent Rights (if any) that Isis has filed on such Optioned Target
or ASO compounds directed thereto.  Lilly
may exercise an option granted pursuant to this Section 8.12 by providing
written notice to Isis that includes a description of the Optioned Target for
which Lilly desires to obtain the exclusive license described in Section 8.12.1.  The date that Isis receives such notice shall
be deemed the “Section 8.12
Exercise Notice Date.”  The exclusive license described above in this
Section 8.12 shall be deemed granted to Lilly on the Section 8.12
Exercise Notice Date. 
Any Target licensed by Lilly pursuant to this Section 8.12 shall be
deemed a [***] licensed by Lilly under Section 8.2.3(b) and
thereafter subject to all of the applicable terms of this Agreement; provided, however, notwithstanding
anything to the contrary in Section 9.3.4(a) of this
Agreement, the license fee payable by Lilly to Isis for a license granted to
Lilly under Section 8.12 shall be [***]. 
Any option granted to Lilly under this Section 8.12 that is not
exercised in accordance with Section 8.12.3 shall count against the [***]
options that Lilly has a right to obtain under Section 8.12.1.  Any license granted pursuant to the exercise
of an option under this Section 8.12.3 by Lilly shall be sublicensable by
Lilly solely in connection with the grant of a license to develop, make, use,
import, offer for sale and sell an ASO Product discovered and optimized by Isis
and/or Lilly directed to the applicable Optioned Target.

 

8.12.4                  Isis Special Technology shall only be included in
the license granted to Lilly pursuant to Section 8.12 if Lilly and Isis
negotiate an agreement to license such Isis Special Technology as follows:

 

(a)                                  If
Isis would have no financial obligations to a Third Party arising from the
grant to Lilly and/or the practice by Lilly, its Affiliates, or Sublicensees,
of the Isis Special Technology then any such agreement between Isis and Lilly
under this Section 8.12.4 shall include terms providing that for the
development and sale by Lilly of an ASO Product directed to an Optioned Target
licensed by Lilly under this Section 8.12, [***].

 

(b)                                 If
Isis would have financial obligations to a Third Party arising from the grant
to Lilly and/or the practice by Lilly, its Affiliates, or Sublicensees, of the
Isis

 

24

 

Special Technology then
any such agreement between Isis and Lilly under this Section 8.12.4 shall
include terms providing that [***].

 

(c)                                  In
addition to Section 8.12.4(a) and Section 8.12.4(b), as
applicable:

 

(i)                                     Lilly
will compensate Isis for an [***]; and

 

(ii)                                  if
Isis’ access to such Isis Special Technology is limited to [***]; and

 

(iii)                               Lilly
will abide by all of the terms of the agreement with a Third Party under which
Isis has obtained Control of such Isis Special Technology.

 

(d)                                 Notwithstanding
anything to the contrary in this Section 8.12.4, any agreement negotiated
between Isis and Lilly under this Section 8.12.4 shall contain terms that
are [***].  The terms of Section 9.5
(Access to Third Party Rights) will not apply to any Isis Special Technology
licensed to Lilly under this Section 8.12.

 

ARTICLE 9

 

PAYMENTS AND
ACCOUNTING

 

9.1                                                         Collaboration
Funding.  The
Collaboration Funds shall be applied by Isis solely towards the Collaboration
and in accordance with the Collaborative Research Plan.  All remaining Collaboration Funds as of the
end of the Initial Collaboration Term shall be used to fund Isis Collaboration
FTEs during the Extended Collaboration Term for those activities set forth in
the Collaborative Research Plan, or as otherwise agreed upon in writing by the
Parties, and for no other purpose. 
Notwithstanding anything to the contrary in the Agreement or the
Collaborative Research Plan, all Collaboration Funds designated in the Collaborative
Research Plan to fund [***]. Isis shall be reimbursed from the Collaboration
Funds for [***] Isis Collaboration FTEs dedicated to the [***] for the period
of [***] as provided under the Collaborative Research Plan; provided, however, that an equivalent number of Isis
Collaboration FTEs shall be dedicated to research on the Abandoned Drug
Discovery Targets listed in Schedule 6.7.1
through the end of the Initial Collaboration Term.  Research and development conducted by Isis
through the end of the Initial Collaboration Term on such on Abandoned Drug
Discovery Targets shall be [***].  At
Lilly’s request, Isis shall provide Lilly semiannual written reports on the
research and development of the Abandoned Drug Discovery Targets listed in Schedule 6.7.1 and
any Isis Internal Programs in the area of [***] for a period that is the longer
of [***].

 

9.1.1                        Collaboration FTEs.  Isis shall
maintain complete and accurate records of all monies expended by it for
research under the Collaboration and the Collaboration FTEs applied in the
course of the Collaboration. 
During the Extended Collaboration Term, Isis will be obligated to report
to Lilly only the number of Collaboration FTEs dedicated to work on the
Collaboration for the previous Calendar Quarter.

 

9.1.2                        [DELETED]

 

25

 

9.1.3          [DELETED]

 

9.1.4          Audits.  If a
Party desires to audit the other Party’s records regarding Collaboration Funds
and Collaboration FTEs, it shall utilize the independent, certified public
accountant of the other Party to examine such records.  Such accountant shall be instructed to
provide the Party desiring the audit a report on the findings of the agreed
upon procedures which verifies any previous report made or payment submitted by
the audited Party during such period. 
The expense of such audit shall be borne by the auditing Party; provided, however, that if an error in favor of the auditing
Party of more than the greater of [***] of the amount reported or paid or [***]
is discovered, then such expenses shall be paid by the audited Party.  Any information received by a Party pursuant
to this Section 9.1.4 shall be deemed to be the Confidential Information
of the other Party.  This right to audit
shall remain during the Collaboration Term and for a period of [***] years
thereafter, but no more often than [***] per year.

 

9.1.5          [DELETED]

 

9.1.6          [DELETED]

 

9.1.7          [DELETED]

 

9.1.8          Payment of Royalty Reduction
Fee.  Lilly paid to Isis [***] within thirty (30)
days after the Restatement Date, which payment shall be applied to reduce the
royalty rate payable under this Agreement with respect to a Drug Discovery ASO Product
directed to the Drug Discovery Target known as [***].

 

9.2                   Technology Access Fee.

 

9.2.1          If Lilly is conducting any research,
development or commercialization activities relating to any Lilly Product as of
the [***] anniversary of the Effective Date, Lilly shall commence making the
first of [***] equal installments of the Technology Access Fee to Isis.  For a period of [***] years thereafter, if
Lilly continues to conducting any research, development or commercialization
activities relating to any Lilly Product as of each anniversary of the
Effective Date then Lilly shall pay the next installment of the Technology
Access Fee. Technology Access Fee installments shall be paid by Lilly within [***]
days after the [***] anniversary of the Effective Date and each anniversary
date thereafter until a total [***] such Technology Access Fee installments
have been made by Lilly.  The total
amount of each such Technology Access Fee installment shall be calculated by:

 

(a)           subtracting from the Collaboration Funds
both:

 

(i)            [***]; and

 

(ii)           [***]; and

 

(b)           [***] pursuant to this Section 9.2.

 

26

 

9.2.2          As of the Second Restatement Execution Date the
Parties acknowledge and agree that the total amount of the Technology Access
Fee and each installment thereof that shall be payable by Lilly is zero.

 

9.2.3          Capitalized terms used in Section 9.2.1
and Section 9.2.2 that are not defined in this Agreement shall have the
meanings set forth in the Loan Agreement.

 

9.2.4          Credits Against Technology Access Fee.  [***].

 

9.3                   License, Milestone and Royalty Payments - Lilly.

 

9.3.1          Reagent Non-ASO Products.

 

(a)           Milestone Payments.  Lilly
will pay to Isis the following milestone payments for a Reagent Non-ASO Product
within [***] days after achievement of each of the following events in the
first Major Market Country; provided, however,
that no milestone payment shall be due or owing for any Reagent Non-ASO
Compound being developed as a Reagent ASO Product that has as its site of
activity the same Target that is the site of activity of any Lilly Product with
respect to which such milestone payment has already been paid:

 

	
  Milestone Event

  	
   

  	
  Milestone Payment

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

Lilly shall be obligated to pay milestone payments with respect to a
Reagent Non-ASO Compound under this Section 9.3.1 only if such Reagent
Non-ASO Compound achieves Program Sanction Approval within [***] years of the
date that Lilly performs the Lilly First Pass In Vitro Assay with respect to
the related Reagent ASO Compound delivered to Lilly by Isis under this
Agreement that is directed to the same Target as such Reagent Non-ASO Compound,
as reasonably evidenced by Lilly’s laboratory notebooks or other scientific
records.

 

(b)           Royalties.  Lilly
will pay to Isis [***] on the annual Net Sales of a Reagent Non-ASO Product on
a country-by-country basis from the date of the First Commercial Sale in each
such country of a Reagent Non-ASO Product until the expiration of the last to
expire Isis Blocking Patent Right licensed by Lilly under Section 8.2.1
that includes a Valid Claim that Covers such Reagent Non-ASO Product.

 

9.3.2          Validation Non-ASO Products
and Drug Discovery Non-ASO Products.

 

(a)           Milestone Payments.  Lilly
will pay to Isis the following milestone payments for a Validation Non-ASO
Product or Drug Discovery Non-ASO Product 

 

27

 

within
thirty (30) days after achievement of each of the following events in the first
Major Market Country; provided, however,
that no milestone payment shall be due or owing for any Validation Non-ASO
Compound being developed as a Validation Non-ASO Product or Drug Discovery
Non-ASO Compound being developed as a Drug Discovery Non-ASO Product that has
as its site of activity the same Target that is the site of activity of any
Lilly Product with respect to which such milestone payment has already been
paid:

 

	
  Milestone Event

  	
   

  	
  Milestone Payment

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

Lilly shall be obligated to make only those milestone payments for the
events listed above in this Section 9.3.2 that occur after the Validation
Target or Drug Discovery Target that is targeted by the Validation Non-ASO
Compound being developed as a Validation Non-ASO Product or Drug Discovery
Non-ASO Compound being developed as a Drug Discovery Non-ASO Product is
designated [***].

 

Lilly shall be obligated to pay milestone payments with respect to a
Validation Non-ASO Compound being developed as a Validation Non-ASO Product or
Drug Discovery Non-ASO Compound being developed as a Drug Discovery Non-ASO
Product under this Section 9.3.2 only if such Validation Non-ASO Compound
or Drug Discovery Non-ASO Compound achieves Program Sanction Approval within [***]
years and [***] months of the date that the related Validation ASO Compound or
Drug Discovery ASO Compound that is directed to the same Target as the
Validation Non-ASO Compound or Drug Discovery Non-ASO Compound is delivered to
Lilly or the Collaboration for use thereunder, as applicable.

 

(b)           Royalties.  Lilly
will pay the following royalties to Isis on a country-by-country basis from the
date of the First Commercial Sale in each such country of a Validation Non-ASO
Product or Drug Discovery Non-ASO Product:

 

(i)            [***] on the annual Net Sales of Validation
Non-ASO Product or Drug Discovery Non-ASO Product for a period of [***] years
if there is no Isis Collaboration Patent Right or Isis Patent Right that
includes a Valid Claim that Covers such Validation Non-ASO Product or Drug
Discovery Non-ASO Product; provided, however,
that no royalty payment shall be owed by Lilly under this Section 9.3.2(b) for
a Validation Non-ASO Product or Drug Discovery Non-ASO Product that is [***] or

 

(ii)           [***] on the annual Net Sales of a Validation
Non-ASO Product or Drug Discovery Non-ASO Product until the expiration of the
last to expire Isis 

 

28

 

Collaboration Patent Right
or Isis Patent Right that includes a Valid Claim that Covers such Validation
Non-ASO Product or Drug Discovery Non-ASO Product.

 

9.3.3          Reagent ASO Products and
Validation ASO Products.

 

(a)           License Fees.  In
the event that Lilly exercises its option to license a Reagent Target or a
Validation Target in accordance with Section 8.2.2, Lilly shall pay Isis a
one time license fee of [***] within [***] days after the Section 8.2.2
Exercise Notice Date for each such licensed Reagent Target or Validation Target.

 

(b)           Milestone Payments.  Lilly
will pay to Isis the following milestone payments for a Reagent ASO Compound
being developed as a Reagent ASO Product or a Validation ASO Compound being
developed as a Validation ASO Product within thirty (30) days after achievement
of each of the following events in the first Major Market Country; provided, however, that no milestone payment shall be due or
owing for any Reagent ASO Compound or a Validation ASO Compound that has as its
site of activity the same Target that is the site of activity of any Lilly
Product with respect to which such milestone payment has already been paid:

 

	
  Milestone Event

  	
   

  	
  Milestone Payment

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

Provided, however, that with respect to any Combination Product that contains more than
one (1) Reagent ASO Compound and/or Validation ASO Compound, Lilly shall
be obligated to the milestones set forth in the foregoing table for Phase III
Study Initiation, Registration and First Commercial Sale only once for such
Combination Product.

 

(c)           Royalties.  Lilly
will pay to Isis the following royalties on a country-by-country basis from the
date of the First Commercial Sale in each such country of a Reagent ASO Product
or a Validation ASO Product until the expiration of the last to expire Isis
Collaboration Patent Right or Isis Patent Right that includes a Valid Claim
that Covers such Reagent ASO Product or Validation ASO Product, as applicable:

 

29

 

	
  Worldwide Annual Sales of the Product

  	
   

  	
  Royalty Rate

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

Provided, however, that the royalty rate payable by Lilly under this Section 9.3.3(c) shall
be increased by the amount of any pass through royalties payable by Isis to a Third
Party on Lilly’s sale of such Reagent ASO Product or Validation ASO Product but
in no event shall the royalty rate payable by Lilly under this Section be
increased to amount greater than [***].

 

9.3.4          Drug Discovery ASO Products.

 

(a)           License Fees.  In
the event that Lilly exercises an option to license a Drug Discovery ASO Target
in accordance with Section 8.2.3, Lilly shall pay the following applicable
one-time license fee [***] days after the Section 8.2.3 Exercise Notice
Date for each such Drug Discovery ASO Target: 

 

	
  Drug Discovery ASO Target

  	
   

  	
  License Fee

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

(b)           Milestone Payments.  Lilly
will pay to Isis the following milestone payments for a Drug Discovery ASO
Compound being developed as a Drug Discovery ASO Product within [***] days
after achievement of each of the following events in the first Major Market
Country; provided, however, that no milestone
payment shall be due or owing for any Drug Discovery ASO Compound that has as
its site of activity the same Target that is the site of activity of any Drug
Discovery ASO Product with respect to which such milestone payment has already
been paid:

 

30

 

MILESTONE PAYMENT

 

	
  Milestone Event

  	
   

  	
  Stage 1 Drug 

  Discovery Target

  	
   

  	
  Stage 2 Drug 

  Discovery Target

  	
   

  	
  Stage 3 Drug 

  Discovery Target

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

Provided, however, that with respect to any Combination Product that contains more than
one (1) Drug Discovery ASO Compound, Lilly shall be obligated to the
milestones set forth in the foregoing table for Phase III Study Initiation,
Registration and First Commercial Sale only once for such Combination Product.

 

(c)           Royalties. 
Subject to Section 9.4, Lilly will pay to Isis the following
royalties on a country-by-country basis from the date of the First Commercial
Sale in each such country of a Drug Discovery ASO Product until the expiration
of the last to expire Isis Collaboration Patent Right or Isis Patent Right that
includes a Valid Claim that Covers such Drug Discovery ASO Product:

 

Royalty Rates

 

	
  Worldwide Annual Net Sales of

  the Product

  	
   

  	
  Stage 1 Drug 

  Discovery Target

  	
   

  	
  Stage 2 Drug 

  Discovery Target

  	
   

  	
  Stage 3 Drug 

  Discovery Target

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

9.3.5          Lilly Sublicensing
Obligations.  In the event that Lilly elects to sublicense
its rights to a Reagent ASO Compound, a Drug Discovery ASO Product or a
Validation ASO Product, as permitted by this Agreement, Lilly shall be
obligated to pay to Isis, at Lilly’s option, either (i) [***] of any and
all Sublicense Income received by Lilly pursuant to a sublicense agreement
entered into by Lilly with respect to such Reagent ASO Compound, a Drug
Discovery ASO Product or a Validation ASO Product or (ii) any payments as
set forth in this Article 9 that would be owed by Lilly if Lilly were
selling such Reagent ASO Product, Drug Discovery ASO Product or Validation ASO
Product; provided, however, [***].

 

31

 

9.3.6          [***] Payments.

 

(a)           Milestone Payments.  For
any Validation ASO Product or Drug Discovery ASO Product developed by Lilly
that is directed to [***] (and in addition to the milestone payments specified
in Section 9.3.3(b) and Section 9.3.4(b) of the Agreement,
as applicable) Lilly shall pay to Isis the applicable milestone payments
payable by Isis to [***] under the [***] Agreement for an “Isis Antisense Product”
(as defined in the [***] Agreement) directed to [***].  Such milestone payments are set forth in Schedule 9.4.3 of this
Agreement.  Lilly shall pay each such
milestone payment to Isis only if Isis remains obligated to pay such to [***]
under the [***] Agreement at the time the applicable milestone is achieved.

 

(b)           [***]
Royalties. The royalty rates specified in Sections 9.3.3(c) and
Section 9.3.4(c) of the Agreement for Validation ASO Products or Drug
Discovery ASO Products directed to [***] shall be increased by [***] in view of
the pass through royalties of the same amount payable by Isis to [***] under
the [***] Agreement for an “Isis Antisense Product” directed [***].  Lilly shall pay such pass through royalty to
Isis for so long as such royalty is payable by Isis to [***] under the [***]
Agreement. As of the date of this letter, such royalty payment is payable by
Isis to [***] for a period of [***] years following the “First Commercial Sale”
in a “Major Country” of the first “Isis Antisense Product” directed to [***].
For a second or subsequent “Isis Antisense Product” directed to [***],
royalties are payable by Isis in a “Major Country” only during the [***] year
period initiated by the “First Commercial Sale” of the first such “Isis
Antisense Product”. For the purposes of this paragraph, the terms “Isis
Antisense Product”, “First Commercial Sale”, and “Major Country” have the
meanings set forth in the [***] Agreement.

 

(c)           [***]
Non-ASO Products.  Lilly shall
not be obligated to pay any milestone or royalty payments to Isis under the
Agreement, including Sections 9.3.1 or 9.3.2 thereof, for any Reagent Non-ASO
Product, Validation Non-ASO Product or Drug Discovery Non-ASO Product directed
to the target known as [***].

 

9.4                   Pass Through Royalties.  [***].

 

9.4.1          [***].

 

9.4.2          [***]

 

9.4.3          [***]

 

9.4.4          [***]

 

9.4.5          Royalty Reduction.  In
addition to those rights specified in Section 9.4.2, Lilly shall have the
right to reduce the royalty rate for any present or future Lilly ASO Product
payable to Isis under this Agreement by [***] by paying Isis [***] on or before
[***].  The applicable Lilly ASO Product
shall be designated by Lilly at any time during the term of this Agreement.

 

9.5                   Access to Third Party Rights.

 

9.5.1          Third Party Licenses.  If,
after the Effective Date access to a Third Party’s intellectual property rights
becomes necessary to make, use, import, or offer to sell, or 

 

32

 

sell a Reagent ASO Product,
Validation ASO Product or Drug Discovery ASO Product in the Territory, Lilly
shall have the right to acquire such access. 
[***] of the acquisition cost paid by Lilly (i.e.,
all consideration paid by Lilly in connection with such acquisition including,
without limitation up-front payments, milestones payments and royalties) shall
be credited against future royalties owed to Isis by Lilly under this Agreement
for a Reagent ASO Product, Validation ASO Product or Drug Discovery ASO
Product.  Except as the Parties may
otherwise agree in writing, under no circumstance shall Lilly acquisitions of
Third Party intellectual property rights under the provisions of this Section 9.5
result in a reduction of Net Royalties payable to Isis under this Agreement by
more than [***] percent of the royalty otherwise due to Isis.

 

9.5.2          Oral Preparation or
Formulation Technology.  Any oral preparation or formulation
technology that is applicable to Reagent ASO Products, Validation ASO Products
or Drug Discovery ASO Products that is obtained by Isis from any Affiliate or
Third Party, including [***], shall be made available to Lilly for use at a
cost (including royalties, milestones and other payments) that is no greater
than the amount payable by Isis to such Third Party.  Any oral preparation or formulation technology
developed by Isis during the term of the Agreement that is applicable to
Reagent ASO Products, Validation ASO Products or Drug Discovery ASO Products
shall be made available to Lilly hereunder as Isis Technology.

 

9.6                   Payments by Isis. 
Subject to the terms and conditions of this Agreement, Isis shall pay to
Lilly royalties on a country-by-country basis from the date of the First
Commercial Sale of an Isis Product in each such country as follows:

 

9.6.1          Isis Non-Collaboration ASO
Products.  For Isis Non-Collaboration ASO Products, Isis
shall pay Lilly [***] on Isis’ annual Net Sales of each Isis Non-Collaboration
ASO Product until the expiration of the last to expire Lilly Non-Collaboration
ASO Patent Right that includes a Valid Claim that Covers such Isis Non-Collaboration
ASO Product;

 

9.6.2          Isis Validation ASO Products.  For
Isis Validation ASO Products, Isis shall pay Lilly [***] on Isis’ annual Net
Sales of each Isis Validation ASO Product until the expiration of the last to
expire Isis Collaboration Patent Right or Lilly Collaboration Patent Right that
includes a Valid Claim that Covers such Isis Validation ASO Product; provided, however, that the total royalty payable by Isis
with respect to any Isis Product under Sections 9.6.1 and 9.6.2 shall not
exceed [***] of Net Sales in the aggregate; and

 

9.6.3          Isis Drug Discovery ASO
Products.  For an Isis Drug Discovery ASO Product that
is not directed to a Stage 2 Drug Discovery Target or a Stage 3 Drug Discovery
Target, Isis shall pay to Lilly the applicable percentage of Net Sales set
forth below for each such Isis Drug Discovery ASO Product until the expiration
of the last to expire Isis Collaboration Patent Right or Lilly Collaboration
Patent Right that includes a Valid Claim that Covers such Isis Drug Discovery
ASO Product:

 

33

 

	
  Stage at which Lilly’s license to a Isis Drug 

  Discovery ASO Product was terminated

  	
   

  	
  Royalty Rate

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  

 

9.6.4          Isis Drug Discovery ASO
Products.  For Isis Drug Discovery ASO Products that are
directed to Stage 2 Drug Discovery Targets or Stage 3 Drug Discovery Targets,
Isis will pay to Lilly the applicable percentage of Net Sales set forth below
for each such a Isis Drug Discovery ASO Product until the expiration of the
last to expire Isis Collaboration Patent Right or Lilly Collaboration Patent
Right that includes a Valid Claim that Covers such Isis Drug Discovery ASO
Product:

 

	
  Stage at which Lilly’s license to a Isis Drug 

  Discovery ASO Product was terminated

  	
   

  	
  Royalty Rate

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  

 

9.6.5          Lilly Summary Reports.  If
Isis elects to receive a summary report from Lilly under Section 8.2.2(c) or
8.2.3(c) with respect to an ASO Compound, Isis shall make the applicable
payment set forth below to Lilly with respect to any Isis Reagent ASO Product,
Isis Validation Product or Isis Drug Discovery Product based thereon, as
applicable within [***] after receipt of such report from Lilly:

 

(a)           If Isis acquires rights to an Isis Reagent
ASO Product, Isis Validation ASO Product or Isis Drug Discovery ASO Product
pursuant to Section 8.2.2(c) or 8.2.3(c) prior to completion of
IND-enabling toxicology studies, then Isis shall pay Lilly [***];

 

(b)           If Isis acquires rights to an Isis Reagent
ASO Product, Isis Validation ASO Product or Isis Drug Discovery ASO Product
pursuant to Section 8.2.2(c) or 8.2.3(c) after completion of
IND-enabling toxicology studies but before completion of Phase I Clinical Trials,
then Isis shall pay Lilly [***];

 

(c)           If Isis acquires rights to an Isis Reagent
ASO Product, Isis Validation ASO Product or Isis Drug Discovery ASO Product
pursuant to Section 8.2.2(c) or 

 

34

 

8.2.3(c) after
completion of Phase I Clinical Trials but prior to completion of Phase II
Clinical Trials, then Isis shall pay Lilly [***]; and

 

(d)           If Isis acquires rights to an Isis Reagent
ASO Product, Isis Validation ASO Product or Isis Drug Discovery ASO Product
pursuant to Section 8.2.2(c) or 8.2.3(c) after completion of
Phase II Clinical Trials, then Isis shall pay Lilly [***].

 

9.6.6          ASO Product Competition.  In
the event that during the term of this Agreement, Isis develops or
commercializes an ASO Product not subject to payment obligations under any
other provision of this Section 9.6 that:

 

(a)           selectively modulates a Target that has [***];
and

 

(b)           [***].

 

then Isis shall pay to Lilly royalties on the Net Sales of such ASO
Product being developed or commercialized by Isis for such same indication(s)
that is equal to [***] of the Net Royalty payable by Lilly to Isis for such
competing Lilly ASO Product.

 

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

 

9.8                   COPS Protection.  Isis
and Lilly agree to discuss in good faith a royalty reduction for any Lilly
Product or Isis Product for which the COPS is greater than [***].

 

9.9                   Compulsory License.  If in
any country a Third Party obtains a Compulsory License to sell a Lilly Product
or Isis Product, then Lilly or Isis, respectively, shall promptly notify the
other Party.  If the royalty rate payable
by the grantee of the Compulsory License is less than the then-current royalty
rate paid under this Agreement, then the royalty rate, payable under this
Agreement with respect to such Lilly Product or Isis Product, as applicable,
shall be reduced to such lower rate in the subject country for so long as sales
are made pursuant to the Compulsory License; provided,
however, [***].

 

9.10                 Inflation.  The increments of annual Net
Sales tiers set forth in Sections 9.3.3(c) and 9.3.4(c) will be
adjusted on a Calendar Year basis commencing January 1, 2002 (and on January 1
of each year thereafter during the term of this Agreement) by an amount equal
to the percentage change, if any, in the CPI for the preceding year.

 

9.11                 Accounting Reports; Payment of Royalty.  Each
Party (including its Affiliates) and its Sublicensees shall keep complete and
accurate books and records which may be necessary to ascertain properly and to
verify the payments owed hereunder.  [***]  Each Party will make royalty payments to the
other Party for Products sold by such Party, its Affiliates and 

 

35

 

Sublicensees
during the Calendar Quarter within [***] days of the last day of that Calendar
Quarter.  Each royalty payment will be
accompanied by a written report for that Calendar Quarter showing the Net Sales
of the Products sold by such Party, its Affiliates and Sublicensees worldwide
during the quarterly reporting period and the calculation of the royalties
payable under this Agreement.

 

9.12                 Audits.  Upon the written request of a
Party (the “Auditing Party”), and not
more than once in each Calendar Year, the other Party (the “Audited
Party”) will permit the Audited Party’s independent certified
public accountant to have access during normal business hours to such of the
records of the Audited Party as may be reasonably necessary to verify the
accuracy of the royalty reports hereunder for the current year and the
preceding two (2) years prior to the date of such request.  The Auditing Party shall submit an audit
plan, including audit scope, to the Audited Party for the Audited Party’s
approval, which shall not be unreasonably withheld, prior to audit
implementation.  The independent
certified public accountants shall keep confidential any information obtained
during such inspection and shall report to the Auditing Party only the amounts
of Net Sales and royalties due and payable. 
Upon the expiration of two (2) years following the end of any
Calendar Year, the calculation of royalties payable with respect to such year
will be binding and conclusive upon the Auditing Party, and the Audited Party
and its Affiliates and Sublicensees will be released from any liability or
accountability with respect to royalties for such year.  If such accounting firm concludes that
additional royalties were owed, or that the Audited Party overpaid royalties,
during such period, the Audited Party will pay the additional royalties, or the
Auditing Party shall return any overpaid royalties, within ninety (90) days of
the date the Auditing Party delivers to the Audited Party such accounting firm’s
written report.  The fees charged by such
accounting firm will be paid by the Auditing Party unless the additional
royalties owed by the Audited Party exceed [***] of the royalties paid for the
royalty period subject to the audit, in which case the Audited Party will pay
the reasonable fees of the accounting firm. 
The Audited Party will include in each sublicense granted by it pursuant
to this Agreement a provision requiring the Sublicensee to make reports to the
Audited Party, to keep and maintain records of sales made pursuant to such
sublicense and to grant access to such records by a mutually agreed upon
independent accountant to the same extent required of the Audited Party under
this Agreement.  The Auditing Party will
treat all financial information subject to review under this Section 9.12
or under any sublicense agreement in accordance with the confidentiality
provisions of this Agreement, and will cause its accounting firm to enter into
an acceptable confidentiality agreement with the Audited Party obligating it to
retain all such financial information in confidence pursuant to such
confidentiality agreement.

 

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

 

9.14                 Income Tax Withholding.  Each
Party will be responsible for its own tax liabilities resulting from the
payments received from the other Party under this Agreement.  If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set forth in
this Article 9, the paying Party will make such withholding payments as 

 

36

 

required
and subtract such withholding payments from the payments set forth in this Article 9.  The paying Party will submit appropriate
proof of payment of the withholding taxes to the other Party within a
reasonable period of time.

 

ARTICLE 10

 

CONFIDENTIALITY

 

10.1                 Nondisclosure and Nonuse Obligations.  All (i) Confidential
Information disclosed by one Party to the other Party hereunder and (ii) Collaboration
Know-How will be maintained in confidence and will not be disclosed to any
Third Party or used for any purpose except as expressly permitted herein
without the prior written consent of the other Party.

 

10.2                 Permitted Disclosure of Confidential Information. 
Notwithstanding Section 10.1, a Party may disclose Confidential
Information of the other Party or Collaboration Know-How as follows:

 

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

 

10.2.2        if required by any governmental authority
other than under Section 10.2.1, provided that prior to such disclosure,
the Party subject to the request for such disclosure (the “Notifying Party”) promptly
notifies the other Party of such requirement so that such other Party may seek
a protective order or other appropriate remedy; and provided,
further, that in the event that no such protective order or other
remedy is obtained, or that such other Party waives compliance with this Article 10,
the Notifying Party will furnish only that portion of the other Party’s
Confidential Information or of the Collaboration Know-How that it is advised by
counsel it is legally required to furnish and will exercise all reasonable
efforts to obtain reasonable assurance that confidential treatment will be
accorded the other Party’s Confidential Information or Collaboration Know-How
so furnished.

 

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

 

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

 

37

 

ARTICLE 11

 

DISCLAIMERS, REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

38

 

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

 

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

 

11.1.8        Licenses.  Isis
has not taken nor will it take any action which would, in Isis’ good faith
judgment, interfere with any obligations of Isis set forth in this Agreement,
including but not limited to the obligation to grant Lilly the licenses and
options to license described in Article 8; and

 

11.1.9        Target Availability.  Isis
agrees not to enter into any collaboration with, or render services for, a
Third Party wherein Antisense Technology is applied to Targets in the Collaboration
Therapeutic Area of oncology whereby such collaboration or service with or for
a Third Party will negatively impact the timely accomplishment of the objectives
of the Collaboration.

 

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

 

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

 

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

 

11.2.3        Compliance with Laws.  In
carrying out its work under this Agreement, all Lilly work shall be carried out
in compliance with any applicable laws including, without limitation, federal,
state, or local laws, regulations, or guidelines governing the work at the site

 

39

 

where such work is being
conducted.  Moreover, Lilly will carry
out all work under the Collaboration in accordance with current Good Laboratory
Practices, Good Clinical Practices, Good Manufacturing Practices, if applicable
based on the specific work to be conducted;

 

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

 

11.2.5        Licenses.  Lilly
has not taken nor will it take any action which would, in Lilly’s good faith
judgment, interfere with any obligations of Lilly set forth in this Agreement,
including but not limited to the obligation to grant Isis the licenses and
options to license described in Article 8.

 

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

 

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

 

11.5                 Isis’ Right to Indemnification.  Lilly
shall indemnify each of Isis, its Affiliates, Sublicensees, permitted
successors and assigns, and the directors, officers, employees, agents and
counsel thereof (the “Isis Indemnitees”),
and defend and hold each Isis Indemnitee harmless from and against any and all
liabilities, damages, losses, settlements, claims, actions, suits, penalties,
fines, costs or expenses (including, without limitation reasonable attorneys’
fees) (any of the foregoing, “Damages”)
incurred by or asserted against any Isis Indemnitee of whatever kind or nature,
including, without limitation, any claim or liability based upon negligence,
warranty, strict liability, or violation of government regulation but only to
the extent arising from or occurring as a result of a claim or demand made by a
Third Party (a “Third Party Claim”) against
any Isis Indemnitee arising because of: (a) breach of any representation
or warranty made by Lilly pursuant to this Article 11; (b) any
material breach of this Agreement by Lilly; (c) the manufacture, use,
handling, storage, sale or other disposition of a Lilly Product that is sold by
Lilly, its Affiliates, agents or Sublicensees; (d) violation of the trade
secrets of any Third Party by Lilly; (e) any Third Party Claim that any
Lilly Collaboration Technology or Lilly Non-Collaboration ASO Patent Right
should not have been disclosed or made available to Isis; (f) a Third
Party Claim for payment under the Yale Agreement with respect to the
development and/or commercialization by Lilly, its Affiliates and/or
Sublicensees of Drug Discovery ASO Products directed to Survivin; provided, however, that such indemnification
by Lilly under this Section 11.5(f) shall apply only to Third Party
Claims for payment because such Drug Discovery 

 

40

 

ASO
Product is alleged to be a Licensed Product (as defined in the Yale Agreement)
under Section 1.7(i) of the Yale Agreement; or (g) any Third
Party Claim that either Party’s use of a Target designated by Lilly for use in
the Collaboration infringes the intellectual property rights of such Third
Party; except, in each such case in subparagraphs (a) through (g) above,
to the extent that such Damages are finally determined to have resulted from
the negligence or misconduct of an Isis Indemnitee, or the breach of any
representation or warranty under Section 11.1 by Isis.

 

11.6                 Lilly’s Right to Indemnification.  Isis
shall indemnify each of Lilly, its Affiliates, Sublicensees, successors and
assigns, and the directors, officers, employees, agents and counsel thereof
(the “Lilly Indemnitees”), and defend and
hold each Lilly Indemnitee harmless from and against any and all Damages
incurred by or asserted against any Lilly Indemnitee of whatever kind or
nature, including, without limitation, any claim or liability based upon
negligence, warranty, strict liability, violation of government regulation but
only to the extent arising from or occurring as a result of a Third Party Claim
against any Lilly Indemnitee arising because of: (a) breach of any
representation or warranty made by Isis pursuant to this Article 11; (b) any
material breach of this Agreement by Isis; (c) the manufacture, use,
handling, storage, sale or other disposition of an Isis Product that is sold by
Isis, its Affiliates, agents or Sublicensees; (d) violation of the trade
secrets of any Third Party by Isis; (e) any Third Party Claim that any
Isis Technology or Isis Collaboration Technology should not have been disclosed
or made available to Lilly; (f) any Third Party Claim for payments under
the Yale Agreement with respect to the development and/or commercialization by
Lilly, its Affiliates and/or Sublicensees of Drug Discovery ASO Products
directed to Survivin; provided, however,
that such indemnification by Isis under this Section 11.6(f) shall
apply only to Third Party Claims for payment because such Drug Discovery ASO
Product is alleged to be a Licensed Product (as defined in the Yale Agreement)
under Section 1.7(ii) of the Yale Agreement as a result of any
invention made by Isis using the technology licensed under the Yale Agreement;
or (g) any Third Party Claim that either Party’s use of a Target
designated by Isis for use in the Collaboration infringes the intellectual
property rights of such Third Party; except, in each such case, in
subparagraphs (a) through (g) above, to the extent that such Damages
are finally determined to have resulted from the negligence or misconduct of a
Lilly Indemnitee, or the breach of any representation or warranty under Section 11.2
by Lilly.

 

11.7                 Indemnification Procedures. 
Promptly after a Party entitled to indemnification under Section 11.5
or 11.6 (an “Indemnitee”) receives notice
of any pending or threatened claim against it (an “Action”),
such Indemnitee shall give written notice to the Party to whom the Indemnitee
is entitled to look for indemnification pursuant to Section 11.5 or 11.6,
as applicable (the “Indemnifying Party”), of the
commencement thereof, provided that the failure so to notify the Indemnifying
Party shall not relieve it of any liability that it may have to any Indemnitee
hereunder, except to the extent the Indemnifying Party demonstrates that it is
prejudiced thereby.  In case any Action
that is subject to indemnification under this Article 11, shall be brought
against an Indemnitee and it shall give written notice to the Indemnifying
Party of the commencement thereof, the Indemnifying Party shall be entitled to
participate therein and, if it so desires, to assume the defense thereof with
counsel reasonably satisfactory to such Indemnitee and, after notice from the
Indemnifying Party to the Indemnitee of its election to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnitee under
this Article 11 for any fees of other counsel or any other expenses, in
each case subsequently 

 

41

 

incurred
by such Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation. 
Notwithstanding an Indemnifying Party’s election to assume the defense
of any such Action that is subject to indemnification under this Article 11,
the Indemnitee shall have the right to employ separate counsel and to
participate in the defense of such Action, and the Indemnifying Party shall
bear the reasonable fees, costs and expenses of such separate counsel if:  (i) the use of counsel chosen by the Indemnifying
Party to represent the Indemnitee would present such counsel with a conflict of
interest; (ii) the actual or potential defendants in, or targets of, any
such Action include both the Indemnifying Party and the Indemnitee, and the
Indemnitee shall have reasonably concluded that there may be legal defenses
available to it which are different from or additional to those available to
the Indemnifying Party (in which case the Indemnifying Party shall not have the
right to assume the defense of such Action on the Indemnitee’s behalf); (iii) the
Indemnifying Party shall not have employed counsel satisfactory to the
Indemnitee to represent the Indemnitee within a reasonable time after notice of
the institution of such Action; or (iv) the Indemnifying Party shall
authorize the Indemnitee to employ separate counsel at the Indemnifying Party’s
expense.  If an Indemnifying Party
assumes the defense of such Action, no compromise or settlement thereof may be
effected by the Indemnifying Party without the Indemnitee’s written consent,
which consent shall not be unreasonably withheld or delayed, unless (1) there
is no finding or admission of any violation of law or any violation of the
rights of any other Party and no effect on any other claims that may be made
against the Indemnitee and (2) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party.

 

ARTICLE 12

 

INTELLECTUAL PROPERTY

 

12.1                 Disclosures and Reports. 
During the Collaboration Term, each Party shall promptly disclose to the
other in writing all Know-How generated in the course of the
Collaboration.  Such disclosure shall be
in sufficient detail to permit the other Party to employ such Know-How as
provided herein.  Within ninety (90) days
after of the expiration of the Collaboration Term, each Party shall provide the
other Party with a comprehensive final written report with respect to the
Know-How generated by such Party in the course of the Collaboration.

 

12.2                 Ownership.  Lilly shall own all inventions within the
scope of the Collaboration made solely by its employees and Isis shall own all
inventions within the scope of the Collaboration made solely by its
employees.  All inventions made jointly
by employees of Lilly and employees of Isis pursuant to 35 USC 116 within the
scope of the Collaboration shall be owned jointly by Isis and Lilly (the “Joint Collaboration Patent Rights”).  All Patent Rights
covering any invention made within the scope of the Collaboration shall be
owned by the Parties or Party, as the case may be, that own(s) said invention.

 

12.3                 Patent Filing and Prosecution. 
Lilly and Isis shall work closely to ensure that, when appropriate,
Patent Rights are obtained for inventions arising in the course of the
Collaboration.  Each Party shall use its
commercially reasonable efforts in filing and prosecuting Patent Rights
claiming inventions arising in the course of the Collaboration under this Section 12.3.  When appropriate, the Parties shall file Collaboration
ASO Compound Patent Rights separately from patent applications containing all
other claims, including, without 

 

42

 

limitation,
non-ASO Compound composition of matter claims and claims directed to the use of
such non-ASO Compound.  Lilly shall not
be responsible for reimbursement under Section 12.6 of any of Isis’
external costs of filing, prosecuting, maintaining and extending any Isis Collaboration
ASO Compound Patent Right; provided, however, that
Lilly shall reimburse [***] of Isis’ external costs of filing, prosecuting,
maintaining and extending Isis Collaboration ASO Compound Patent Rights claiming
Drug Discovery ASO Compounds and/or the use of Drug Discovery ASO Compounds
directed to a Drug Discovery Target until the earlier to occur of the time (i) such
Target becomes an Abandoned Drug Discovery Target or otherwise ceases to be a
Drug Discovery Target for purposes of this Agreement, (ii) Lilly assumes
responsibility for such Isis Collaboration ASO Compound Patent Rights as
provided in Section 12.3.1 (in which case the terms of Section 12.3.1
will apply), or (iii) Lilly elects to discontinue such reimbursement
pursuant to Section 12.6.  Except as
provided in Section 12.3.1, Isis shall be responsible for preparing,
filing, prosecuting, maintaining and taking such other actions as are
reasonably necessary or appropriate with respect to the Isis Collaboration
Patent Rights and the Isis Patent Rights. 
Lilly shall be responsible for preparing, filing, prosecuting, maintaining
and taking such other actions as are reasonably necessary or appropriate with
respect to the (i) Lilly Collaboration Patent Rights and (ii) Isis
Collaboration ASO Compound Patent Rights and Isis ASO Compound Patent Rights as
provided by Section 12.3.1.  The
Executive Committee shall designate one of the Parties as being the responsible
Party for preparing, filing, prosecuting, maintaining and taking such other
actions as are reasonably necessary or appropriate with respect to the Joint
Collaboration Patent Rights.  Allocation
of external costs for preparing, filing, prosecuting, maintaining such Joint
Collaboration Patent Rights shall be determined by the Executive
Committee.  Each Party shall provide the other
Party with a copy of any patent application that first discloses an invention
arising in the course of the Collaboration or any Collaboration Know-How, prior
to filing the first of such applications in any jurisdiction, for review and
comment by the other Party.  Each Party
shall keep the other Party continuously informed of all significant matters
relating to the preparation, filing, prosecution and maintenance of
Collaboration Patent Rights.  Each Party
shall provide the other Party with copies of any substantial prosecution papers
relating to Collaboration Patent Rights within thirty (30) days of
receipt.  Each Party shall endeavor in
good faith to coordinate its efforts with those of the other Party to minimize
or avoid interference with the prosecution of the other Party’s patent
applications.  The Executive Committee
shall review and have oversight responsibility for all patent matters
pertaining to the Collaboration.

 

12.3.1        Lilly at its own expense, will prepare, file,
prosecute and/or maintain the (i) Isis Collaboration ASO Compound Patent
Rights and (ii) Isis ASO Compound Patent Rights that are exclusively licensed
by Lilly pursuant to Article 8.  Lilly
shall be responsible for [***] of the cost of filing, prosecuting, and maintaining
(i) Isis Collaboration ASO Compound Patent Rights and (ii) Isis ASO
Compound Patent Rights, that are incurred on and after such time as any such
Patent Right is exclusively licensed to Lilly under Article 8.  In the event of termination under Section 13.4
or 13.5, or upon written agreement of the Parties, such responsibility and
expense for preparation, filing, prosecuting and maintenance shall revert back
to Isis; provided, however, such responsibility
and expense for preparation, filing, prosecuting and maintenance shall not
revert to Isis for those (i) Isis Collaboration ASO Compound Patent Rights
and (ii) Isis ASO Compound Patent Rights that continue to be exclusively
licensed by Lilly as provided by Article 13.6.  Lilly may use in-house patent counsel or
outside patent counsel that is acceptable to Isis for the filing, prosecution
and maintenance of Isis Collaboration ASO Compound Patent

 

43

 

Rights and Isis ASO Compound
Patent Rights for which Lilly assumes responsibility for under this Section 12.3.1.  Upon licensing of Isis Collaboration ASO Compound
Patent Rights and Isis ASO Compound Patent Rights by Lilly under Article 8,
Isis will promptly transfer the subject patent files to Lilly and shall execute
such documents and perform such acts as may be reasonably necessary for Lilly
to take control of the such patent filing, prosecution and maintenance and will
provide all necessary assistance in the prosecution and maintenance
thereof.  Lilly will, in a timely manner,
provide Isis with copies of all draft applications, responses and other
substantive papers relating to the filing, prosecution and maintenance (including
the verification of all fees and annuities) of such Isis Collaboration ASO
Compound Patent Rights and Isis ASO Compound Patent Rights and shall provide Isis with an
opportunity to comment on any draft applications, responses or amendments at
least 3 days prior to filing and to the extent practicable incorporate such
comments.  Isis hereby acknowledges a possible
conflict of interest between Lilly and Isis relating to the Isis Collaboration
ASO Compound Patent Rights and Isis ASO Compound Patent Rights for which Lilly assumes
responsibility for filing, prosecution and maintenance under this Section 12.3.1.  So long as Lilly complies with provisions of
this Section 12.3.1, Isis hereby grants Lilly and Lilly’s patent counsel a
conflict waiver, to the limited extent of any conflict of interest arising from
the fact that (a) Lilly has the right to prepare, file, prosecute and maintain
the Isis Collaboration ASO Compound Patent Rights and Isis ASO Compound Patent
Rights pursuant to this Section 12.3.1 and (b) Isis owns or Controls
such Patent Rights.

 

12.4                 Election Not to File, Prosecute or Maintain.  If
the responsible Party under Section 12.3 elects (a) not to file a
patent application claiming an invention made in the course of the
Collaboration in a particular country, or (b) to discontinue prosecution
or maintenance of any Patent Right in a particular country that is (i) Controlled
by such Party Covering a Product being developed or commercialized by the other
Party hereunder or (ii) of any Collaboration Patent Right or (iii) with
respect to Lilly, an Isis Collaboration ASO Compound Patent Right or Isis ASO
Compound Patent Right for which Lilly assumes responsibility for filing,
prosecution and maintenance under Section 12.3.1 that Party (the “Initial Responsible Party”) shall
give thirty (30) days advance written notice to the other Party of any decision
to cease preparation, filing, prosecution and maintenance of that Patent Right
(a “Discontinued Patent”); provided, however, that abandonment of a patent application
in favor of a continuation or a continuation-in-part thereof shall not
constitute discontinuance of the patent application.  In such case, the other Party may elect at
its sole discretion to continue preparation, filing, prosecution or maintenance
of the Discontinued Patent at its sole expense. 
The Party so continuing shall own any such patent application and
patents maturing therefrom and be solely responsible for all costs, and the
Initial Responsible Party shall have a non-exclusive, worldwide, irrevocable,
perpetual, fully-paid license to continue to practice such Discontinued Patent,
including the right to sublicense solely in connection with the grant of a
license to develop, make, use, import, offer for sale and sell a product of the
Initial Responsible Party; provided, however,
with respect to an Isis Collaboration ASO Compound Patent Right or Isis ASO
Compound Patent Right for which Lilly assumes responsibility for filing,
prosecution and maintenance under Section 12.3.1 that becomes a
Discontinued Patent under this Section 12.4, the license granted under
this Agreement with respect to each such Discontinued Patent shall terminate on
the date of receipt of such written notification from Lilly and Lilly shall
cease to have any obligation to pay royalties to Isis under this Agreement with
respect to such Discontinued Patent.  In
addition, such Party so continuing shall cease to have any obligation to pay
royalties to the Initial Responsible Party under this 

 

44

 

Agreement
with respect to the Discontinued Patent. 
The Initial Responsible Party shall execute such documents and perform
such acts as may be reasonably necessary for the other Party to file or to
continue prosecution or maintenance, including assigning ownership of such
patents and inventions to such electing Party. 
Discontinuance may be on a country-by-country basis or for a patent
application or patent series in total.

 

12.5                 Inventions Otherwise Unpatentable in the United
States.  Any invention made by a Party in the course
of the Target Validation Program or Drug Discovery Program hereto that would be
rendered unpatentable in the United States solely on account of prior art under
one or more of subsections 102(e), (f), or (g) of Title 35, U.S.C., but
for the absence of an obligation of assignment of said invention (or an
undivided interest therein) to the other Party hereto, is hereby subjected to
an obligation of assignment to such other Party of such interest in the
invention as renders the invention patentable in the United States.  Such assignment shall have force and effect
only with respect to patents granted in the United States.  The rights of the Parties with respect to any
invention subject to an obligation of assignment under this Section 12.5,
except for subject matter patentable to the assignee in the absence of the
assignment, shall be the same as the rights that would have applied under this
Agreement had no obligation to assign under this Section 12.5
existed.  If and only if required to give
force and effect to the immediately preceding sentence and, in such case, only
to the extent required to give such force and effect, each assignee under this Section 12.5
hereby grants to each of the assignors under this Section 12.5 such
licenses, if any, as are required to vest in the assignor rights to make, have
made, use, sell and import the assigned invention, except for subject matter
patentable to the assignee in the absence of the assignment.

 

12.6                 Costs and Expenses.  Lilly
shall bear its own costs and expenses in filing, prosecuting, maintaining and
extending Lilly Collaboration Patent Rights and, subject to Section 12.3 (including
12.3.1), shall reimburse Isis for [***] of Isis’ external costs of filing,
prosecuting, maintaining and extending any Isis Collaboration Patent Rights for
which costs are incurred after the Effective Date of this Agreement.  Lilly and Isis patent costs and expenses
shall not be paid from the Collaboration Funds. 
Lilly may at any time, and in its sole discretion, discontinue
reimbursement of the external costs incurred by Isis in filing, prosecuting
(including any interference), maintaining, and extending any Isis Collaboration
Patent Right, on an Isis Collaboration Patent Right-by-Isis Collaboration
Patent Right and country-by-country basis. 
Lilly shall provide Isis with written notice designating each Isis
Collaboration Patent Right and country for which Lilly has decided to discontinue
such reimbursement.  Lilly’s obligation
to reimburse Isis for any external costs with respect to any such Isis
Collaboration Patent Right shall cease on the date of receipt of such
notification; provided, however, that Lilly
shall remain responsible for [***] (or [***] in the case Section 12.3.1
applies) of the external costs incurred up to the date of receipt of such
notification.  The license granted under
this Agreement with respect to each Isis Collaboration Patent Right in each
country that is specified in the written notice provided by Lilly to Isis
pursuant to this Section 12.6 shall terminate on the date of receipt of
such written notification and Lilly shall cease to have any obligation to pay
royalties to Isis under this Agreement with respect to such Isis Collaboration
Patent Right.

 

12.7                 Patent Term Extensions.  The
Parties shall cooperate with each other in gaining patent term extension
wherever applicable to any Lilly Product or Isis Product.  The Party selling such Lilly Product or Isis
Product shall determine which patents shall be extended.  

 

45

 

All
filings for such extension shall be made by the Party to whom the patent is
assigned; provided, however, that in the event
that the Party to whom the patent is assigned elects not to file for an
extension, such Party shall (i) inform the other Party of its intention
not to file, (ii) grant the other Party the right to file for such
extension, and (iii) cooperate as necessary to assist the other Party in
filing such extension.

 

12.8                 Audit of Costs.  Upon
written notice, Lilly and Isis shall each have the right at its own expense and
not more than annually in or in respect of any Calendar Year, and during normal
business hours, to audit those books and records as may be reasonably necessary
to verify the accuracy and reasonableness of any costs incurred by the other
Party and for which the other Party is seeking or has received partial
reimbursement pursuant to Section 12.6 in respect of any Calendar Year
ending not more than [***] year prior to the date of such notice.  Any information received or obtained in
connection with an audit under this Section 12.8 is Confidential
Information and both Parties shall retain all such information in confidence.

 

12.9                 Notice of Certification.  Isis
and Lilly each shall immediately upon receiving notice give notice to the other
of any certification filed under the U.S. “Drug Price Competition and Patent
Term Restoration Act of 1984” claiming that (a) a Collaboration Patent
Right or Isis Patent Right Covering a Lilly Product being developed or
commercialized by Lilly hereunder, or (b) a Collaboration Patent Right
Covering an Isis Product being developed or commercialized by Isis hereunder,
is invalid or that any infringement will not arise from the manufacture, use,
sale, offer for sale or import of any product by a Third Party.  If Lilly decides not to bring infringement
proceedings against the entity making such a certification with respect to a
Collaboration Patent Right or Isis Patent Right Covering a Lilly Product being
developed or commercialized by Lilly hereunder, Lilly shall give notice to Isis
of its decision not to bring suit within twenty-one (21) days after receipt of
notice of such certification.  Isis may
then, but is not required to, bring suit against the entity that filed the
certification.  If Isis decides not to
bring infringement proceedings against the entity making such a certification
with respect to a Collaboration Patent Right Covering an Isis Product being
developed or commercialized by Isis hereunder, Isis shall give notice to Lilly
of its decision not to bring suit within twenty-one (21) days after receipt of
notice of such certification.  Lilly may
then, but is not required to, bring suit against the Third Party that filed the
certification.  Any suit by Lilly or Isis
shall either be in the name of Lilly or in the name of Isis, or jointly by
Lilly and Isis, as may be required by law. 
For this purpose, the Party not bringing suit shall execute such legal
papers necessary for the prosecution of such suit as may be reasonably
requested by the Party bringing suit. 
Any costs incurred or benefits received as a result of proceeding under
this Section 12.9 shall be paid or received entirely by the Party who
pursued the action.

 

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

 

12.10.1      Responsibilities.  Isis
shall have the sole right to control any defense of any Infringement Claim
involving alleged infringement of Third Party rights by Isis’ activities at its
own expense and by counsel of its own choice, and Lilly shall have the right,
at its own 

 

46

 

expense, to be represented
in any such action by counsel of its own choice.  Lilly shall have the sole right to control
any defense of any Infringement Claim involving alleged infringement of Third
Party rights by Lilly’s activities at its own expense and by counsel of its own
choice, and Isis shall have the right, at its own expense, to be represented in
any such action by counsel of its own choice. 
Notwithstanding the foregoing, if the claim involves an allegation of a
violation of the trade secret rights of a Third Party, the Party accused of
such violation shall have the obligation to defend against such claim and shall
indemnify the other Party against all costs associated with such claim.  Neither Party shall have the right to settle
any patent infringement litigation under this Section 12.10 relating to
any Patent Rights owned by or exclusively licensed to the other Party hereunder
without the consent of such other Party. 
Each Party shall also keep the other Party continually informed of all
significant matters relating to Infringement Claims of Third Parties.

 

12.11               Infringement Claims Against Third Parties.

 

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

 

12.11.2      Notice of Infringement.  If
any Collaboration Know-How, Collaboration Patent Right or any other Patent
Right licensed by one Party to the other under this Agreement is infringed or
misappropriated, as the case may be, by a Third Party, the Party to this
Agreement first having knowledge of such infringement or misappropriation,
shall promptly notify the other in writing. 
The notice shall set forth the facts of such infringement or
misappropriation in reasonable detail. 
The exclusive licensee of the Collaboration Know-How Collaboration
Patent Right or other Patent Right shall have the primary right, but not the
obligation, to institute, prosecute, and control any action or proceeding with
respect to infringement or misappropriation of such Collaboration Patent Right,
other Patent Right or Collaboration Know-How by its own counsel.  The other Party shall have the right, at its
own expense, to be represented in such action by its own counsel.  The Parties shall promptly determine which
Party shall have the primary responsibility to institute, prosecute, and
control any action or proceeding with respect to infringement or misappropriation
of Joint Collaboration Patent Rights, and the other Party shall have the right,
at its expense, to be represented in such action by its counsel.  During the Collaboration Term, such
determination may be made by the Executive Committee.  Except as otherwise agreed to by the Parties
as part of a cost-sharing arrangement, any recovery realized as a result of
such litigation, after reimbursement of any litigation expenses of Isis and
Lilly, shall be retained by the Party that brought and controlled such
litigation for purposes of this Agreement, except that any recovery realized by
Isis or Lilly as a result of such litigation, after reimbursement of the
Parties’ litigation expenses, shall, to the extent attributable to lost sales
of Isis Products or Lilly Products, respectively, be treated as Net Sales of
Isis Products by Isis or Net Sales of Lilly Products by Lilly, respectively.

 

12.11.3      Expenses of Bringing
Infringement Action.  Lilly shall bear the costs and expenses of
all infringement or misappropriation actions on Collaboration Know-How,
Collaboration Patent Rights, or any other Patent Right licensed to Lilly under
this Agreement to the extent such Collaboration Know-How, Collaboration Patent
Rights or any other Patent Right licensed to Lilly under this Agreement Cover a
Lilly Product.  Isis shall bear the costs
and 

 

47

 

expenses of all infringement
or misappropriation actions on Collaboration Know-How, Collaboration Patent
Rights, or any other Patent Right licensed to Isis under this Agreement to the
extent such Collaboration Know-How, Collaboration Patent Rights, or any other
Patent Right licensed to Isis under this Agreement Cover an Isis Product.

 

12.11.4      Lilly’s Failure to
Institute, Prosecute and Control.  If Lilly fails to institute, prosecute,
and control such action or prosecution within a period of one hundred twenty
(120) days after receiving notice of the infringement, Isis, subject to the
prior rights of any Third Party, shall have the right to bring and control any
such action by counsel of its own choice, and Lilly shall have the right, at
its own expense, to be represented in any such action by counsel of its own
choice. Except as otherwise agreed to by the Parties as part of a cost-sharing
arrangement, any recovery realized as a result of such litigation, after
reimbursement of 100% of any litigation expenses of Isis and 100% of any
litigation expenses of Lilly (including the costs and expenses incurred by
Lilly in providing reasonable assistance to Isis), shall be shared equally by
the Parties.  No settlement or consent
judgment or other voluntary final disposition of a suit under this Section 12.11.4
may be entered into without the joint consent of Isis and Lilly (which consent
shall not be unreasonably withheld or delayed).

 

12.11.5      Isis’ Failure to Institute,
Prosecute and Control.  If Isis fails to institute, prosecute, and
control such action or prosecution within a period of one hundred twenty (120)
days after receiving notice of the infringement, Lilly, subject to the prior
rights of any Third Party, shall have the right to bring and control any such
action by counsel of its own choice, and Isis shall have the right, at its own
expense, to be represented in any such action by counsel of its own choice.  Except as otherwise agreed to by the Parties
as part of a cost-sharing arrangement, any recovery realized as a result of
such litigation, after reimbursement of 100% of any litigation expenses of
Lilly and 100% of any litigation expenses of Isis (including the costs and expenses
incurred by Isis in providing reasonable assistance to Lilly), shall be shared
equally by the Parties.  No settlement or
consent judgment or other voluntary final disposition of a suit under this Section 12.11.5
may be entered into without the joint consent of Isis and Lilly (which consent
shall not be unreasonably withheld or delayed).

 

12.11.6      Settlement Approval. 
Neither Party shall settle any such proceeding under this Section 12.11
without the approval of the other Party, which approval shall not be
unreasonably withheld or delayed.

 

12.12               The Collaboration Targets on which exist Collaboration
Patent Rights as of the Second Restatement Date are listed in Schedule 12.12.

 

ARTICLE 13

 

TERM AND TERMINATION

 

13.1                 Term of Collaboration.

 

13.1.1        The Collaboration Term.  The
Collaboration Term became effective on the Effective Date and shall continue in
effect in accordance with this Article 13. 
Prior to the close of the Collaboration Term, Lilly shall have the
option to extend each or both of the Target 

 

48

 

Validation Program Term,
and/or the Antisense Drug Discovery Program Term for two (2) consecutive
two year periods provided that Lilly gives notice to Isis at least nine (9) months
prior to the expiration of the Collaboration Term or any extension period of
the Target Validation Program Term, and/or the Antisense Drug Discovery Program
Term.  However, Lilly and Isis shall
begin discussions concerning the expiration or extension of Collaboration at
least twelve (12) months prior to the end of the Collaboration Term or any
extension period of the Target Validation Program Term, and/or the Antisense Drug
Discovery Program Term. If the Target Validation Program Term, and/or the Antisense
Drug Discovery Program Term are extended, any such extension shall be on terms
that are the same as those provided herein; provided, however,
that (i) the funding amount paid by Lilly for any such extension shall be
paid by Lilly in cash, unless agreed otherwise, disbursed on a schedule substantially
the same as the disbursement schedule of Collaboration Funds under the
Loan Agreement and (ii) unless agreed otherwise, such funding amount shall
be the same as provided in this Agreement for the Target Validation Program,
and/or the Antisense Drug Discovery Program, as applicable, such funding amount
adjusted for the reduction in the duration of the extension period as compared
to the Initial Collaboration Term.

 

13.1.2        [DELETED]

 

13.1.3        Extension of the Collaboration
Term.  Having extended the Oncology Term to the end
of the Initial Collaboration Term pursuant to the May 3, 2004 Agreement, the
Parties now hereby agree to extend the Collaboration Term with respect to the (i) Antisense
Drug Discovery Program in the Collaboration Therapeutic Area of oncology and (ii) the
Target Validation Program with respect to the Collaboration Therapeutic Area of
oncology.  The Collaboration Term shall
expire on the later of (a) December 31, 2006 or (b) when the
last of the Collaboration Funds are expended in accordance with the Collaborative
Research Plan.  Such extension of the
Collaboration Term is deemed an extension of the Antisense Drug Discovery Term
and the Target Validation Program Term.  If
the last of the Collaboration Funds are expended after December 31, 2006,
the Executive Committee shall make a written determination of the exact date
when the last of the Collaboration Funds were expended in order to establish
the date of expiration of the Extended Collaboration Term.  During the Extended Collaboration Term, the
Antisense Drug Discovery Program and Target Validation Program shall be subject
to the terms and conditions of this Second Restated and Amended Agreement and
shall be conducted in accordance with the Collaborative Research Plan, which is
attached hereto as Schedule 13.1.3 and made part of this Agreement.  The Parties agree that the Reagent Provision
Term shall expire on August 24, 2005 and that all activities conducted
under the Reagent Provision Program shall cease on or before such date. The
Parties agree that all activities conducted under the Target Validation Program
with respect to all Collaboration Therapeutic Areas other than oncology, and
the Antisense Drug Discovery Program with respect to all Collaboration
Therapeutic Areas other than oncology, shall cease on or before August 24,
2005.

 

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

 

49

 

13.3                 Termination of Collaboration Upon Change of Control.  Lilly
has the right to terminate the Collaboration during the Collaboration Term as
set forth in this Section 13.3.  In
the event of a Change of Control of Isis, Isis shall notify Lilly of such
change specifying the effective date of the change and the name(s) of the
controlling Party or Parties.  Lilly has
the right to terminate either or both of the Target Validation Program and the
Antisense Drug Discovery Program and transfer all research and development
activities to Lilly as a result of such Change of Control at any time within
ninety (90) days following such Change of Control, effective upon thirty (30)
days written notice by Lilly.  The
Parties shall treat a termination under this Section 13.3 as an expiration
of the Target Validation Program and/or Antisense Drug Discovery Program, as
applicable.  Lilly shall receive a
non-exclusive license from Isis under Isis Technology and Isis Collaboration
Technology to carry out all activities that would have otherwise been carried
out under the Collaboration Agreement if there were no such termination by
Lilly under this Section 13.3.  In
the alternative, Lilly may elect to continue either or both of the Target
Validation Program and the Antisense Drug Discovery Program pursuant to the
terms of this Agreement.

 

13.4                 Termination for Breach. 
Either Party may terminate this Agreement by notice to the other Party
at any time during the term of this Agreement if the other Party is in breach
of any material obligations hereunder and has not cured such breach within
ninety (90) days after notice requesting cure of the breach or such longer
period of time as is required to cure such breach as long as the breaching
Party is proceeding in good faith to cure; provided, however,
that in any case when a breach is alleged regarding the payment of money
hereunder, the time period will be thirty (30) days and undisputed amounts must
be paid prior to such time to avoid breach. 
Lilly shall have the right to terminate this Agreement upon written
notice to Isis in the event Isis is in breach of its obligation to pay the debt
on the Payment Date as required by the Loan Agreement, which breach has not
been cured within thirty (30) days of such notice.  Upon material breach by a Party of its
obligations hereunder, if such Party decides not to terminate this Agreement,
such Party shall have the right to offset any costs it may incur as a result of
curing such breach against the amounts payable to the breaching Party for the
performance of such obligations. 
Further, to the extent that a Party prevails in a lawsuit brought
against the other Party for material breach of this Agreement, such prevailing
Party shall be entitled to collect from the other Party reasonable attorneys’
fees and legal costs incurred in connection with such law suit. If the
non-breaching Party terminates this Agreement under Section 13.4 following
material breach by the breaching Party, the breaching Party shall return to the
non-Breaching Party all of the non-breaching Party’s Confidential Information
and all materials received from the non-breaching Party during the Agreement,
and the breaching Party shall cease all use of the non-breaching Party’s
Confidential Information and materials received from the non-breaching Party
for any purpose except as provided in Sections 13.6 and 13.7, and except
that the breaching Party may (1) keep a copy of all documents for record
keeping purposes only and (2) keep and use any Confidential Information
and materials received from the non-breaching Party that are necessary for the
breaching Party to exercise those of its rights and fulfill those of its
obligations that survive the termination of this Agreement.

 

13.5                 Termination Upon Insolvency. 
Either Party may terminate this Agreement upon notice to the other
should the other Party become insolvent or file or consent to the filing of a
petition under any bankruptcy or insolvency law or have any such petition filed
against it which has not been stayed within sixty (60) days of such
filing.  During the term of this 

 

50

 

Agreement,
all rights and licenses granted under or pursuant to this Agreement by Isis or
Lilly are, and will otherwise be deemed to be, for purposes of Section 365(n)
of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as
defined under Section 101 of the U.S. Bankruptcy Code.  The Parties agree that, during the term of
this Agreement, the Parties, as licensees of such rights under this Agreement,
will retain and may fully exercise all of their rights and elections under the
U.S. Bankruptcy Code.  The Parties
further agree that, in the event of the commencement of a bankruptcy
proceeding-by or against either Party under the U.S. Bankruptcy Code, the Party
hereto that is not a party to such proceeding will be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, and same, if not
already in their possession, will be promptly delivered to them (i) upon
any such commencement of a bankruptcy proceeding upon their written request
therefor, unless the Party subject to such proceeding elects to continue to
perform all of its obligations under this Agreement, or (ii) if not
delivered under (i) above, following the rejection of this Agreement by or
on behalf of the Party subject to such proceeding upon written request therefor
by the non-subject Party.

 

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

 

(a)           licenses granted by Lilly to Isis pursuant to
Sections 8.4.1(b) and 8.4.2, and all licenses granted under Section 8.5
prior to such termination, shall survive;

 

(b)           Isis payment obligations set forth in Article 9
shall continue; provided, however, that the
amounts of the payments shall be decreased to reflect the nature of Lilly’s
breach and the damages caused thereby by amounts to be agreed upon by the Parties
or, if the Parties are unable to reach agreement, by an independent Third Party
with the requisite expertise selected by the Parties, the expense of which
shall be borne by Lilly;

 

(c)           Lilly’s payment obligations set forth in Article 9
shall continue; provided, however, that the
amounts of the payments shall be increased to reflect the nature of Lilly’s
breach and the damages caused thereby by amounts to be agreed upon by the
Parties or, if the Parties are unable to reach agreement, by an independent Third
Party with the requisite expertise selected by the Parties, the expense of
which shall be borne by Lilly;

 

(d)           the licenses granted by Isis to Lilly
pursuant to Sections 8.1.1(a) and 8.1.1(b) shall terminate;

 

(e)           the licenses granted by Isis to Lilly pursuant
to Sections 8.1.1(c) and 8.1.2 shall survive and the option under
Sections 8.2.1, 8.2.2, and 8.2.3 shall terminate; provided,
however, that any license granted to Lilly under
Sections 8.2.1, 8.2.2, and 8.2.3 before termination under Section 13.4
or 13.5 by Isis shall survive;

 

(f)            the Lilly Right of First Negotiation granted
by Isis to Lilly pursuant to Section 8.3 shall terminate;

 

(g)           Isis shall retain all rights to Validation
Targets, Reserved Targets and Drug Discovery Targets not licensed by Lilly
before such termination with no obligation to Lilly with respect to such to
Validation Targets, Reserved Targets and Drug Discovery Targets; 

 

51

 

provided,
however, that Lilly
shall have the right to license any such Validation Targets, Reserved Targets
or Drug Discovery Targets within ninety (90) days of the date of termination
under Section 13.4 or 13.5 and thereafter Lilly shall pay the applicable
license fees;

 

(h)           any sublicense granted by either Party to any
Sublicensee under a license hereunder that terminates as a result of
termination of this Agreement by Isis pursuant to Section 13.4 or 13.5
shall continue in full force and effect but be assigned by such Party to the
other Party, and such Party shall provide the other Party with complete and
accurate copies of such sublicense agreements within thirty (30) days following
the effective date of such termination;

 

(i)            the license granted by Isis to Lilly pursuant
to Sections 8.11 shall survive; provided, however,
on a product-by product basis, any such license for a Lilly Product shall not
survive if Lilly has breached its obligation to pay milestone payments and/or
royalties to Isis for such Lilly Product as required by Article 9.

 

(j)            the options under Sections 8.12 shall
terminate; provided, however, that any license
granted to Lilly under Sections 8.12 before termination under Section 13.4
or 13.5 by Isis shall survive; and further provided, however,
on a product-by product basis, any such license for a Lilly Product shall not
survive if Lilly has breached its obligation to pay milestone payments and/or
royalties to Isis for such Lilly Product as required by Article 9.

 

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

 

(a)           licenses granted by Isis to Lilly pursuant to
Sections 8.1.1(c), 8.1.2, 8.2.1, 8.2.2, 8.2.3, 8.3, 8.11 and 8.12 and
options granted pursuant to Section 8.12 shall survive;

 

(b)           the Lilly Right of First Negotiation granted
by Isis to Lilly pursuant to Section 8.3 shall survive;

 

(c)           Lilly’s payment obligations set forth in Article 9
shall continue, provided, however, that the
amounts of the payments shall be decreased to reflect the nature of Isis’s
breach and the damages caused thereby by amounts to be agreed upon by the
Parties or, if the Parties are unable to reach agreement, by an independent
Third Party with the requisite expertise selected by the Parties, the expense
of which shall be borne by Isis;

 

(d)           Isis’ payment obligations set forth in Article 9
shall continue, provided, however, that the
amounts of the payments shall be increased to reflect the nature of Isis’
breach and the damages caused thereby by amounts to be agreed upon by the
Parties or, if the Parties are unable to reach agreement, by an independent
Third Party with the requisite expertise selected by the Parties, the expense
of which shall be borne by Isis;

 

(e)           all Drug Discovery Targets and the Reserved
Targets on the date of such termination of this Agreement by Lilly under Section 13.4
or 13.5 shall be deemed to be licensed by Lilly under Section 8.2.3 as
Drug Discovery Targets; provided, however,
that: (i) with respect to each such Drug Discovery Target and Reserved
Target, no license fee shall be payable under Section 9.3.4(a) until
the date that is [***] years after the Effective Date and, prior 

 

52

 

to
such date, Lilly may terminate its license with respect to any Drug Discovery
Target or Reserved Target by providing written notice to Isis and no license
fee shall be owed by Lilly with respect to such Drug Discovery Target or
Reserved Target; (ii) the provision regarding diligence set forth in Section 8.2.3(c) shall
not apply until [***] years after the Effective Date; and (iii) Lilly’s
milestone payment obligations set forth in Section 9.3.4(b) and
royalty payment obligations set forth in Section 9.3.4(c) shall
continue; provided, however, that the amounts of
the milestone and royalty payments shall be decreased to reflect the nature of
Isis’ breach and the damages caused thereby by amounts to be agreed upon by the
Parties or, if the Parties are unable to reach agreement, by an independent
Third Party with the requisite expertise selected by the Parties, the expense
of which shall be borne by Isis;

 

(f)            Lilly shall have the right to select [***]
Validation Targets, to be identified by Lilly within [***] days following the
date of termination of this Agreement by Lilly under Section 13.4 or 13.5,
and such Validation Targets shall be deemed licensed by Lilly under Section 8.2.2;
provided, however, that: (i) with
respect to each such Validation Target, no license fee shall be payable by
Lilly under Section 9.3.2(a) until the date that is [***] years after
the Effective Date and, prior to such date, Lilly may terminate its license
with respect to any such Validation Target by providing written notice to Isis
and no license fee shall be owed by Lilly with respect to such Validation
Target; (ii) the provision regarding diligence set forth in Section 8.2.2(c) shall
not apply until [***] years after the Effective Date; and (iii) Lilly’s
milestone payment obligations set forth in Section 9.3.3(b) and
royalty payment obligations set forth in Section 9.3.3(c) shall
continue; provided, however, that the amounts of
the milestone and royalty payments shall be decreased to reflect the nature of
Isis’ breach and the damages caused thereby by amounts to be agreed upon by the
Parties or, if the Parties are unable to reach agreement, by an independent
Third Party with the requisite expertise selected by the Parties, the expense
of which shall be borne by Isis;

 

(g)           the licenses granted by Lilly to Isis
pursuant to Section 8.4.1 shall terminate;

 

the
option granted by Lilly to Isis pursuant to Section 8.5 and all of Lilly’s
obligation under Section 8.5 shall terminate; provided,
however, that any license granted to Isis under Section 8.5
before termination of this Agreement under Section 13.4 or 13.5 by Lilly
shall survive;

 

(h)           any sublicense granted by either Party to any
Sublicensee under a license hereunder that terminates as a result of
termination of this Agreement by Lilly pursuant to Section 13.4 or 13.5
shall continue in full force and effect but be assigned by such Party to the
other Party, and such Party shall provide the other Party with complete and
accurate copies of such sublicense agreements within thirty (30) days following
the effective date of such termination; and

 

(i)            any milestone payments that are paid by Lilly
between the date that this Agreement is terminated under Section 13.4 or
13.5 and the date that is four (4) years after the Effective Date shall be
fully creditable towards any Technology Access Fee payable by Lilly under Section 9.2.

 

53

 

13.8                 Accrued Rights/Surviving Obligations. 
Except as expressly provided in this Agreement, expiration or
termination of this Agreement will not relieve the Parties of any obligation
that accrued prior to such expiration or termination, and Lilly will be
obligated to pay and will pay to Isis, within thirty (30) days of such
expiration or termination, all payments and royalties due or accrued pursuant
to the terms of Article 9 and Isis will be obligated to pay and will pay
to Lilly, within thirty (30) days of such expiration or termination, all
payments and royalties due or accrued pursuant to the terms of Article 9.  Upon expiration or early termination of this
Agreement, all rights and obligations of the Parties shall cease, except as
follows:

 

(a)           In the case of expiration of this Agreement
only (and, for purposes of clarification, not in the case of termination of
this Agreement pursuant to Section 13.4 or 13.5), each of the licenses set
forth in Sections 8.1, 8.4, 8.5 and 8.11, or granted pursuant to 8.2 or
8.12, shall survive and shall be deemed to be perpetual and fully paid up,
provided that all payment and other obligations with respect to such licenses
have been fulfilled;

 

(b)           The obligations to pay royalties and other
sums accruing hereunder up to the date of termination or expiration shall
survive;

 

(c)           The obligations of confidentiality set forth
in Article 10 shall survive;

 

(d)           The obligations for record keeping and accounting
reports set forth in Article 9 shall survive for so long as Lilly Products
or Isis Products are sold.  At such time
after termination or expiration of this Agreement when sales or other
dispositions of Lilly Products or Isis Products have ceased, the Party selling
such Product shall render a final report along with any royalty payment due;

 

(e)           Isis’ and Lilly’s rights to inspect books and
records as described in Article 9 shall survive;

 

(f)            The obligations of defense and indemnity set
forth in Article 11 shall survive;

 

(g)           Any cause of action or claim of Isis or Lilly
accrued or to accrue because of any breach or default by the other Party
hereunder shall survive; and

 

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

 

13.9                 Limitation of Liability.  No
Party shall be liable to another for indirect, incidental, consequential or
special damages, including but not limited to lost profits, arising from or
relating to any breach of this Agreement, regardless of any notice of the
possibility of such damages.  Nothing in
this Section is intended to limit or restrict the indemnification rights
or obligations of any Party under Article 11.

 

54

 

ARTICLE 14

 

PUBLICITY

 

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

 

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

 

14.3                                                   Publication.  The
Parties acknowledge and agree that scientific lead time is a key element of the
value of the research to be performed under this Agreement.  The Parties also acknowledge and agree that
the ability to publish selected results of the research to be performed under
this Agreement in the course of the Collaboration is essential for the
recruitment and retention of scientific talent by the Parties.  In order to ensure that scientific
publications are strictly monitored to prevent any adverse effect of premature
publication, the Executive Committee shall establish a procedure for
publication review and approval and each Party shall first submit to the
Executive Committee an early draft of all such publications, whether they are
to be presented orally or in written form, at least sixty (60) days prior to
submission for publication.  The
Executive Committee shall review each such proposed publication in order to
avoid the unauthorized disclosure of any Confidential Information and to
preserve the patentability of inventions arising from the research performed in
the course of the Collaboration.  If,
within thirty (30) days following 

 

55

 

receipt of an advance copy
of a Party’s proposed publication, the Executive Committee informs such Party
that its proposed publication contains the other Party’s Confidential
Information, then such Party shall delete such Confidential Information from
its proposed publication.  If, within
thirty (30) days following receipt of an advance copy of a Party’s proposed
publication, the Executive Committee informs such Party that its proposed
publication contains Collaboration Know-How, the publication of which could be
expected to have a material adverse effect on any Collaboration Patent Rights
or Collaboration Know-How, then such Party shall at the election of the
Executive Committee either (1) delete such Confidential Information from
such Party’s proposed publication or (2) delay such proposed publication
sufficiently long to permit the timely preparation and filing of a patent
application(s) on the information involved. 
If, within forty five (45) days following receipt of an advance copy of
a Party’s proposed publication, the Executive Committee fails to approve of
such Party’s proposed publication, then such proposed publication shall be
regarded as denied by the Executive Committee and shall not be published.

 

ARTICLE 15

 

HART-SCOTT RODINO FILING

 

15.1                                                   [DELETED].

 

15.2                                                   [DELETED].

 

ARTICLE 16

 

MISCELLANEOUS

 

16.1                                                   Key
Personnel. During the
Extended Collaboration Term, Isis shall inform Lilly if [***] leaves the employ
of Isis.  In each such case, Lilly shall
have the right to suggest replacements and interview any potential replacement
in order to provide feedback to Isis regarding any such potential replacement,
but, for purposes of clarification, Lilly shall not have the right to terminate
this Agreement or the Collaboration as a result of the events described in this
Section 16.1.

 

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

 

16.3                                                   Assignment.  This
Agreement may not be assigned or otherwise transferred, nor, except as
expressly provided hereunder, may any right or obligations hereunder be
assigned or transferred, by a Party without the written consent of the other
Party; provided, however, that either Party
may, without such consent, assign the Agreement and its rights and obligations
hereunder to (i) any wholly-owned subsidiary in a manner such that the
assignor (if it continues as a separate entity) shall remain liable and
responsible for the performance and observance of all its duties and
obligations hereunder or (ii) subject to Section 13.3 to any
successor by merger 

 

56

 

or sale of substantially all
of its business unit to which this Agreement relates, or in the event of its
merger or consolidation or change in control or similar transaction.  This Agreement shall be binding upon the
permitted successors and permitted assigns of the Parties.  Any assignment not in accordance with this Section 16.3
shall be void.

 

16.4                                                   Severability.  In
the event that any of the provisions contained in this Agreement are held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein will not in any way
be affected or impaired thereby, unless the absence of the invalidated
provision(s) adversely affect the substantive rights of the Parties.  The Parties will replace the invalid, illegal
or unenforceable provision(s) with valid, legal and enforceable provision(s), which,
insofar as practical, implement the purposes of this Agreement.

 

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

 

	
  if to Isis, to:

  
	
   

  
	
  Isis Pharmaceuticals, Inc.

  
	
  2292 Faraday Avenue

  
	
  Carlsbad, CA 92008

  
	
  Attention:

  	
  Chief Executive Officer

  
	
  Telephone:

  	
  760-931-9200

  
	
  Facsimile:

  	
  760-931-0265

  
	
   

  
	
  with a copy to:

  
	
   

  
	
  Attention:

  	
  Chief Financial Officer

  
	
  Telephone:

  	
  760-931-9200

  
	
  Facsimile:

  	
  760-931-9639

  
	
   

  
	
  if to Lilly, to:

  
	
   

  
	
  Eli Lilly and Company

  
	
  Lilly Corporate Center

  
	
  Indianapolis, IN 46285

  
	
  Attention:

  	
  Group Vice President, Lilly Research Laboratories

  
	
  Telephone:

  	
  317-276-5624

  
	
  Facsimile:

  	
  317-277-7979

  

 

57

 

	
  with a copy to:

  
	
   

  
	
  Attention:

  	
  General Patent Counsel/TGP

  
	
  Telephone:

  	
  317-276-2958

  
	
  Facsimile:

  	
  317-277-1917

  

 

16.6                                                   Dispute
Resolution.  In the event of any controversy or claim
arising from or relating to any provision of this Agreement, or any term or
condition hereof, or the performance by a Party of its obligations hereunder,
or its construction or its actual or alleged breach, the Parties will try to
settle their differences amicably between themselves.  All disputes relating to the implementation
of the Collaborative Research Plan shall be handled in accordance with Article 2.

 

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

 

16.8                                                   Entire
Agreement.  This Agreement (including all Schedules
hereto), together with the Original Agreement, the Amended and Restated
Agreement, the Loan Agreement, the Registration Rights Agreement and the Securities
Purchase Agreement, including all amendments to any of the foregoing,
constitute the entire agreement between the Parties with respect to the subject
matter hereof, and supersedes all previous arrangement with respect to the
subject matter hereof, whether written or oral. 
Any amendment or modification to this Agreement shall be made in writing
signed by both Parties.  In the event of
any conflict between the terms of this Agreement and the Collaborative Research
Plan, the terms of this Agreement shall govern.

 

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

 

16.10                                             Independent
Contractors.  It is expressly agreed that the Parties will
be independent contractors and that the relationship between the Parties will
not constitute a partnership, joint venture or agency.  No Party will have the authority to make any
statements, representations or commitments of any kind, or to take any action,
which will be binding on the other Parties, without the prior consent of such
other Parties.  Members of the Executive
Committee shall be and shall remain employees of Isis or Lilly as the case may
be.  Lilly shall not incur any liability
for any act or failure to act by employees of Isis, including members of the
Executive Committee who are employees of Isis. 
Isis shall not incur any liability for any act or failure to act by
employees of Lilly, including members of the Executive Committee who are
employees of Lilly.

 

16.11                                             Non-Solicitation
of Employees.  During the Collaboration Term and for a
period of six (6) months thereafter, each Party agrees that it will not
directly recruit, solicit or induce any employee of the other Party who is
directly associated with the Collaboration to terminate his or her employment
with such other Party.  However, nothing
set forth in this Section 16.11 shall prohibit a Party from indirectly
recruiting, soliciting or inducing such

 

58

 

employees to leave the other
Party through the use of advertisements in trade journals and the like or from
discussing employment opportunities with such employees to the extent such
employees contact such Party first.

 

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

 

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

 

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

 

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

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

59

 

In Witness Whereof, the Parties have executed this Agreement as of the date first set
forth above.

 

 

	
  Eli Lilly And Company

  	
  Isis Pharmaceuticals, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Steven M. Paul

  	
   

  	
  By: 

  	
  /s/ B. Lynne Parshall

  	
   

  
	
  Steven
  M. Paul

  	
  B.
  Lynne Parshall

  
	
  Executive
  Vice President

  	
  Executive
  Vice President and

  
	
  Science
  and Technology

  	
  Chief
  Financial Officer

  
						

 

[SIGNATURE PAGE TO
COLLABORATION AGREEMENT]

 

 

List of Schedules

 

	
  Schedule 1.1

  	
   

  	
  Definitions

  
	
   

  	
   

  	
   

  
	
  Schedule 2.2

  	
   

  	
  Collaborative Research Plan

  
	
   

  	
   

  	
   

  
	
  Schedule 2.5

  	
   

  	
  Members of Executive Committee During the Extended Collaboration Term

  
	
   

  	
   

  	
   

  
	
  Schedule 2.6

  	
   

  	
  [DELETED]

  
	
   

  	
   

  	
   

  
	
  Schedule 2.9

  	
   

  	
  Alliance Managers

  
	
   

  	
   

  	
   

  
	
  Schedule 5.5.3

  	
   

  	
  Accepted Validation Targets as of the Second Restatement Execution
  Date

  
	
   

  	
   

  	
   

  
	
  Schedule 5.6.3

  	
   

  	
  Rejected Validation Targets as of the Second Restatement Execution
  Date

  
	
   

  	
   

  	
   

  
	
  Schedule 5.12

  	
   

  	
  Abandoned Validation Targets as of the Second Restatement Execution
  Date

  
	
   

  	
   

  	
   

  
	
  Schedule 6.2

  	
   

  	
  Development Stages of Drug Discovery Targets as of the Second
  Restatement Execution Date

  
	
   

  	
   

  	
   

  
	
  Schedule 6.5.1

  	
   

  	
  Active Programs as of the Second Restatement Execution Date

  
	
   

  	
   

  	
   

  
	
  Schedule 6.7.1

  	
   

  	
  [***] Abandoned Drug Discovery Targets in the Metabolic Collaboration
  Therapeutic Area

  
	
   

  	
   

  	
   

  
	
  Schedule 6.7.2

  	
   

  	
  Abandoned Drug Discovery Targets as of the Second Restatement
  Execution Date

  
	
   

  	
   

  	
   

  
	
  Schedule 6.9.1

  	
   

  	
  Reserved Targets as of the Second Restatement Execution Date

  
	
   

  	
   

  	
   

  
	
  Schedule 8.2.2

  	
   

  	
  The Reagent Targets and the Date of Delivery to Lilly of a Reagent
  ASO Compound Directed to Each Such Reagent Target

  
	
   

  	
   

  	
   

  
	
  Schedule 8.7

  	
   

  	
  [DELETED]

  
	
   

  	
   

  	
   

  
	
  Schedule 9.4.3

  	
   

  	
  Milestones and Royalties under Section 9.4.3 and 9.4.4

  
	
   

  	
   

  	
   

  
	
  Schedule 12.12

  	
   

  	
  Collaboration Patent Rights as of the Second Restatement Execution
  Date

  
	
   

  	
   

  	
   

  
	
  Schedule A

  	
   

  	
  [DELETED]

  
	
   

  	
   

  	
   

  
	
  Schedule B

  	
   

  	
  Isis Manufacturing Patent Rights as of the Second Restatement
  Execution Date

  
	
   

  	
   

  	
   

  
	
  Schedule C

  	
   

  	
  Isis Core Technology Patent Rights as of the Second Restatement
  Execution Date

  

 

 

Schedule 1.1

 

DEFINITIONS

 

“Abandoned Drug Discovery Target” means any Drug Discovery Target following
termination by Lilly of an Active Program for such Drug Discovery Target, as
more fully described in Section 6.7.

 

[***]

 

“Abandoned Validation Target” has the meaning set forth in Section 5.12.

 

“Accepted Validation Targets” has the meaning set forth in Section 5.4.

 

“Active Program” means:

 

(a)                                  with respect to a Drug Discovery Target, any
reasonable (as defined below) ongoing research, development, or
commercialization, including sublicensing efforts, of a Drug Discovery ASO
Compound directed to such Drug Discovery Target that occurs (i) in the
course of the Collaboration or (ii) by Lilly outside the course of the
Collaboration during the Collaboration Term plus [***] years thereafter; and

 

(b)                                 with respect to a Reagent Target, Validation
Target or a Drug Discovery Target licensed by Lilly under Article 8 or an
Isis-Blocked Target pursuant to Section 6.2, any reasonable (as defined
below) ongoing research, development, or commercialization, including
sublicensing efforts, of an ASO Compound directed to such Target.

 

For purposes of clarification, research, development and
commercialization efforts with respect to a Target or ASO Compound shall be
deemed reasonable if Lilly’s research and development efforts with respect to
such Target or ASO Compound are reasonably comparable with other projects in
Lilly’s portfolio at a similar stage of development and of similar market
potential.

 

“Affiliate”
means any person, organization, corporation or other business entity that
controls, directly or indirectly, the power to direct, or cause the direction
of, the management and policies of another person, organization, corporation or
entity, whether through the ownership of voting securities or by contract or
court order or otherwise.  For purposes
of this definition, an entity will be deemed to control another entity if it
owns or controls, directly or indirectly, at least fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors or their
equivalent of such other entity.

 

“Alliance Managers” has the meaning set forth in Section 2.9.

 

“Amended and Restated Agreement” has the meaning set forth in Recital D of
this Agreement.

 

1.1-1

 

“Antisense Drug Discovery Program” means the program of research and
development of Drug Discovery ASO Compounds and Products in the Collaborative
Therapeutic Areas under this Agreement, as described in Section 2.4, Article 6
and the Collaborative Research Plan.

 

“Antisense Drug Discovery Term” means the term of the Antisense Drug
Discovery Program carried out pursuant to this Agreement and any extension
thereof, including during the Extended Collaboration Term. The Antisense Drug
Discovery Term shall include the Oncology Term.

 

“Antisense Technology” means the selective modulation of protein synthesis at the nucleic
acid level caused by the binding of an oligonucleotide or an analog thereof (an
“oligonucleotide”) to a
complementary sequence.

 

“ASO Compound” means an oligonucleotide or an analog thereof (an “oligonucleotide”)
that selectively modulates protein synthesis at the nucleic acid level through
the binding of such oligonucleotide to a complementary sequence.

 

“ASO Field”
means the development, manufacture and sale of ASO Products as therapeutic or
prophylactic pharmaceutical products.

 

“ASO Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal use, which contains one or more ASO Compounds.

 

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

 

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

 

“Candidate Selection” means the designation of a potential drug candidate within Lilly’s
portfolio by Lilly’s Lead Development Committee, or its successor, for
advancement to clinical development based on pharmacology, chemistry, patent
status, toxicology, ADME, biopharmaceutics, medical and marketing
considerations.

 

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

 

1.1-2

 

(50%) of the Voting Stock of such Party or such surviving entity
immediately after such Transaction; or (iv) approval by the shareholders
of such Party of a complete liquidation of such Party or a sale or disposition
of all or substantially all of the assets of such Party.  For purposes of this definition, “Continuing
Directors” means individuals serving as of the Second Restatement Date hereof
on such Party’s Board of Directors and any individuals elected after the date
hereof whose election or nomination was approved by at least a majority of the
Continuing Directors serving at the time.

 

“Collaboration” means, (i) during the Initial Collaboration Term, collectively,
the Reagent Provision Program, the Target Validation Program and the Antisense
Drug Discovery Program or (ii) During the Extended Collaboration Term, the
Antisense Drug Discovery Program and the Target Validation Program both in the
Collaboration Therapeutic Area of oncology.

 

“Collaboration ASO Compound Patent Right” means a Patent Right that claims inventions
conceived in the course of the Target Validation Program or the Antisense Drug
Discovery Program and that Cover the composition of matter of an ASO Compound
and/or the use of such ASO Compound.

 

“Collaboration FTE” means a Lilly Collaboration FTE or an FTE applied by Isis in
conducting the research under the Target Validation Program or Antisense Drug
Discovery Program.

 

“Collaboration Funds” means the funds provided to Isis by Lilly pursuant to the Loan
Agreement.

 

“Collaboration Know-How” means Isis Collaboration Know-How and Lilly Collaboration Know-How.

 

“Collaboration Patent Rights” means the Isis Collaboration Patent Rights,
the Lilly Collaboration Patent Rights and the Joint Collaboration Patent
Rights.

 

“Collaborative Research Plan” means
the Research Plan describing the research collaboration to be carried out
pursuant this Agreement, which is attached hereto as Schedule 2.2,
including all amendments thereto.

 

“Collaboration Term” means the term of the collaborative research efforts carried out
pursuant to this Agreement and any extension thereof, including the Initial
Collaboration Term and the Extended Collaboration Term. Collaboration Term
shall include the Reagent Provision Term, the Target Validation Term, the
Antisense Drug Discovery Term, the Oncology Term and any extensions of any of
the foregoing.

 

“Collaboration Therapeutic Areas” means (a) with respect to the Target
Validation Program, inflammation, bone and metabolism (e.g.,
diabetes and obesity), provided, however,
that Parties may agree to include oncology in the Target Validation Program as
provided in Section 3.1; and (b) with respect to the Antisense Drug
Discovery Program, inflammation, bone, metabolism and oncology.

 

1.1-3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Cost of Products” or “COPS” means costs of
supplying Products calculated in accordance with a Party’s accounting methods
consistently applied which methodology shall be calculated in compliance with
U.S. generally accepted accounting principles (GAAP).  For the purposes of this Agreement, COPS
shall include Third Party royalty burdens, royalties due to the other Party,
final filling/finishing and packaging of the Product.

 

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

 

1.1-4

 

marketed by a competitor, it infringes the Valid Claim (including any
period in which, and provided that, the Valid Claim is being litigated).

 

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

 

“Critical Success Factor” has the meaning set forth in the Collaborative Research Plan as
applicable to Reagent Targets, Validation Targets and Drug Discovery Targets.

 

“Development Candidate” means a Drug Discovery ASO Compound that is directed to a Drug
Discovery Target, that is ready for IND supporting toxicology studies and that
is designated as a Development Candidate by the Executive Committee, as
described in Section 6.4.1 or by Lilly in accordance with Section 6.4.2.

 

“Drug Discovery ASO Compound” means an ASO Compound that selectively
modulates protein synthesis of a Drug Discovery Target.

 

“Drug Discovery ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more Drug Discovery ASO
Compounds.

 

“Drug Discovery Non-ASO Compound” means a compound that (a) is developed
by Lilly through the use of Collaboration Know-How and (b) is not an ASO
Compound and (c) is either (i) an agonist or antagonist of a Drug
Discovery Target or (ii) is a Drug Discovery Target.

 

“Drug Discovery Non-ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more Drug Discovery
Non-ASO Compounds.

 

“Drug Discovery Target” means any Target included in the Antisense Drug Discovery Program by
the Executive Committee.

 

“Effective Date” means August 25, 2001.

 

“Exclusive Target” has the meaning set forth in Section 5.8.

 

“Executive Committee” means the committee established pursuant to Section 2.5.

 

“Extended Collaboration Term” means the period from August 25, 2005
until the completion of the Collaboration
Term as set forth in Section 13.1.3.

 

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

 

“First Commercial Sale” means with respect to any Lilly Product or Isis Product the first sale
to a Third Party by (i) Lilly or its Sublicensees, or (ii) Isis, its
Affiliates or Sublicensees.  

 

1.1-5

 

First Commercial Sale shall not include transfer of reasonable
quantities of any free samples of a Lilly Product or Isis Product or reasonable
quantities of a Lilly Product or Isis Product solely for development purposes,
such as for use in experimental studies or clinical trials.

 

“FTE”
means the equivalent of the work of one (1) employee full time for one (1) year
(consisting of at least a total of [***] weeks or [***] (excluding vacations
and holidays) of work on or directly related to the Collaboration), carried out
by an Isis employee or a Lilly Collaboration FTE, or Third Party mutually
agreed upon by the Executive Committee. 
Overtime shall not be counted toward the number of hours that are used
to calculate the FTE contribution.  No
one person shall be permitted to account for more than one (1) FTE.  Scientific work on the Collaboration to be
performed by Isis employees, Lilly Collaboration FTEs, or mutually agreeable
Third Parties can include, but is not limited to, experimental laboratory work,
recording and writing up results, reviewing literature and references, and
holding scientific discussions.

 

[***]

 

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

 

“Initial Collaboration Term” means the period from August 25, 2001
until August 24, 2005.

 

“Isis ASO Compound Patent Rights” means Patent Rights Controlled by Isis on or
after the Effective Date that claim inventions that are conceived outside the
course of the Target Validation Program or Drug Discovery Program and that that
Cover the composition of matter of an ASO Compound or the method of using such
ASO Compound per se, including Patent Rights that Cover inventions made in the
course of the Reagent Provision Program and Patent Rights that Cover the
composition of matter or use of an antisense oligonucleotide(s) directed to
Stage 2 Drug Discovery Targets and Stage 3 Drug Discovery Targets included in
the Research Plan on the Effective Date or thereafter.

 

“Isis-Blocked Target” has the meaning set forth in Section 6.2.2.

 

“Isis Blocking Patent Rights” means Patent Rights Controlled by Isis on
the Effective Date or come into Isis’ Control during the Collaboration Term
that claim inventions that are conceived outside the course of the Validation
Program or Drug Discovery Program and that Cover the method of treating a
condition by modulating a Target through the use of a non-ASO Compound.

 

“Isis Collaboration ASO Compound Patent Rights” means Patent Rights Controlled by Isis that
claim inventions conceived in the course of the Target Validation Program or
the Antisense Drug Discovery Program and that Cover the composition of matter
of an ASO Compound or the use of such ASO Compound.

 

“Isis Collaboration Blocking Patent Rights” means Patent Rights Controlled by Isis that
claim inventions conceived in the course of the Target Validation Program or
the Antisense Drug 

 

1.1-6

 

Discovery Program that Cover the method of treating a condition by
modulating a Target through the use of a non-ASO Compound.

 

“Isis Collaboration Core Technology Patent Rights” means Patent Rights Controlled by Isis that
claim inventions conceived in the course of the Target Validation Program or
the Antisense Drug Discovery Program that Cover the practice of Isis Standard
Chemistry including Patent Rights that Cover chemistries, motifs (patterns of
arranging the chemical building blocks of an antisense oligonucleotides) and/or
cellular mechanism of action by which an oligonucleotide promotes RNA cleavage.

 

“Isis Collaboration Know-How” means Know-How Controlled by Isis that is
conceived in the course of the Target Validation Program or the Antisense Drug
Discovery Program.

 

“Isis Collaboration Manufacturing Patent Rights” means Patents Controlled by Isis that claim
inventions conceived in the course of the Target Validation Program or the
Antisense Drug Discovery Program that Cover the practice of the Isis Standard
Chemistry Manufacturing Process.

 

“Isis Collaboration Patent Rights” means the Isis Collaboration ASO Compound
Patent Rights, Isis Collaboration Manufacturing Patent Rights, Isis
Collaboration Core Technology Patent Rights and Isis Collaboration Blocking
Patent Rights.

 

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

 

“Isis Core Technology Patent Rights” means Patent Rights Controlled by Isis on or
after the Effective Date that claim inventions that are conceived outside the
course of the Validation Program or Drug Discovery Program and that Cover the
practice of Isis Standard Chemistry including Patent Rights that Cover
chemistries, motifs (patterns of arranging the chemical building blocks of an
antisense oligonucleotides) and/or cellular mechanism of action by which an
oligonucleotide promotes RNA cleavage. The Isis Core Technology Patent Rights
that exist as of the Second Restatement Date of this Agreement are listed in Schedule C.

 

“Isis Drug Discovery ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more ASO Compounds
directed against a Drug Discovery Target that is developed by Isis as permitted
by Section 8.2.3(c).

 

“Isis Internal Program” means an internal research effort on the development of ASO Compounds
directed to a Target for use as ASO Products conducted by Isis conducted
outside the course of the Collaboration whereby such internal research effort
on such Target has advanced to a stage that is equivalent to the achievement of
the Critical Success Factors for a Validation Target as reasonably evidenced to
Lilly by written documentation of Isis; provided, however,
that if there is a disagreement as to whether such Target has advanced to a
stage that is equivalent to the achievement of the Critical Success Factors for
a Validation Target such matter shall be referred to the Executive Committee
for resolution, and lacking resolution by the Executive Committee such internal
research effort shall be deemed an Isis Internal Program.

 

1.1-7

 

“Isis Know-How” means all Know-How that is either (i) Controlled by Isis as of
the Effective Date or (ii) that becomes Controlled by Isis after the
Effective Date that is not Collaboration Know-How that is reasonably necessary
or useful for research, development, manufacture, use and sale of Lilly
Products, including Know-How that is discovered or developed by employees or
agents of Isis in the course of the Reagent Provision Program.

 

“Isis Manufacturing Patent Rights” means Patent Rights Controlled by Isis on or
after the Effective Date that claim inventions that are conceived outside the
course of the Target Validation Program or Antisense Drug Discovery Program
that Cover the practice of the Isis Standard Chemistry Manufacturing
Process.  The Isis Manufacturing Patent
Rights as of the date of this Agreement are listed in Schedule B.

 

“Isis Non-Collaboration ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more ASO Compounds
directed against a Target that not designated as a Validation Target or Drug
Discovery Target pursuant to this Agreement and that is developed by Isis as
permitted by this Agreement.

 

“Isis Patent Rights” means the Isis Core Technology Patent Rights, the Isis Manufacturing
Patent Rights, the Isis Blocking Patent Rights and Isis ASO Compound Patent
Rights.  To the extent Isis Controls
Patent Rights as of the Effective Date or during the Collaboration Term and one
(1) year thereafter other than the Isis Manufacturing Patents, Isis Core
Technology Patent Rights, Isis Blocking Patent Rights and the Isis ASO Compound
Patent Rights, and such Patent Rights would Cover a Lilly ASO Product, such
Patent Rights will be included in the definition of Isis Patent Rights
automatically if they can be licensed to Lilly with no obligation (financial or
otherwise) to any Third Party with respect to a particular Lilly ASO Product at
the time the Lilly ASO Product is licensed from Isis, or if the relevant
invention is made subsequent to such license, at the time such invention is made.  To the extent Isis Controls Patent Rights as
of the Effective Date or during the Collaboration Term, other than the Isis
Manufacturing Patent Rights, the Isis Core Technology Patent Rights, Isis
Blocking Patent Rights and Isis ASO Compound Patent Rights that would Cover a
Lilly ASO Product, and such Patent Rights were acquired by Isis from a Third
Party and/or Isis has obligations (financial or otherwise) to a Third Party in
connection with the practice of such Patent Rights, such Patent Rights will only
be included in the definition of Isis Patent Rights if Isis and Lilly negotiate
an agreement to license such Patent Rights which includes (1) the
assumption by Lilly of all financial obligations of Isis arising from the grant
to Lilly and the practice by Lilly, its Affiliates of Sublicensees, of the
Patent Rights, (2) the compensation of an appropriate portion of any
acquisition costs incurred by Isis in connection with obtaining Control of such
Patent Rights, and (3) an agreement by Lilly to abide by all of the terms
of the agreement under which Isis has obtained Control of such Patent Right.

 

“Isis Product” means an Isis Drug Discovery ASO Product, Isis Non-Collaboration ASO
Product, and/or an Isis Validation ASO Product.

 

“Isis Reagent ASO Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal 

 

1.1-8

 

use, which contains one or more ASO Compounds directed against a
Reagent Target that is developed by Isis as permitted by Section 8.2.2(c).

 

“Isis Special Technology” means Patent Rights that Isis Controls on or after the Effective Date
that Cover both (1) chemistries,
motifs (patterns of arranging the chemical building blocks of antisense
oligonucleotides) and/or cellular mechanism of action by which an
oligonucleotide promotes nucleic acid cleavage in the field of Antisense
Technology and (2) an ASO Product licensed by Lilly pursuant
to Section 8.12, but does not include Isis Collaboration Patent Rights and
Isis Patent Rights.

 

“Isis Standard Chemistry” means “2 ́MOE Gapmers” or an antisense phosphothioate oligonucleotide
of 15-30 nucleotides wherein all of the backbone linkages are modified by
adding a sulfur at the non-bridging oxygen (phosphorothioate) and a stretch of
at least 10 consecutive nucleotides remain unmodified (deoxy sugars) and the
remaining nucleotides contain an O ́-methyl O ́-ethyl substitution at the 2 ́
position (MOE).

 

“Isis Standard Chemistry Manufacturing Process” means the manufacturing process as of the
Effective Date represented by the batch record for Isis 113715.  Manufacturing for this purpose includes
synthesis, purification and analysis.

 

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

 

“Isis Validation ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more ASO Compounds
directed against a Validation Target that is developed by Isis as permitted
Isis as permitted by Section 8.2.2(c).

 

“Joint Collaboration Patent Rights” has the meaning set forth in Section 12.2.

 

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

 

“Lilly ASO Product” means a Reagent ASO Product, Validation ASO Product or a Drug
Discovery ASO Product that is developed and sold by Lilly.

 

“Lilly-Blocked Target” has the meaning set forth in Section 6.2.2.

 

“Lilly Collaboration ASO Compound Patent Rights” means Patent Rights Controlled by Lilly that
claim inventions conceived in the course of the Target Validation Program or
the Antisense Drug Discovery Program that Cover the composition of matter of an
ASO Compound or the use of such ASO Compound.

 

“Lilly Collaboration Blocking Patent Rights” means Patent Rights Controlled by Lilly that
claim inventions conceived in the course of the Target Validation Program or
the Antisense Drug Discovery Program that Cover the method of treating a
condition by modulating a Target through the use of a non-ASO Compound.

 

1.1-9

 

“Lilly Collaboration FTE” means an FTE that is applied by Lilly in carrying out work in the
course of the Target Validation Program or Antisense Drug Discovery Program in
accordance with the Collaborative Research Plan and reimbursed with
Collaboration Funds.

 

“Lilly Collaboration Know-How” means Know-How Controlled by Lilly that is
conceived in the course of the Target Validation Program or the Antisense Drug
Discovery Program.

 

“Lilly Collaboration Patent Rights” means the Lilly Collaboration ASO Compound
Patent Rights and the Lilly Collaboration Blocking Patent Rights.

 

“Lilly Collaboration Technology” means Lilly Collaboration Know-How and Lilly
Collaboration Patent Rights.

 

“Lilly Non-ASO Product” means a Validation Non-ASO Product, Drug Discovery Non-ASO Product, or
Reagent Non-ASO Product that is developed and sold by Lilly.

 

“Lilly Non-Collaboration ASO Patent Right” means all Patent Rights that are Controlled by
Lilly, or any Sublicensees to whom Lilly provides data generated from the use
of a Reagent ASO Compound provided to Lilly by Isis pursuant to this Agreement
and that [***]

 

“Lilly Product” means a Lilly ASO Product or a Lilly Non-ASO Product.

 

“Lilly Right of First Negotiation” has the meaning set forth in Section 8.3.

 

“Loan Agreement” means that certain loan agreement by and between Lilly and Isis signed
concurrently with the Original Agreement.

 

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

 

“Manufacturing Improvements” means any and all scientific and technical
data, information, methods, techniques, protocols, and processes that are
useful in the manufacture of ASO Compounds developed by or coming under Control
of a Party outside the course of the Collaboration after the Effective Date.

 

“May 3, 2004 Agreement” has the meaning set forth in Recital F of
this Agreement.

 

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

 

“Net Royalty” means [***].

 

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

 

1.1-10

 

(a)                                  Trade, quantity and cash discounts allowed;

 

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

 

(c)                                  Product returns and allowances;

 

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

 

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

 

(f)                                    Allowance for distribution expenses; and

 

(g)                                 Any other similar and customary deductions.

 

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

 

Net
Sales excludes:

 

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

 

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

 

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

 

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

 

In
the event that the weighted average sale price of the Product(s) can be
determined but the weighted average sale price of the other product(s) cannot
be determined, Net Sales for 

 

1.1-11

 

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

 

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

 

“Non-ASO Field” means the research, development, manufacture and sale of compounds
other than ASO Compounds as therapeutic or prophylactic pharmaceutical
products.

 

[***]

 

“Original Agreement” has the meaning provided in Recital C of this Agreement.

 

“Oncology Term” means the period of time during which the Parties will conduct the
Antisense Drug Discovery Program and, subject to Section 3.1, the Target
Validation Program in the Collaboration Therapeutic Area of oncology. “Party” means Lilly or Isis.  “Parties”
means Lilly and Isis.

 

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

 

1.1-12

 

“Phase I Study Initiation” means the first human clinical trial
conducted on normal volunteers and designed to evaluate safety of a product; provided,
however, with respect to oncology, “Phase I Study Initiation” means
the first human clinical trial conducted on patients with cancer who have no
therapeutic options other than experimental therapy or normal volunteers.

 

“Phase II Study Initiation” means the first
human clinical trial conducted in patients and designed to indicate a
statistically significant level of efficacy for product in the desired
indication, as well as to obtain some indication of the dosage regimen required; provided,
however, with respect to oncology, “Phase II Study Initiation” means
the first human clinical trial conducted on a series of patients with the same
type and stage of cancer.

 

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

 

“Product”
shall mean a Lilly Product or an Isis Product, as applicable.

 

“Program Sanction Approval” means [***]

 

“Project Sanction Approval” means [***]

 

“Proposed Validation Target” has the meaning set forth in Section 5.2.

 

“Reagent ASO Compound” means all ASO Compounds that selectively modulate protein synthesis of
a Reagent Target.

 

“Reagent ASO Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal use, which contains one or more Reagent ASO Compounds.

 

“Reagent Non-ASO Compound” means a compound that (a) is developed by Lilly through the use
of Collaboration Know-How and (b) is not an ASO Compound and (c) is
either (i) an agonist or antagonist of a Reagent Target or (ii) is a
Reagent Target.

 

“Reagent Non-ASO Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal use, which contains one or more Reagent Non-ASO Compounds.

 

“Reagent Provision Program” means the program of identification, and
delivery to Lilly, of ASO Compounds directed to Targets identified by Lilly
under the Original Agreement and the Amended and Restated Agreement.

 

“Reagent Provision Term” means the term of the Reagent Provision Program carried out pursuant
to the Original Agreement and the Amended and Restated Agreement..

 

1.1-13

 

“Reagent Target” means a Target that is designated a Reagent Target by Lilly; provided, however, that a Reagent Target that is later
designated a Validation Target or a Drug Discovery Target shall not be
considered a Reagent Target after the date of such designation.

 

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

 

“Rejected Validation Target” has the meaning provided in Section 5.4.

 

“Reserved Target” has the meaning set forth in Section 6.8.

 

“Restatement Date” means the June 17,
2002, the effective date of the Amended and Restated Agreement.

 

“RNAi Compound” means a
double-stranded RNA or DNA oligonucleotide or an analog thereof, including
RNAi, that selectively modulates protein synthesis at the nucleic acid level
through the binding of such oligonucleotide to a complementary sequence.

 

“Second Restatement Execution Date” means August 5, 2005, the date on which
this Agreement was executed by the Parties.

 

“Second Restatement Date” means August 25, 2005, the effective date of this Agreement.

 

“Stage I Drug Discovery Target” means a Target that is designated a Drug
Discovery Target under Section 6.3 that (i) has not reached the
status of a Stage II Drug Discovery Target or Stage III Drug
Discovery Target outside the course of the Collaboration prior to the
designation of such target as a Drug Discovery Target or (ii) any Accepted
Validation Target that enters the Antisense Drug Discovery Program under Section 6.3.

 

“Stage II Drug Discovery Target” means a Target that Isis moves to the status
that is equivalent to Accepted Validation Target outside the course of the
Collaboration (but that has not reached the status of a Stage III Drug
Discovery Target) prior to the designation of such Target as a Drug Discovery
Target.

 

“Stage III Drug Discovery Target” means a Target for which Isis has developed
ASO Compounds and has analyzed such ASO Compounds in at least one (1) animal
model in two (2) different species outside the course of the Collaboration
and prior to the designation of such Target as a Drug Discovery Target.

 

“STAT3 Target” has the meaning set forth in Section 8.11.1

 

1.1-14

 

“Sublicense Income” means all consideration received by Lilly from a Sublicensee of Lilly
pursuant to a sublicense agreement permitted under Section 9.3.5 excluding
(a) payments made by such Sublicensee in consideration for the issuance of
equity or debt securities of Lilly at fair market value, and (b) payments
made by such Sublicensee to support or fund research activities to be
undertaken by Lilly at cost.

 

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

 

“Target”
means a transcriptional unit of a gene, and any protein product of such
transcriptional unit, including all splice variants.

 

“Target Validation Program” means the program of Target
functionalization and validation under this Agreement, as described in Section 2.3,
Article 5 and the Collaborative Research Plan.

 

“Target Validation Program Term” means the term of the Target Validation
Program any extensions thereof.

 

“Territory”
means the entire world.

 

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

 

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

 

“Validation ASO Compound” means all ASO Compounds that selectively modulate protein synthesis of
a Validation Target.

 

“Validation ASO Product” means any preparation in final form for sale by prescription,
over-the-counter or any other method for any indication, including human or
animal use, which contains one or more Validation ASO Compounds.

 

“Validation Non-ASO Compound” means a compound that (a) is developed
by Lilly through the use of Collaboration Know-How and (b) is not an ASO
Compound and (c) is either (i) an agonist or antagonist of a
Validation Target or (ii) is a Validation Target.

 

“Validation Non-ASO Product” means any preparation in final form for sale
by prescription, over-the-counter or any other method for any indication,
including human or animal use, which contains one or more Validation Non-ASO
Compounds.

 

“Validation Target” means any Target designated by Lilly for inclusion in the Target
Validation Program; provided, however,
that a Validation Target that is later designated a Drug 

 

1.1-15

 

Discovery Target, shall be considered a Drug Discovery Target and not a
Validation Target. Validation Targets includes Accepted Validation Targets and
Rejected Validation Targets.

 

[***]

 

1.1-16

 

 

Schedule 2.2

 

COLLABORATIVE RESEARCH PLAN

 

[***]

 

 

Schedule 2.5

 

MEMBERS OF THE EXECUTIVE COMMITTEE AS OF THE SECOND RESTATEMENT
EXECUTION DATE

 

	
  Lilly

  	
   

  	
  Isis

  
	
  [***]

  	
   

  	
  [***]

  

 

 

Schedule 2.9

 

ALLIANCE MANAGERS AS OF THE SECOND RESTATEMENT EXECUTION DATE

 

	
  Lilly

  	
   

  	
  Isis

  
	
  [***]

  	
   

  	
  [***]

  

 

 

Schedule 5.5.3

 

Accepted Validation Targets as of
the Second Restatement Execution Date

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

Schedule 5.6.3

 

Rejected Validation Targets as of
the Second Restatement Execution Date

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

Schedule 5.12

 

Abandoned Validation Targets as
of the Second Restatement Execution Date

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

Schedule 6.2

 

Development Stages of Drug
Discovery Targets as of the Second Restatement Execution Date

 

Stage 1 Drug Discovery Targets

 

[***]

 

[***]

 

[***]

 

Stage 2 Drug Discovery Targets

 

[***]

 

[***]

 

Stage 3 Drug Discovery Targets

 

[***]

 

 

Schedule 6.5.1

 

Active Programs as of as of the
Second Restatement Execution Date

 

1.     [***]

 

 

Schedule 6.7.1

 

[***] Abandoned Drug Discovery
Targets in the Metabolic Collaboration Therapeutic Area

 

1.     [***]

 

 

Schedule 6.7.2

 

Abandoned Drug Discovery Targets
as of the Second Restatement Execution Date

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  	
   

  	
  Development Stage at Time of 

  Designation as Drug Discovery 

  Target

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

 

Schedule 6.9.1

 

Reserved Targets as of the Second
Restatement Execution Date

 

1.     [***]

 

 

Schedule 8.2.2

 

The Reagent Targets and the Date
of Delivery to Lilly of a Reagent ASO Compound Directed to Each Such Reagent
Target

 

	
  Submission 

  Record ID

  	
   

  	
  Gene Name

  	
   

  	
  Submitted 

  Species

  	
   

  	
  Date 

  Delivered

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

 

Schedule 9.4.3

 

Milestones and Royalties under Section 9.4.3 and 9.4.4

 

	
  MILESTONE PAYMENTS

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  

 

[***]

 

 

Schedule 12.12

 

Collaboration Patent Rights as of
the Second Restatement Execution Date

 

1.     Isis Collaboration Patent Rights

 

	
  Docket/Serial Number

  	
   

  	
  Gene Name

  
	
  [***]

  	
   

  	
  [***]

  

 

 

2.     Lilly Collaboration Patent Rights

 

[***]

 

3.     Joint Collaboration Patent Rights

 

[***]

 

 

Schedule A

 

[DELETED]

 

 

Schedule B

 

ISIS
MANUFACTURING PATENT RIGHTS AS OF THE SECOND RESTATEMENT EXECUTION DATE

 

[***]

 

 

Schedule C

 

ISIS CORE
TECHNOLOGY PATENT RIGHTS AS OF THE SECOND RESTATEMENT EXECUTION DATE

 

1.     [***]

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