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Exhibit 10.2  

        CONFIDENTIAL TREATMENT REQUESTED

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

AMENDED AND RESTATED COLLABORATION AGREEMENT  

 BETWEEN  

 ELI LILLY AND COMPANY  

 AND  

 ISIS PHARMACEUTICALS, INC.  

 June 17, 2002  

  

	 
	 	 
	 	Page

	ARTICLE 1	 	DEFINITIONS	 	1
	

ARTICLE 2	
 	

COLLABORATION OVERVIEW AND GOVERNANCE	
 	

1
	

2.1	
 	

The Collaboration	
 	

1
	

2.2	
 	

Reagent Provision Program	
 	

1
	

2.3	
 	

Drug Discovery Target Validation Program	
 	

2
	

2.4	
 	

Antisense Drug Discovery Program	
 	

2
	

2.5	
 	

Governance—Executive Committee	
 	

2
	

2.6	
 	

Governance—Joint Research Committee	
 	

3
	

2.7	
 	

Governance—Operating Committees	
 	

6
	

2.8	
 	

Dissolution of the Committees	
 	

7
	

2.9	
 	

Alliance Managers	
 	

7
	

ARTICLE 3	
 	

THE COLLABORATION	
 	

8
	

3.1	
 	

Collaboration Staffing	
 	

8
	

3.2	
 	

Subcontracting	
 	

8
	

3.3	
 	

Staff Availability	
 	

9
	

3.4	
 	

Facility Visits	
 	

9
	

3.5	
 	

Exchange of Information	
 	

9
	

3.6	
 	

Records	
 	

9
	

3.7	
 	

Compliance	
 	

9
	

ARTICLE 4	
 	

THE REAGENT PROVISION PROGRAM	
 	

9
	

4.1	
 	

Description and Term	
 	

9
	

4.2	
 	

Reagent Targets	
 	

10
	

4.3	
 	

Isis Use of Reagent Targets and Reagent ASO Compounds	
 	

10
	

4.4	
 	

Isis GeneTrove Database	
 	

10
	

4.5	
 	

Reagent ASO Products	
 	

10
	
 	
 	

 	
 	

 

i

 

	

4.6	
 	

Lilly Confidential Information	
 	

10
	

4.7	
 	

Use and Disclosure	
 	

10
	

ARTICLE 5	
 	

THE DRUG DISCOVERY TARGET VALIDATION PROGRAM	
 	

10
	

5.1	
 	

Description and Term	
 	

10
	

5.2	
 	

Target Designation	
 	

11
	

5.3	
 	

Target Validation Program	
 	

11
	

5.4	
 	

Joint Research Committee Review	
 	

11
	

5.5	
 	

Accepted Validation Targets	
 	

11
	

5.6	
 	

Rejected Validation Targets	
 	

12
	

5.7	
 	

Lilly Rights Regarding Other Targets	
 	

12
	

5.8	
 	

Exclusive Targets	
 	

12
	

5.9	
 	

Validation ASO Products	
 	

12
	

5.10	
 	

Lilly Confidential Information	
 	

12
	

5.11	
 	

Use and Disclosure	
 	

12
	

ARTICLE 6	
 	

THE ANTISENSE DRUG DISCOVERY PROGRAM	
 	

12
	

6.1	
 	

Description and Term	
 	

12
	

6.2	
 	

Drug Discovery Target Designation	
 	

13
	

6.3	
 	

Further Designation as Stage 1, 2 or 3 Drug Discovery Target	
 	

13
	

6.4	
 	

Development Candidate Designation	
 	

13
	

6.5	
 	

Continued Development of Drug Discovery Targets After the Antisense Drug Discovery Term	
 	

14
	

6.6	
 	

Development and Commercialization of Development Candidates	
 	

14
	

6.7	
 	

Abandoned Drug Discovery Targets	
 	

14
	

6.8	
 	

Reserved Targets	
 	

14
	

6.9	
 	

Limitation on Number of Drug Discovery Targets and Reserved Targets	
 	

14
	
 	
 	

 	
 	

 

ii

 

	

ARTICLE 7	
 	

DEVELOPMENT, COMMERCIALIZATION, MANUFACTURING AND SUPPLY	
 	

15
	

7.1	
 	

Research Supply	
 	

15
	

7.2	
 	

Clinical Supply	
 	

15
	

7.3	
 	

Development and Commercialization	
 	

15
	

ARTICLE 8	
 	

GRANT OF RIGHTS	
 	

16
	

8.1	
 	

Licenses to Lilly	
 	

16
	

8.2	
 	

Lilly Product Options	
 	

16
	

8.3	
 	

Lilly's Right of First Negotiation	
 	

19
	

8.4	
 	

Licenses to Isis	
 	

20
	

8.5	
 	

Isis Option to License Lilly Non-Collaboration ASO Patent Rights	
 	

21
	

8.6	
 	

No Implied Licenses	
 	

21
	

8.7	
 	

Isis GeneTrove Database Subscription	
 	

21
	

8.8	
 	

Technology Transfer	
 	

21
	

8.9	
 	

Manufacturing Improvements	
 	

22
	

ARTICLE 9	
 	

PAYMENTS AND ACCOUNTING	
 	

22
	

9.1	
 	

Collaboration Funding	
 	

22
	

9.2	
 	

Technology Access Fee	
 	

24
	

9.3	
 	

License, Milestone and Royalty Payments—Lilly	
 	

25
	

9.4	
 	

Pass Through Royalties	
 	

28
	

9.5	
 	

Access to Third Party Rights	
 	

28
	

9.6	
 	

Payments by Isis	
 	

29
	

9.7	
 	

Royalty Obligations	
 	

30
	

9.8	
 	

COPS Protection	
 	

30
	

9.9	
 	

Compulsory License	
 	

30
	

9.10	
 	

Inflation	
 	

30
	
 	
 	

 	
 	

 

iii

 

	

9.11	
 	

Accounting Reports; Payment of Royalty	
 	

30
	

9.12	
 	

Audits	
 	

31
	

9.13	
 	

Payment	
 	

31
	

9.14	
 	

Income Tax Withholding	
 	

31
	

ARTICLE 10	
 	

CONFIDENTIALITY	
 	

31
	

10.1	
 	

Nondisclosure and Nonuse Obligations	
 	

31
	

10.2	
 	

Permitted Disclosure of Confidential Information	
 	

32
	

ARTICLE 11	
 	

DISCLAIMERS, REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS	
 	

32
	

11.1	
 	

Isis Representations and Warranties	
 	

32
	

11.2	
 	

Lilly Representations and Warranties	
 	

33
	

11.3	
 	

Disclaimer	
 	

34
	

11.4	
 	

Responsibility and Control	
 	

34
	

11.5	
 	

Isis' Right to Indemnification	
 	

34
	

11.6	
 	

Lilly's Right to Indemnification	
 	

35
	

11.7	
 	

Indemnification Procedures	
 	

35
	

ARTICLE 12	
 	

INTELLECTUAL PROPERTY	
 	

36
	

12.1	
 	

Disclosures and Reports	
 	

36
	

12.2	
 	

Ownership	
 	

36
	

12.3	
 	

Patent Filing and Prosecution	
 	

36
	

12.4	
 	

Election Not to File, Prosecute or Maintain	
 	

37
	

12.5	
 	

Inventions Otherwise Unpatentable in the United States	
 	

37
	

12.6	
 	

Costs and Expenses	
 	

38
	

12.7	
 	

Patent Term Extensions	
 	

38
	

12.8	
 	

Audit of Costs	
 	

38
	

12.9	
 	

Notice of Certification	
 	

38
	
 	
 	

 	
 	

 

iv

 

	

12.10	
 	

Notice of Infringement Claim	
 	

39
	

12.11	
 	

Infringement Claims Against Third Parties	
 	

39
	

ARTICLE 13	
 	

TERM AND TERMINATION	
 	

40
	

13.1	
 	

Term of Collaboration	
 	

40
	

13.2	
 	

Term of Agreement	
 	

41
	

13.3	
 	

Termination of Collaboration Upon Change of Control	
 	

41
	

13.4	
 	

Termination for Breach	
 	

42
	

13.5	
 	

Termination Upon Insolvency	
 	

42
	

13.6	
 	

Effect of Termination Due to Lilly Breach or Insolvency	
 	

43
	

13.7	
 	

Effect of Termination Due to Isis Breach or Insolvency	
 	

43
	

13.8	
 	

Accrued Rights/Surviving Obligations	
 	

45
	

13.9	
 	

Limitation of Liability	
 	

45
	

ARTICLE 14	
 	

PUBLICITY	
 	

45
	

14.1	
 	

Disclosure of Agreement	
 	

45
	

14.2	
 	

Use of Names, Logos or Symbols	
 	

46
	

14.3	
 	

Publication	
 	

46
	

ARTICLE 15	
 	

HART-SCOTT-RODINO FILING	
 	

47
	

15.1	
 	

HSR Act Compliance	
 	

47
	

15.2	
 	

Cooperation on Filing	
 	

47
	

ARTICLE 16	
 	

MISCELLANEOUS	
 	

47
	

16.1	
 	

Key Personnel	
 	

47
	

16.2	
 	

Force Majeure	
 	

48
	

16.3	
 	

Assignment	
 	

48
	

16.4	
 	

Severability	
 	

48
	

16.5	
 	

Notices	
 	

48
	
 	
 	

 	
 	

 

v

 

	

16.6	
 	

Dispute Resolution	
 	

49
	

16.7	
 	

Choice of Law	
 	

49
	

16.8	
 	

Entire Agreement	
 	

49
	

16.9	
 	

Headings	
 	

49
	

16.10	
 	

Independent Contractors	
 	

49
	

16.11	
 	

Non-Solicitation of Employees	
 	

49
	

16.12	
 	

Further Actions	
 	

50
	

16.13	
 	

Waiver	
 	

50
	

16.14	
 	

Jointly Prepared	
 	

50
	

16.15	
 	

Counterparts	
 	

50

vi

  

 
 

AMENDED AND RESTATED COLLABORATION AGREEMENT    
  

        THIS AMENDED AND RESTATED COLLABORATION AGREEMENT (the  "Agreement") is entered into
and effective as of June 17, 2002 (the "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 wish to establish a collaborative relationship 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 entered into a collaboration agreement (the "Original Agreement") effective as of the Effective Date, and both parties now are desirous of amending and
restating the terms of the Original Agreement. 

 
 

AGREEMENT    
  

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

 
 

ARTICLE 1
  
    DEFINITIONS    
  

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

 
 

ARTICLE 2
  
    COLLABORATION OVERVIEW AND GOVERNANCE    
  

        2.1    The Collaboration.    Lilly and Isis hereby agree to undertake the Collaboration during the Collaboration Term
under the terms and conditions set forth in this Agreement. The Collaboration shall consist of the Reagent Provision Program, the Target Validation Program and the Antisense Drug Discovery Program. 

        2.2    Reagent Provision Program.    Under the Reagent Provision Program Isis will identify ASO Compounds using
Antisense Technology that are directed to Targets identified by Lilly and provide such ASO Compounds to Lilly for use in Lilly's research efforts outside of the Collaboration. The Joint Research
Committee will manage the Reagent Provision Program as set forth below. The activities to be undertaken by the Parties in the course of Reagent Provision Program are set forth in detail in the
Collaborative Research Plan, which is attached hereto as Schedule 2.2 and is incorporated by reference as part of the Agreement. 

1

 

        2.3    Drug Discovery Target Validation Program.    The goal of the drug discovery Target Validation Program is to
provide information regarding gene functionalization and validation for drug discovery with respect to Targets related to the Collaboration Therapeutic Areas. An additional purpose of the Target
Validation Program is to validate and prioritize Targets related to the Collaboration Therapeutic Areas for potential inclusion in the Antisense Drug Discovery Program. The Joint Research Committee
will manage the Target Validation Program as set forth below. The activities to be undertaken by the Parties in the course of Target Validation Program are set forth in detail in the Collaborative
Research Plan. 

        2.4    Antisense Drug Discovery Program.    The goal of the Antisense Drug Discovery Program is to develop Drug
Discovery ASO Compounds directed against Targets related to the Collaboration Therapeutic Areas and to qualify such Drug Discovery ASO Compounds as Development Candidates for development by Lilly or
by Isis as pharmaceutical products. The Joint Research Committee will manage the Antisense Drug Discovery Program as set forth below. The activities to be undertaken by the Parties in the course of
the Antisense Drug Discovery Program are set forth in detail in the Collaborative Research Plan. 

        2.5    Governance—Executive Committee.    The strategic direction and overall management of the
Collaboration shall be the responsibility of the Executive Committee. The Executive Committee shall consist of three (3) members from each Party. The initial members of the Executive Committee
are 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. Not later than thirty (30) days after the
Effective Date the Executive Committee shall hold an organizational meeting to establish the operational requirements for the Executive Committee. The designated Lilly representative shall be
responsible for scheduling the meeting of the Executive Committee for that purpose. Either Party can change its representatives on the Executive Committee by written notice to the other Party. 

         2.5.1    Executive Committee Meetings.    During the Collaboration Term and for one (1) year thereafter the
Executive Committee shall
meet at least every six (6) months to review the research carried out under the Collaboration and to consider modifications to the strategy and goals of the Reagent Provision Program, 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

 

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

        (a)  to periodically review the Collaborative Research Plan from a strategic perspective, including consideration of expanding or contracting the
Collaboration Therapeutic Areas; 

         (b)  to review changes to the Collaborative Research Plan made by the Joint Research Committee or an Operating Committee as permitted by Sections
2.6.2 and 2.7.2, respectively, and to resolve any matters related thereto that are appealed to the Executive Committee by the Joint Research Committee or an Operating Committee; 

        (c)  to periodically 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; 

         (d)  to attempt to resolve any disagreements between the Parties with respect to the research conducted under the Collaboration, including those
disagreements referred to it by the Joint Research Committee, the IP Committee or any Operating Committee; 

        (e)  to approve changes to the allocation of Collaboration Funds set forth in the Collaborative Research Plan between the Target Validation Program
and Antisense Drug Discovery Program, on the one hand, and the Reagent Provision Program, on the other hand; 

         (f)    to approve changes to the assignment of Collaboration Funds and Collaboration FTEs between the Collaboration Therapeutic Areas as
set forth in
the Collaborative Research Plan; 

        (g)  to propose to Lilly changes in the amount and/or timing of funding under the Loan Agreement as provided for in Sections 9.1.5 and 9.1.6, in the
unexpected event that such is necessary; 

         (h)  to provide guidance to the Joint Research Committee as to the data package required by Lilly in considering a Development Candidate for further
development and commercialization efforts; and 

        (i)    to establish and oversee an intellectual property committee that will operate in accordance with Section 2.7.2. 

         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,
including matters referred to it for decision by the Joint Research Committee, then the matter shall be referred to [***] 

        2.6    Governance—Joint Research Committee.    Promptly after the Effective Date a Joint Research
Committee shall be established. The Joint Research Committee shall have the day-to-day management responsibilities for the Target Validation Program and the Antisense Drug
Discovery Program in the Collaboration Therapeutic Areas. The Joint Research Committee shall consist of three (3) members from each Party, as appointed by each such Party. The Joint Research
Committee shall be subordinate to the Executive Committee, which shall have the right upon timely appeal to review, accept, reject or modify all actions of the Joint Research Committee. The initial
members of the Joint Research Committee are listed on Schedule 2.6. Each Party will designate a member of the Joint Research Committee who will
be the primary contact for that Party on the Joint Research Committee. Not later than thirty (30) days after Effective Date the Joint Research Committee shall meet to hold an organizational
meeting to establish the operational requirements for the Joint Research Committee. The Lilly representatives that are the designated primary contacts on the Joint Research Committee 

3

 

shall be responsible for scheduling the first meeting for that purpose. Either Party can change its representatives on the Joint Research Committee by written notice to the other Party. If Lilly
extends the Oncology Term pursuant to Section 13.1.2(a), the Joint Research Committee shall be expanded to consist of a total of four (4) members from each Party, as appointed by each
such Party, unless the parties agree otherwise. 

         2.6.1    Joint Research Committee Meetings.    The Joint Research Committee shall meet at least quarterly to review
the research carried out
under the Collaboration and, if necessary, to consider modifications to the Collaborative Research Plan. 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 Joint Research Committee shall agree. Each Party shall bear its own costs associated with holding and
attending such meetings. If mutually agreed by the Parties, such meeting may be held by videoconference or teleconference. An agenda shall be agreed upon by the members of the Joint Research Committee
and be distributed to the Parties no less than one (1) week before any quarterly meeting. If a representative of a Party on the Joint Research Committee is unable to attend a meeting of the
Joint Research 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 Joint Research Committee. Minutes of all Joint Research Committee meetings shall be kept by the hosting Party and sent to all members on the Joint Research Committee for review and approval
within seven (7) days after each meeting. Minutes shall be deemed approved unless any member of the Joint Research Committee objects to the accuracy of such minutes by providing written notice
to the other members of the Joint Research 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. Any changes made by the Joint Research Committee to the Critical Success Factors
shall be included in the minutes. A current and complete version of the Critical Success Factors shall be provided in the minutes of the Joint Research Committee meeting. 

        2.6.2    Joint Research Committee Responsibilities.    The Joint Research Committee shall oversee implementation and
execution of the
Collaborative Research Plan. The Joint Research Committee shall be responsible for planning, managing, directing and overseeing specific activities under its areas of responsibility, including but not
limited to the following, any of which may be delegated to an Operating Committee, as the Joint Research Committee deems appropriate consistent with the goals of the Collaboration: 

         (a)  reviewing the Collaborative Research Plan from a scientific and operational perspective; 

        (b)  making 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, so long as such changes do not cause the Collaboration to exceed the budget established for the Target Validation Program
and the Antisense Drug Discovery Program in the Collaborative Research Plan, as such budget may be amended by the Executive Committee; 

         (c)  proposing other changes to the Collaborative Research Plan to the Executive Committee as it deems necessary to accomplish the purpose of the
Collaboration; 

        (d)  prioritizing and monitoring progress of antisense lead identification for the Reagent Provision Program, Target Validation Program and Drug
Discovery Program; provided, however, that if there is a disagreement concerning the prioritization of a Reagent Target or a 

4

 

Validation Target, such disagreement shall be appealed to the Executive Committee, and, in the event the Executive Committee is unable to resolve such disagreement, such prioritization shall be
decided by Lilly; 

         (e)  reviewing the progress and results of the Collaboration to ensure, to the extent reasonably practical, that the Parties are meeting their
commitments for both human and financial support and are each fulfilling all of their respective contractual obligations; 

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

         (g)  referring disputes or appealing decisions to the Executive Committee as necessary; 

         (h)  approving changes to the allocation of Collaboration Funds set forth in the Collaborative Research Plan (i) within the Reagent Provision
Program, (ii) between the Target Validation Program and the Antisense Drug Discovery Program and (iii) among the Collaboration Therapeutic Areas, so long as such changes do not cause the
Collaboration to exceed the budget established for the Target Validation Program and the Antisense Drug Discovery Program in the Collaborative Research Plan, as such budget may be amended by the
Executive Committee; 

         (i)    reallocating Collaboration FTEs within each Collaboration Therapeutic Area; 

         (j)    reviewing and approving the use of any Third Party in the Collaboration, including review and approval of any related Third Party
contract; 

        (k)  reviewing and monitoring 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)    determining assignment of Collaboration Funds and Collaboration FTEs assigned to each Collaboration Therapeutic Area; 

         (m)  adopting and modifying 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 Joint Research Committee minutes; 

         (n)  determining whether a Validation Target is an Accepted Validation Target or Rejected Validation Target; 

         (o)  designating Drug Discovery Targets; 

         (p)  making a determination of whether a Drug Discovery ASO Compound meets the criteria for designation as a Development Candidate and making such
designations; and 

        (q)  coordinating with the IP Committee to optimize the value of the intellectual property arising from the Collaboration. 

         2.6.3    Joint Research Committee Decisions.    Decisions of the Joint Research Committee shall be made by unanimous
vote with each member
having one (1) vote. All issues voted on by the Joint Research Committee shall be appealable to the Executive Committee. No vote of the Joint Research Committee may be taken unless all of the
members of such Joint Research Committee vote. Any Party desiring to appeal an issue to the Executive Committee shall make its appeal in writing to all Executive Committee members within ten
(10) days of receipt of the minutes for the meeting at which the issue was voted on. Action pursuant to any decision appealed to the Executive Committee shall be suspended pending a
determination by the Executive Committee to accept, reject or modify the decision of the Joint
Research Committee. If it is not feasible to suspend the action without causing potential damage to the Collaboration, the 

5

 

Executive Committee shall be requested to provide immediate review. Any Party may at any time request reconsideration of any issue by the Joint Research Committee or Executive Committee if such Party
in good faith believes that substantial changes in circumstances have occurred which necessitates such reconsideration. 

         2.6.4    Joint Research Committee Semiannual Status Reports.    During the Collaboration Term and upon expiration
thereof the Joint Research
Committee shall provide the Executive Committee with a semiannual status report (which may be in the form of a presentation) that generally summarizes the research and development efforts conducted by
each Party under the Collaboration during the two (2) previous Calendar Quarters. Such reports shall be submitted or presented to the Executive Committee to coincide with the semiannual meeting
of Executive Committee. The report shall include, without limitation, a general summary of important events, progress on critical success objectives, any milestones reached, personnel changes,
learning points and other matters that the Executive Committee may deem appropriate. The Joint Research Committee shall establish annual goals and objectives for each year of the Collaboration to be
provided to and approved by the Executive Committee. 

        2.7    Governance—Operating Committees.    The Executive Committee and the Joint Research Committee may
appoint one or more other working teams ("Operating Committees") to perform such functions as the Executive Committee or Joint Research Committee,
respectively, may determine. All Operating Committees shall have at least one (1) representative of each Party. Operating Committees shall have such decision-making authority as may be
delegated to them by the Executive Committee or Joint Research Committee (in either case, the "Delegating Committee"). All issues voted on by an
Operating Committee shall be appealable to the Delegating Committee. No vote of an Operating Committee may be taken unless all of the members of such Operating Committee vote. Any Party desiring to
appeal an issue to the Delegating Committee shall make its appeal in writing to all Delegating Committee members within ten (10) days of receipt of the minutes for the meeting at which the
issue was voted on. Action pursuant to any decision appealed to the Delegating Committee shall be suspended pending a determination by the Delegating Committee to accept, reject or modify the decision
of such Operating Committee. If it is not feasible to suspend the action without causing potential damage to the Collaboration, the Delegating Committee shall be requested to provide immediate review.
Any Party may at any time request reconsideration of any issue by the Delegating Committee if such Party in good faith believes that substantial changes in circumstances have occurred which
necessitates such reconsideration. Each Operating Committee shall meet as agreed by its members or directed by the Joint Research Committee. Each Party shall bear its own costs associated with holding
and attending such meetings. If mutually agreed by the Parties, such meeting may be held by videoconference or teleconference. If the representative of a Party is unable to attend a meeting, such
Party may designate an alternate to attend such meeting and vote on behalf of such missing representative. Minutes of all Operating Committee meetings shall be kept by the hosting Party and sent to
the other Party for review and approval within seven (7) days after each meeting. Minutes shall be deemed approved unless a Party objects to the accuracy of such minutes by providing written
notice to the other Party 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. Any changes made by an Operating Committee to the Critical Success Factors shall be included in such minutes 

        2.7.1    Operating Committees.    Without limiting the generality of the foregoing, the Joint Research Committee shall
establish the following
four (4) Operating Committees, with such number of representatives of each Party and such decision-making authority as the Joint Research Committee shall determine: 

         (i)    the Reagent Provision Operating Committee, which shall be responsible for matters relating to the Reagent Provision Program,
including, without
limitation, managing the 

6

 

submission and acceptance of Reagent Targets and the timeframe for delivery of Reagent ASO Compounds and providing each Party with a written quarterly report that lists the Reagent Targets for which
Isis has provided Lilly with Reagent ASO Compounds during the preceding Calendar Quarter and such Reagent ASO Compounds, the Reagent Targets for which Isis is scheduled to provide Lilly with Reagent
ASO Compounds during the ensuing Calendar Quarter, and the anticipated timing of delivery of such Reagent ASO Compounds; 

        (ii)  the Inflammation/Bone Operating Committee, which shall be responsible for matters relating to the activities of the Collaboration in the
Collaboration Therapeutic Areas of inflammation and bone; 

         (iii)  the Metabolic Disease Operating Committee, which shall be responsible for matters relating to the activities of the Collaboration in the
Collaboration Therapeutic Area of metabolic disease; and 

         (iv)  the Oncology Operating Committee, which shall be responsible for matters relating to the activities of the Collaboration in the Collaboration
Therapeutic Area of oncology, and which shall be established promptly after the Restatement Date and exist and operate during the Oncology Term and any extensions thereof. 

        For
avoidance of doubt, it is intended that the Executive Committee and Joint Research Committee will delegate decision-making authority for day-to-day management
of the Collaboration to the Operating Committees described in Section 2.7.1. The Joint Research Committee will manage issues that effect more than one Operating Committee or Collaboration
Therapeutic Area. While the Joint Research Committee retains the ability to review the decisions of the Operating Committees, it is intended that the Operating Committees shall be given sufficient
latitude to make decisions without the need to first consult the Joint Research Committee. 

         2.7.2    IP Committee.    The Executive Committee shall establish a committee that is responsible for intellectual
property issues arising in
the course of the Collaboration and thereafter (the "IP Committee"). The IP Committee shall be subordinate to the Executive Committee and shall work
closely with the Joint Research Committee to implement the activities of the Parties as contemplated by Article 12 and as otherwise agreed by the Parties. 

        2.8    Dissolution of the Committees.    Except as the Parties may otherwise agree in writing, once the Collaboration
Term has expired or is terminated, the Joint Research Committee shall dissolve. The Executive Committee shall cease having regular meetings twelve (12) months after expiration or termination of
the Collaboration Term but shall meet on an ad hoc basis for so long thereafter as is necessary to oversee the activities of the IP Committee. The IP
Committee shall continue for so long as there are Patent Rights that are licensed by a Party to the other Party under this Agreement. 

        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 initial Alliance Managers are listed on  Schedule 2.9. The Alliance
Managers' responsibilities shall include maintenance of a current list of Reagent Targets, Validation Targets
(including Rejected Validation Targets and Accepted Validation Targets), Drug Discovery Targets and Reserved Targets, coordinating meetings of the Joint Research Committee and 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. 

7

 

 
 

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 herein and in the Collaborative Research Plan. Isis and Lilly each acknowledge that there will be a reasonable initial hiring ramp-up period
before the number of Collaboration FTEs dedicated to the Collaboration reaches the level specified in the Collaborative Research Plan. Isis shall use its best efforts to ramp-up to the
number of Isis Collaboration FTEs specified in the Collaborative Research Plan as soon as possible after the Effective Date. Lilly shall use its best efforts to ramp-up to the number of
Lilly Collaboration FTEs specified in the Collaborative Research Plan as soon as possible after the Effective Date. By 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. Upon the approval of the Joint Research Committee, each Party
may place one or more employees at the other Party's facilities in order to participate in the conduct of the Collaboration. Such employee(s) shall be fully committed to the Collaboration as
Collaboration FTEs. Each Party shall bear the travel, lodging and meal expenses of any of its Collaboration FTEs who visit the other Party's facilities as described in the preceding sentence and shall
not be reimbursed by the other Party or out of the Collaboration Funds for any such expenses. Effective on the Restatement Date and until the expiration of the Oncology Term, the therapeutic area of
oncology shall be included within the Collaboration Therapeutic Areas for purposes of the Antisense Drug Discovery Program only, and Isis and Lilly will conduct the research activities set forth in
that portion of the Collaborative Research Plan related to oncology (the "Oncology Research Plan") as a part of the Collaboration;  provided, however,
 upon agreement of the Parties (such agreement being noted in the Collaborative Research Plan) the therapeutic area of oncology may be
included within the Collaboration Therapeutic Areas for the purposes of the drug discovery Target Validation Program as well as the Antisense Drug Discovery Program. Promptly after the Restatement
Date, Isis shall use its best efforts to ramp-up to the number of additional Isis Collaboration FTEs as specified in the Oncology Research Plan to carry out the objectives set forth
therein as soon as possible after the Restatement Date. Lilly shall apply an appropriate number of FTEs to achieve the objectives set out for Lilly in the Oncology Research Plan. FTEs applied by Lilly
to carry out the work set forth in the Oncology Research Plan shall not be considered to be Lilly Collaboration FTEs and such FTEs shall not be reimbursed with Collaboration Funds. If during the
Oncology Term or any extensions thereof Isis believes that Lilly is applying an insufficient number of FTEs to accomplish the objectives of the Oncology Research Plan Isis may petition the Executive
Committee to review the Lilly effort and to require Lilly to apply additional FTEs if necessary. Lilly shall track the FTEs applied by Lilly to carry out the work as set forth in the Oncology Research
Plan and report such FTE effort to Isis on a quarterly basis as a part of the reporting requirement under Section 9.1.1. 

        3.2    Subcontracting.    Except to the extent approved by the Joint Research 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 IP Committee 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 Joint Research Committee (if any) and with any applicable codes, rules and regulations. 

8

  

        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.    In addition to a Party's employees located at the other Party's facilities pursuant to
Section 3.1, 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 Reagent ASO Compounds, 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 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    Description and Term.    The Reagent Provision Program shall commence on the Effective Date and be conducted by
Isis during the Reagent Provision Term in accordance with the Collaborative Research Plan. The Reagent Provision Term shall become effective on the Effective Date and shall continue in effect for four
(4) years, unless Lilly exercises it option to extend the Reagent Provision Term, as provided in Section 13.1, the Parties otherwise mutually agree to extend or terminate the Reagent
Provision Program, or the Collaboration is terminated in accordance with Article 13. The Parties estimate that approximately six hundred and seventy-five (675) Targets from
any therapeutic 

9

 

area of interest to Lilly will be analyzed in the course of the Reagent Provision Program. Such Targets shall be selected by Lilly and designated as Reagent Targets. 

        4.2    Reagent Targets.    For each Reagent Target, Isis will use reasonable efforts to promptly provide to Lilly
Reagent ASO Compounds for each Reagent Target in accordance with the Collaborative Research Plan. Each Reagent ASO Compound shall be delivered to Lilly in accordance with the specifications set forth
in the Collaborative Research Plan. Isis will also promptly provide to Lilly Reagent Target gene reduction data generated by Isis on the inhibition of the Reagent Target by each Reagent ASO Compound
delivered to Lilly. Isis shall also provide to Lilly ongoing consultation as reasonably requested by Lilly on the utilization of each Reagent ASO Compound in Lilly's research efforts during the
Collaboration Term. Lilly will use best efforts to request, and Isis will use best efforts to provide to Lilly, Reagent ASO Compounds at the flow rate that is specified in the Collaborative Research
Plan; provided, however, that if Lilly requests Reagent ASO Compounds at a flow rate that is greater than that specified in the Collaborative Research
Plan, Isis will use reasonable efforts to provide the Reagent ASO Compounds to Lilly at such greater flow rate. 

        4.3    Isis Use of Reagent Targets and Reagent ASO Compounds.    Except as provided otherwise in this Agreement,
[***] 

        4.4    Isis GeneTrove Database.    It is the intention of the Parties that the designation of Targets to be included
in the Reagent Provision Program, the Target Validation Program or the Antisense Drug
Discovery Program shall not influence the analysis or prioritization of Targets by Isis outside the course of the Collaboration. To this end, Isis shall not utilize Lilly Confidential Information
outside the Collaboration for the purpose of prioritizing the Targets to be analyzed for inclusion in the GeneTrove Database or for any other purpose except as expressly permitted by this Agreement.
[***] 

[***]

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

        4.6    Lilly Confidential Information.    All information provided to Isis by Lilly with respect to a Reagent 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 Reagent
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. 

        4.7    Use and Disclosure.    Use of Reagent ASO Compounds and Reagent Targets by a Party 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, including through use of Reagent ASO Compounds, Reagent Non-ASO Compounds, or Reagent 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. 

 
 

ARTICLE 5
  
    THE DRUG DISCOVERY TARGET VALIDATION PROGRAM    
  

        5.1    Description and Term.    The drug discovery Target Validation Program shall commence on the Effective Date and
be conducted by Lilly and Isis during the Target Validation Program Term in accordance with the Collaborative Research Plan. The Target Validation Program Term shall become effective on the Effective
Date and shall continue in effect for four (4) years, unless Lilly exercises it 

10

 

option to extend the Target Validation Program Term, as provided in Section 13.1, the Parties otherwise mutually agree to extend or terminate the Target Validation Program, or the
Collaboration is terminated in accordance with Article 13. The Collaborative Research Plan includes the Critical Success Factors for the Target Validation Program including the Critical Success
Factors for Validation Targets. By execution of this Agreement, the initial Collaborative Research Plan, including the Critical Success Factors, are approved by each Party. The Joint Research
Committee is responsible for implementing the Collaborative Research Plan and any modifications or amendments thereto consistent with the terms of this Agreement. 

        5.2    Target Designation.    The Parties estimate that approximately three hundred and twenty five
(325) Targets will be analyzed in the course of the drug discovery Target Validation Program. Such Targets shall be selected by Lilly 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 fifteen (15) 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. 

        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 set forth in the Collaborative Research Plan. All results generated in the course of
Target Validation Program shall be promptly provided to a member of the Joint Research Committee for the other Party by means of a written report generated by the Parties and by placing such results
in the shared database described in the Collaborative Research Plan. Following consultation with Isis, Lilly shall decide whether to conduct Validation Tier 1 studies and/or Validation Tier 2 studies
(as such terms are defined in the Collaborative Research Plan) with respect to each Validation Target. [***] 

        5.4    Joint Research Committee Review.    At the next Joint Research Committee meeting following the completion of
the evaluation of a Validation Target under the Target Validation Program, the Joint
Research 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 set out in the
Collaborative Research Plan. If the Joint Research Committee determines that a Validation Target meets the Critical Success Factors, such Validation Target shall be deemed an  "Accepted Validation
Target." If the Joint Research 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 [***] 

11

 

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

        5.6    Rejected Validation Targets    [***] 

        5.6.1    [***] 

        5.6.2    [***] 

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

        5.8    Exclusive Targets.    During the Reagent Provision Term or the Target Validation Program Term, as applicable,
Lilly may elect to designate any Reagent Target or 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. 

 
 

ARTICLE 6
  
    THE ANTISENSE DRUG DISCOVERY PROGRAM    
  

        6.1    Description and Term.    The Antisense Drug Discovery Program shall be conducted by Isis and Lilly during the
Antisense Drug Discovery Term in accordance with the Collaborative Research Plan, except that the Antisense Drug Discovery Program in the Collaboration Therapeutic Area of oncology shall be conducted
solely during the Oncology Term, as more fully described in Section 13.1.2. The Antisense Drug Discovery Term shall become effective on the Effective Date and shall continue in effect for four
(4) years, unless Lilly exercises it 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. The Oncology Term shall commence on the Restatement Date and shall continue in effect for two
(2) years thereafter, unless extended or 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 Joint Research Committee is 

12

 

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
Joint Research
Committee shall designate the Drug Discovery Targets to be analyzed under the Antisense Drug Discovery Program in one or more Collaboration Therapeutic Areas. [***] Targets
designated as Drug Discovery Targets may include any Target that is suspected of playing a role in a Collaboration Therapeutic Area, including Reserved Targets, Reagent Targets, Accepted Validation
Targets, Exclusive Targets, Rejected Validation Targets, and other Targets that the Joint Research Committee determines to be of interest based on the scientific merits of applying Antisense
Technology to modulate such Target; [***] The initial Drug Discovery Targets provided by Isis for each Collaboration Therapeutic Area and the stage of development of such
Targets as of the Effective Date (i.e., whether such Target is a Stage 1, Stage 2 or Stage 3 Drug Discovery Target) are identified in the Collaborative
Research Plan. 

        6.2.2    Disagreements Regarding Drug Discovery Target Designation.    If the Joint Research Committee cannot agree on
whether to designate a
Target a Drug Discovery Target, the matter shall be referred to the Executive Committee for a decision. 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 Joint
Research Committee of a Target as a Drug Discovery Target, the Joint Research 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 (or, with respect to
any Drug Discovery ASO
Compound corresponding to a Drug Discovery Target in the Collaboration Therapeutic Area of oncology, during the Oncology 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 Joint
Research Committee that such Drug Discovery ASO Compound be designated a Development Candidate and, at the next meeting of the Joint Research
Committee, the Joint Research Committee shall vote on such matter. Either Party may appeal the outcome of such vote to the Executive Committee, in which event the Executive Committee shall meet as
promptly as practicable thereafter to resolve the matter. If the Joint Research Committee (in the absence of an appeal to the Executive Committee) or 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 (or, with respect
to any Drug Discovery ASO Compound corresponding to a Drug Discovery Target in the Collaboration Therapeutic Area of oncology, after the Oncology 

13

 

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 Joint Research Committee during the Antisense Drug Discovery Term or Oncology Term, as applicable. 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 (or, in the case of Drug Discovery Targets in the Collaboration Therapeutic
Area of oncology, within ten (10) days following expiration or termination of the Oncology Term) and again on the first (1st) 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 six (6) months following such
expiration or termination of the Antisense Drug Discovery Term or Oncology Term, as applicable, until the [***] anniversary of the expiration or termination (subject to
Article 13) of the Antisense Drug Discovery Term or Oncology Term, as applicable, 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 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 or Oncology Term, as applicable (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. 

        6.6    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 Joint Research Committee may
designate a Drug Discovery Target as an "Abandoned Drug Discovery Target" if such Joint Research Committee concludes that such Drug Discovery Target
should no longer be the subject of an Active Program as part of the Collaboration. Such vote shall be appealable to the Executive Committee. [***] 

        6.8    Reserved Targets.    During the 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 Antisense Drug Discovery
Term, the total number of both (i) Drug Discovery Targets that are the subject of an Active Program and (ii) Reserved Targets, shall [***];  provided, however, that if Lilly does not extend the
Oncology Term pursuant to Section 13.1.2(a), then from expiration or termination of the
Oncology Term through the remainder of the Antisense Drug Discovery Term, then the total number of both Drug Discovery Targets that are the subject of an Active Program and Reserved Targets shall not
exceed [***]; and provided, further, that if Lilly extends the Oncology Term pursuant to Section 13.1.2(a), then the
total number of both Drug Discovery Targets that are the subject of an Active Program and Reserved Targets shall not exceed the sum of: [***] The Joint Research Committee shall
decrease the total number of Drug Discovery Targets that are the subject of an Active Program and Reserved Targets to [***] by the expiration of the Antisense Drug Discovery
Term or any 

14

 

extensions thereof if the Oncology Term is not extended pursuant to Section 13.1.2(a) or [***] if the Oncology Term is extended pursuant to Section 13.1.2(a).
For purposes of clarification, upon exercise by Lilly of its option under Section 8.2.3 with respect to a Drug Discovery Target, such Drug Discovery Target shall no longer be counted toward the
maximum number of Drug Discovery Targets and Reserved Targets permitted by this Section 6.9. Effective as of the [***] anniversary of the expiration of the Antisense
Drug Discovery Term, no Target shall be deemed a Reserved Target for purposes of this Agreement. 

 
 

ARTICLE 7
  
    DEVELOPMENT, COMMERCIALIZATION, MANUFACTURING AND SUPPLY    
  

        7.1    Research Supply.    Isis shall supply Reagent ASO Compounds, 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 Reagent ASO Compound, 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 Reagent ASO Compounds, Validation ASO Compound and/or Drug Discovery ASO Compound in accordance with the specifications set out in the Collaborative Research
Plan.[***] after receipt of such Reagent ASO Compound, 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 Reagent ASO Compound, Validation ASO Compound or Drug Discovery ASO Compound
requested by and delivered to Lilly in any one order. For any quantities of Reagent ASO Compound, Validation ASO Compound or Drug Discovery ASO Compound requested by and delivered to Lilly
[***] 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 Reagent ASO Compound, 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 Reagent ASO
Compound, 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 Reagent ASO Compound,
Validation ASO Compound or Drug Discovery ASO Compound. Isis will also provide any information and documentation on such Reagent ASO Compound, Validation ASO Compound or Drug Discovery ASO Compound
that is required by regulatory authorities. Isis will supply any such Reagent ASO Compound, 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 Reagent ASO Compound, Validation ASO
Compound or Drug Discovery ASO Compound to Lilly or if Lilly determines to obtain supply of any such Reagent ASO Compound, 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. 

        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. 

15

  

 
 

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 

        (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 

16

 

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
during the Target Validation Program Term and [***] year thereafter, 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 [***] 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. 

         (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
CSAG Approval 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 

17

 

Compound 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
six (6) month period Lilly shall have no obligation to provide such summary reports to Isis. 

         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 if
Lilly does not extend the Oncology Term in accordance with Section 13.1.2(a), Lilly's option under this
Section 8.2.3 shall be exercisable only (A) for a period of [***] after the expiration of the Oncology Term with respect to any Drug Discovery Target in the
Collaboration Therapeutic Area of oncology that was a Stage I Drug Discovery Target at the time it became a Drug Discovery Target hereunder, and (B) during the Oncology Term with respect to any
Drug Discovery Target in the Collaboration Therapeutic Area of oncology that was a Stage II or Stage III Drug Discovery Target at the time it became a Drug Discovery Target hereunder;  further 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 CSAG Approval 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
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 

18

 

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. 

        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. 

        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 

19

 

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. 

        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 

20

 

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; 

         (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 [***] 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
[***] 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 two (2) 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. 

        8.7    Isis GeneTrove Database Subscription.    Until November 1, 2001, Lilly shall have the right to become
[***] for the GeneTrove Database for a period of [***] [***] During such [***] month period, Lilly shall
have the option of becoming a subscriber to the Genetrove Database [***] and otherwise upon the terms and conditions set forth in  Schedule 8.7 hereto and thereafter, during the Collaboration
Term, Lilly shall have the option of becoming a subscriber to the GeneTrove Database
[***] preceding Lilly's exercise of such option for a comparable subscription. 

        8.8    Technology Transfer.    Upon expiration or termination (other than for breach by Lilly) of the Collaboration
Term, Lilly shall have the option to obtain a non-exclusive license, including the right to sublicense solely in connection with the grant of a license to develop, make, use, import, offer
for sale and sell Lilly Products, to use the Isis Technology described in Schedule 8.8 hereto on the terms set forth in such  Schedule 8.8.

21

  

        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 [***] 

        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 Reagent Target, Validation
Target or Drug Discovery Target is subject to restrictions on Isis' use of such Target outside the Collaboration pursuant to Section 4.3, 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 or 8.3, Isis shall not [***] The Parties acknowledge that, as of the Restatement Date,
neither Party has committed to [***] However, upon mutual written agreement of the Parties during the Collaboration Term, the Reagent Provision Program, Target Validation
Program and/or Antisense Drug Discovery Program, as applicable, may be expanded to include activities directed to [***]. 

 
 

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. 

         9.1.1    Collaboration FTEs.    Collaboration FTEs shall be billed against the Collaboration Funds at the FTE Rate.
Each Party 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 Collaboration Term, each
Party shall submit to the other Party within [***] days following each Calendar Quarter a written statement accompanied by a certificate signed by the Vice President of Finance
or Director of Finance on behalf of Isis, or in the case of Lilly, the Director of Finance for Lilly Research Laboratories (or successor positions), setting forth (i) the number of
Collaboration FTEs dedicated to work on the Collaboration for the previous Calendar Quarter, (ii) the dollar amount of Collaboration Funds expended during the Calendar Quarter for which the
report is made and the subject matter of such expenditures; and (iii) a description of the activities conducted. Isis will also include in such report to Lilly the beginning balance of
Collaboration Funds for such Calendar Quarter. Within [***] days of receipt of Lilly's report for any Calendar Quarter, Isis shall submit to Lilly an additional written
statement, accompanied by a certificate signed by the Vice President of Finance or Director of Finance of Isis, setting forth the amount of Collaboration Funds expended in the preceding Calendar
Quarter, the ending balance of Collaboration Funds at the end of such Calendar Quarter and the total amount of monies to be reimbursed to Lilly by Isis from Collaboration Funds for expenses incurred
by Lilly under the Collaboration. Isis shall reimburse Lilly concurrently with the delivery 

22

 

of the report under the preceding sentence. Such reimbursement shall be made by wire transfer to an account designated by Lilly. 

         9.1.2    Reagents.    Isis shall charge the Collaboration Funds for Reagent ASO Compounds provided to Lilly by Isis
under the Reagent
Provision Program at the Isis HTS Standard Cost or Isis RTS Standard Cost, as applicable, in accordance with the provisions of Section 9.1.1. 

        9.1.3    Protected Targets.    For each Target that Lilly designates as a Protected Target pursuant to Section 4.4
(ii), Lilly shall pay
to Isis an premium amount that [***] of the amount that is charged by Isis against the Collaboration Funds under Section 9.1.2 with respect to ASO Compounds to such
Protected Target. Such premium amount shall be paid by Lilly within thirty (30) days after (i) Lilly or the Collaboration receives such ASO Compound to such Protected Target and
(ii) Isis notifies Lilly that the Collaboration Funds have been charged for delivery of such ASO Compounds, such notice also specifying the amount charged against the Collaboration Funds for
such ASO Compounds. For avoidance of doubt, the premium amount paid by Lilly pursuant to Section 9.1.3 shall not be charged against the Collaboration Funds. 

         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 one (1) time per year. 

         9.1.5    Increase in Loan Commitment.    Lilly and Isis have agreed on the Lilly Loan commitment and the Loan
Disbursement schedule set forth
in the Loan Agreement based on the mutual understanding of Lilly and Isis that that Loan commitment and Loan Disbursement schedule will provide Collaboration Funds on a timely basis to allow
completion of the Collaboration activities during the initial term of the Collaboration as set forth in this Agreement. If, pursuant to Subsection 2.5.2(g), the Executive Committee recommends to Lilly
that an increase in Collaboration Funds is desirable to cover Collaboration efforts during the initial four (4) year term of the Collaboration as a result of expanding the therapeutic area
focus of the Collaboration, Lilly may at its sole option either increase the Loan commitment under the Loan Agreement or pay cash to provide sufficient Collaboration Funds to cover such expanded area
of focus, and Lilly and Isis agree to execute such amendments to the Loan Agreement as are necessary to cover the increased Loan commitment and adjustments in the Loan Disbursement schedule. The
Parties acknowledge that as a result of expanding the therapeutic area focus of the Collaboration to include oncology there may need to be an increase in the total amount of the Collaboration Funds.
Before the commencement of the fourth (4th) year of the Collaboration, the Executive Committee shall determine whether there are sufficient Collaboration Funds to fulfill the objectives
and funding amount of the Collaborative Research Plan, as approved by the Executive Committee, through the end of the fourth (4th) year of the Collaboration. If there are insufficient
Collaboration Funds to meet the objectives and funding amount of the Collaborative Research Plan as approved by the Executive Committee, then Isis shall have the right to cause Lilly to increase the
Collaboration Funds to the total funding amount as specified in such approved Collaborative Research Plan; provided, however, the amount that the
Collaboration Funds may be increased above the original Loan amount as provided in the Loan Agreement shall not exceed the total amount of the sum of (i) the Collaboration Funds actually spent
on the oncology 

23

 

Collaboration Therapeutic Area before the commencement of the fourth (4th) year of the Collaboration plus (ii) the Collaboration Funds allocated to the oncology Collaboration
Therapeutic Area in the Collaborative Research Plan approved by the Executive Committee for the fourth (4th) year of the Collaboration, and further
provided, that Lilly may at its sole option either increase the Loan commitment under the Loan Agreement or pay cash to provide sufficient Collaboration Funds to cover such
additional Collaboration Funds. 

         9.1.6    Modifications to Loan Disbursement Schedule.    While not expected, if for any reason there is a substantial
acceleration or delay in
the conduct of Collaboration activity from the Collaborative Research Plan used in determining the Loan Disbursement schedule set forth in the Loan Agreement, the Executive Committee shall recommend
modifications to Lilly in the Loan Disbursement schedule as appropriate to reflect the resulting acceleration or delay in the need to provide Collaboration Funds, and, if such recommended
modifications are acceptable to Lilly, then Lilly and Isis agree to execute such amendments to the Loan Agreement as are appropriate to reflect the changes recommended by the Executive Committee to
the Loan Disbursement schedule. 

         9.1.7    Action by Executive Committee.    If either Party believes that activity by the Executive Committee pursuant
to Section 9.1.5
or 9.1.6 is appropriate, it shall so notify the other Party in writing, and the Parties will cooperate in calling an Executive Committee meeting to consider such matters at the earliest feasible time
thereafter. 

        9.1.8    Payment of Royalty Reduction Fee.    Lilly shall pay to Isis One Million and [***] 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 [***] or another Drug Discovery Target if [***] becomes an Abandoned Drug Discovery Target, as more fully described in
Section 9.4.2. 

        9.2    Technology Access Fee.    If Lilly is conducting any research, development or commercialization activities
relating to any Lilly Product as of the fourth (4th) 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
thirty (30) days after the fourth (4th) 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. 

        Capitalized
terms used in this Section 9.2 that are not defined in this Agreement shall have the meanings set forth in the Loan Agreement. 

         9.2.2    Credits Against Technology Access Fee    [***] 

24

 

        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 one percent [***] 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 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 

25

 

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 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 

26

 

Right or Isis Patent Right that includes a Valid Claim that Covers such Reagent ASO Product or Validation ASO Product, as applicable: 

	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 [***] 

         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: 

	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 

27

 

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 [***] 

        9.4    Pass Through Royalties.    [***] 

        9.4.1    [***] 

        9.4.2    [***] 

        9.4.3    [***] 

        9.4.4    [***] 

        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 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 Elan, 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. 

28

 

        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 [***] 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: 

	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 [***] days 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 

29

 

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 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 [***]. 

        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 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. 

30

  

        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 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. 

31

 

        10.2    Permitted Disclosure of Confidential Information.    Notwithstanding Section 9.1, 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. 

 
 

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; 

32

 

         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; 

        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 a Collaboration Therapeutic Area 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; 

33

 

         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 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 not 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 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 

34

 

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 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 

35

 

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 completion of the Collaboration, 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, through their interactions on the
Executive Committee and the IP Committee, 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. With respect to inventions arising in the
course of the Collaboration, and when appropriate, the Parties shall file patent applications containing ASO Compound composition of matter claims and claims directed to the use of such ASO Compound
(each, an "ASO Composition of Matter Patent Right") separately from patent applications containing all other claims, including, without 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 ASO Composition of Matter Patent Right solely owned by Isis unless such ASO Composition of
Matter Patent Right is exclusively licensed to Lilly under Article 8 in which case the terms of Section 12.6 shall apply; provided,
however, that the Parties shall reimburse [***] of Isis' external costs of filing, prosecuting, maintaining and extending ASO Composition of Matter
Patent Rights claiming Drug Discovery ASO Compounds and/or the use of Drug Discovery ASO Compounds directed to a Drug Discovery Target until such time as either such Target ceases to be a Drug
Discovery Target for purposes of this Agreement, Lilly exclusively licenses such ASO Composition of Matter Patent Right, or Lilly elects to discontinue such reimbursement pursuant to
Section 12.6. 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 Lilly Collaboration Patent Rights. The 

36

 

Executive Committee shall designated 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. Each Party shall provide the IP Committee 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 IP Committee. 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 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. 

        12.4    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 Controlled by such Party Covering a Product being developed or commercialized by the other Party hereunder or of any Collaboration Patent Right, 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. In addition, such Party so continuing shall cease to have any obligation to pay royalties to the Initial Responsible Party under this
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. 

37

 

        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, 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; provided, however, Lilly shall
be responsible [***] of Isis' external costs of filing, prosecuting, maintaining and extending such Isis Collaboration Patent Rights incurred on and after such time as any Isis
Collaboration Patent Right is exclusively licensed to Lilly under Article 8. 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 [***] 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 the product shall determine which patents shall be extended. 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 one (1) 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 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 

38

 

such certification. Lilly may then, but is not required to, bring suit against the 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 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 owner of the Collaboration
Know-How or 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 Patent Right or 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. 

39

  

         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 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. 

 
 

ARTICLE 13
  
    TERM AND TERMINATION    
  

        13.1    Term of Collaboration.    

         13.1.1    The Collaboration Term.    The Collaboration Term shall become effective on the Effective Date and shall
continue in effect for four
(4) years unless terminated in accordance with this Article 13. Prior to the close of the Collaboration Term, Lilly shall have the option to extend each or all of the Reagent Provision
Program Term, Target Validation Program Term, and/or the 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 Reagent Provision Program Term, Target Validation Program Term, and/or 

40

 

the 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 Reagent Provision Program Term, Target Validation Program Term, and/or the Drug Discovery Program Term. If the Reagent Provision Program Term, Target
Validation Program Term, and/or the 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) such funding amount shall be the same as provided in this Agreement for the Reagent Provision
Program, Target Validation Program, and/or the Drug Discovery Program, as applicable, such funding amount adjusted for the reduction in the duration of the extension period as compared to the original
Collaboration Term. 

         13.1.2    Oncology Collaboration Therapeutic Area.    The Oncology Term shall commence on the Restatement Date and
shall continue in effect
for two (2) years thereafter unless terminated in accordance with this Article 13. 

        (a)    Extension.    Lilly may, in its sole discretion, extend the Oncology Term to the end of the initial four
(4) year Collaboration
Term by providing written notice to Isis at least six (6) months before the expiration of the Oncology Term. If Lilly extends the Oncology Term the Parties shall promptly discuss and agree to
an amended Oncology Research Plan that shall be focused on the discovery and development of ASO Compounds in the area of oncology. Such amended Oncology Research Plan shall be deemed a part of the
Collaborative Research Plan and shall provide for (i) a mutually agreed upon number of Isis Collaboration FTEs to work on the objectives of the amended Oncology Research Plan, but in no event
less than [***] such Isis Collaboration FTEs and (ii) an amended number of Reserved Targets and Drug Discovery Targets as provided in Section 6.9. 

         (b)    Termination.    If (i) the Drug Discovery Target Survivin is designated an Abandoned Drug Discovery Target
during the first
eighteen (18) months of the Oncology Term or (ii) Lilly elects to discontinue Phase III Clinical Trials on Isis 3521, Lilly shall have the option of terminating the Oncology Term
effective upon six (6) months' advance written notice to Isis. If Lilly exercises its option to terminate under this Section 13.1.2(b) oncology shall cease to be a Collaboration
Therapeutic Area as of the effective date of such termination. Upon the effective date of such termination, the Joint Research Committee shall reassign the Isis Collaboration FTEs assigned to the
Collaboration Therapeutic Area of oncology to the remaining Collaboration Therapeutic Areas for the remainder of the Oncology Term. 

        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. 

        13.3    Termination of Collaboration Upon Change of Control.    Lilly has the right to terminate the Collaboration
prior to the fourth (4th) anniversary after the Effective Date 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 all of the Reagent Provision Program, 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 Reagent Provision Program, Target Validation Program and/or 

41

 

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 all of the Reagent Provision Program, 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 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. 

42

 

        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; 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; and 

         (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. 

        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 and 8.3 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; 

43

 

        (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 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
[***] 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; 

         (h)  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; 

         (i)    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; 

         (j)    the Technology Transfer described in Section 8.8 shall (i) occur immediately upon termination under this Section by Lilly,

(ii) be at no cost to Lilly and (iii) Lilly shall have the right to practice such technology so transferred for research, development and commercialization purposes; and 

44

 

         (k)  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. 

        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, 8.2, 8.4 and 8.5 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. 

 
 

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 

45

 

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 Joint Research Committee shall establish a procedure for publication review and approval and each Party shall first submit to the Joint Research 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 Joint Research 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 receipt of an advance copy of a Party's proposed publication, the Joint Research 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 Joint Research 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 Joint Research 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 Joint Research Committee fails to approve of such Party's proposed publication, then such proposed publication shall be regarded as denied by the Joint Research Committee and
shall not be published. 

46

  

 
 

ARTICLE 15
  
    HART-SCOTT-RODINO FILING    
  

        15.1    HSR Act Compliance.    Notwithstanding anything to the contrary in this Agreement, the Effective Date of this
Agreement and commencement of the Collaboration shall not occur until such time as (1) the Parties shall have complied with all applicable requirements of the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended the "HSR Act"); (2) the waiting period under the HSR Act shall have expired or earlier been terminated;
(3) no judicial or administrative proceeding opposing consummation of all or any part of this Agreement shall be pending; (4) no injunction (whether temporary, preliminary or permanent)
prohibiting consummation of the transactions contemplated by this Agreement or any material portion hereof shall be in effect; and (5) no requirements or conditions shall have been imposed in
connection therewith which are not reasonably satisfactory to the Parties (collectively, the "HSR Conditions"). 

        15.2    Cooperation on Filing.    Both Lilly and Isis shall file, as soon as reasonably practicable after the
Effective Date of this Agreement, with the Federal Trade Commission ("FTC") and the Antitrust Division of the United States Department of Justice
("DOJ") the notification and report form ("Report") required of each of them in the reasonable opinion
of either or both Parties under the HSR Act with respect to the transactions described in this Agreement and any other agreements between the Parties contemplated hereby (collectively, the  "Transactions"). Each Party shall cooperate with the other to the extent necessary to assist the other Party in the preparation of its Report and to
proceed to obtain necessary approvals under the HSR Act to complete the Transactions including, but not limited to, the expiration or earlier termination of any and all applicable waiting periods
required by the HSR Act ("Required Approval"). Each Party will use reasonable efforts to obtain the Required Approval. Each Party shall use reasonable
good faith efforts to assist the other Party in eliminating any concern on the part of any court of governmental authority regarding the legality of the Transactions. Such assistance shall include, if
required by federal or state antitrust authorities, such Party's taking all reasonable steps to secure Required Approval. The other Party shall cooperate in good faith, at its own cost, with any
government investigation regarding the legality of the Transactions and promptly produce documents, witnesses, and information demanded by the FTC or DOJ, whether by informal request or by formal HSR
Act Second Request or other legal process; provided, however, that neither Party shall be obligated to proceed to seek Required Approval if it has
received a second request for documents that it determines is unreasonably burdensome or costly with which to comply; and provided, further, that
neither Party shall be obligated to proceed with litigation if the transaction is challenged by the FTC or the DOJ. If either Party determines that it does not wish to proceed with the Report process,
either because of a burdensome second request or litigation, the Parties will discuss in good faith whether there are any modifications to the Agreement or any other agreement between the Parties
contemplated hereby that will avoid antitrust issues and facilitate obtaining the Required Approval. Neither Party shall be obligated in any way to engage in further negotiations of the terms of this
Agreement or any other agreement between the Parties contemplated hereby, even if modifications are identified that will facilitate obtaining Required Approval. If an unreasonably burdensome request
is received or litigation is commenced, either Party may terminate this Agreement. 

 
 

ARTICLE 16
  
    MISCELLANEOUS    
  

        16.1    Key Personnel.    During the Collaboration Term, Isis shall inform Lilly [***] leave
the employ of Isis. In 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, 

47

 

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(a) to any successor by merger or sale of substantially all of its business unit to which this Agreement relates, or in the event of its merger or consolidation or change in control
or similar transaction. 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 

48

 

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 

with a copy to:

Attention:
General Deputy 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 Loan Agreement,
Registration Rights Agreement and the Securities Purchase Agreement, constitutes 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 or Joint Research 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 or Joint Research 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 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. 

49

 

        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] 

50

 

        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/  AUGUST M. WATANABE      
 August M. Watanabe

Executive Vice President

Science and Technology	
 	

By:	
 	

/s/  B. LYNNE PARSHALL      
 B. Lynne Parshall

Executive Vice President and Chief Financial Officer

[SIGNATURE PAGE TO COLLABORATION AGREEMENT]  

51

 
 

List of Schedules    
  

	Schedule 1.1	 	Definitions
	

Schedule 2.2	
 	

Collaborative Research Plan
	

Schedule 2.5	
 	

Initial Members of Executive Committee
	

Schedule 2.6	
 	

Initial Members of Joint Research Committee
	

Schedule 2.9	
 	

Initial Alliance Managers
	

Schedule 8.7	
 	

GeneTrove Database Subscription Terms
	

Schedule 8.8	
 	

Technology Transfer Terms
	

Schedule 9.4.3	
 	

Milestones and Royalties under Section 9.4.3 and 9.4.4
	

Schedule A	
 	

Existing Isis Internal Programs
	

Schedule B	
 	

Isis Manufacturing Patent Rights
	

Schedule C	
 	

Isis Core Technology Patent Rights

  

 
 

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. 

        [***]

        "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. 

        "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. 

        "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. 

1.1-1

 

        "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. 

        "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 (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 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, collectively, the Reagent Provision Program, the Target Validation Program and the Antisense Drug Discovery
Program. 

        "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" shall mean the Isis Collaboration Patent Rights, the Lilly Collaboration Patent Rights and the Joint
Collaboration Patent Rights. 

        "Collaboration Term" means the term of the collaborative research efforts carried out pursuant to this Agreement and any extension
thereof. 

        "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. 

        "Compulsory License" shall mean, 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 

1.1-2

 

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 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. 

        "CSAG Approval" means [***] 

        "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 Joint Research 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. 

1.1-3

 

        "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 Joint Research 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. 

        "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. 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 [***] (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 Joint Research 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. 

        "FTE Rate" [***] 

        "GeneTrove Database" means Isis' proprietary GeneTrove Human Gene Function Database consisting, without limitation, of data from the study
of the effect of gene-specific inhibition of up to 10,000 human genes in a set of human cell-based pharmacology assays utilizing Isis' proprietary antisense technology, and
software appropriate for storing, viewing and performing queries on the incorporated data. 

        "GeneTrove Database Queue" means those human genes which have been identified and prioritized in Isis' HTS and RTS queue to begin the work
required to identify a lead antisense oligonucleotide. The GeneTrove Database Queue will contain the number of genes which can reasonably be screened within three to six months using Isis' combined
RTS and HTS resources. 

        "HTS Standard Cost" [***] 

        [***] 

1.1-4

 

        "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. 

        "IP Committee" has the meaning provided in Section 2.7.2. 

        "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 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 the Effective Date or 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 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 

1.1-5

 

oligonucleotide promotes RNA cleavage. The Isis Core Technology Patent Rights that exist as of the 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. The existing Isis Internal Programs in the
Collaboration Therapeutic Areas as of the date of this Agreement are listed in Schedule A. 

        "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 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 

1.1-6

 

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 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 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. 

        "Joint Research Committee" means the committee established pursuant to Section 2.6. 

        "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. 

        "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. 

1.1-7

 

        "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. 

        "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: 

        (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 

1.1-8

 

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
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. 

        [***]

1.1-9

 

        "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, as more fully described in Section 13.1.2. 

        "Operating Committees" has the meaning provided in Section 2.7. 

        "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. 

        "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" [***] 

        "Project Sanction Approval" means [***] 

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

        "Protected Target" has the meaning set forth in Section 4.4. 

        "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 this Agreement, as described in Section 2.2, Article 4 and the Collaborative Research Plan. 

1.1-10

 

        "Reagent Provision Term" means the term of the Reagent Provision Program carried out pursuant to this Agreement and any extension thereof. 

        "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 date set forth in the first paragraph of this 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. 

        "RTS Standard Cost" for any Reagent ASO Compound for any year of the Collaboration Term means [***] 

        "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. 

        "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. 

1.1-11

 

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

        [***]

1.1-12

  

 
 

SCHEDULE 2.2
  
    COLLABORATIVE RESEARCH PLAN    
  

        [***] 

2.2

  

 
 

SCHEDULE 2.5
  
    INITIAL MEMBERS OF THE EXECUTIVE COMMITTEE    
  

	Lilly
	 	Isis

	[***]	 	[***]
	[***]	 	[***]
	[***]	 	[***]

2.5

  

 
 

SCHEDULE 2.6
  
    INITIAL MEMBERS OF THE JOINT RESEARCH COMMITTEE    
  

	Lilly
	 	Isis

	[***]	 	[***]
	[***]	 	[***]
	[***]	 	[***]

2.6

  

 
 

SCHEDULE 2.9
  
    INITIAL ALLIANCE MANAGERS    
  

	Lilly
	 	Isis

	[***]	 	[***]

2.9

  

 
 

SCHEDULE 8.7
  
    GENETROVE DATABASE SUBSCRIPTION TERMS    
  

[***]

8.7

  

 
 

SCHEDULE 8.8
  
    TECHNOLOGY TRANSFER TERMS    
  

[***] 

8.8

 
 

SCHEDULE 9.4.3
  
    MILESTONES AND ROYALTIES UNDER SECTION 9.4.3 AND 9.4.4    
  

	MILESTONE PAYMENTS[
 
	 	
	 	

	[***]	 	 	 	 
	

    	
 	

 	
 	

 
	

    	
 	

 	
 	

 
	

    	
 	

 	
 	

 
	

    	
 	

 	
 	

 
	

    	
 	

 	
 	

 
	 	

[***]	
 	

 	
 	

 
	

 	
 	

 	
 	

 
	

 	
 	

 	
 	

 
	 	

[***]	
 	

 	
 	

 

8.8

 
 

SCHEDULE A
  
    EXISTING ISIS INTERNAL PROGRAMS    
  

[***] 

A

[***] 

 
 

ADDITIONAL EXISTING ISIS INTERNAL PROGRAMS IN THE AREA OF
  ONCOLOGY AS OF THE RESTATEMENT DATE    
  

TO
BE CONFIRMED 

[***]

A

  

 
 

SCHEDULE B
  ISIS MANUFACTURING PATENT RIGHTS    
  

[***] 

B-1

  

 
 

SCHEDULE C
  
    ISIS CORE TECHNOLOGY PATENT RIGHTS    
  

[***] 

C-1

QuickLinks

AMENDED AND RESTATED COLLABORATION AGREEMENT

RECITALS

AGREEMENT

ARTICLE 1 DEFINITIONS

ARTICLE 2 COLLABORATION OVERVIEW AND GOVERNANCE

ARTICLE 3 THE COLLABORATION

ARTICLE 4 THE REAGENT PROVISION PROGRAM

ARTICLE 5 THE DRUG DISCOVERY TARGET VALIDATION PROGRAM

ARTICLE 6 THE ANTISENSE DRUG DISCOVERY PROGRAM

ARTICLE 7 DEVELOPMENT, COMMERCIALIZATION, MANUFACTURING AND SUPPLY

ARTICLE 8 GRANT OF RIGHTS

ARTICLE 9 PAYMENTS AND ACCOUNTING

ARTICLE 10 CONFIDENTIALITY

ARTICLE 11 DISCLAIMERS, REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS

ARTICLE 12 INTELLECTUAL PROPERTY

ARTICLE 13 TERM AND TERMINATION

ARTICLE 14 PUBLICITY

ARTICLE 15 HART-SCOTT-RODINO FILING

ARTICLE 16 MISCELLANEOUS

List of Schedules

SCHEDULE 1.1 DEFINITIONS

SCHEDULE 2.2 COLLABORATIVE RESEARCH PLAN

SCHEDULE 2.5 INITIAL MEMBERS OF THE EXECUTIVE COMMITTEE

SCHEDULE 2.6 INITIAL MEMBERS OF THE JOINT RESEARCH COMMITTEE

SCHEDULE 2.9 INITIAL ALLIANCE MANAGERS

SCHEDULE 8.7 GENETROVE DATABASE SUBSCRIPTION TERMS

SCHEDULE 8.8 TECHNOLOGY TRANSFER TERMS

SCHEDULE 9.4.3 MILESTONES AND ROYALTIES UNDER SECTION 9.4.3 AND 9.4.4

SCHEDULE A EXISTING ISIS INTERNAL PROGRAMS

ADDITIONAL EXISTING ISIS INTERNAL PROGRAMS IN THE AREA OF ONCOLOGY AS OF THE RESTATEMENT DATE

SCHEDULE B ISIS MANUFACTURING PATENT RIGHTS

SCHEDULE C ISIS CORE TECHNOLOGY PATENT RIGHTSQuickLinks
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CONFIDENTIAL TREATMENT REQUESTED

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

 
 

SECOND AMENDMENT TO
  RESEARCH COLLABORATION AND LICENSE AGREEMENT    
  

        This second amendment ("Amendment") to the Research Collaboration And License Agreement is made and effective this 19th day of April, 2002 between Merck &
Co., Inc., a corporation organized and existing under the laws of New Jersey ("Merck") and Isis Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware
("Isis") together referred to as the "Parties". 

WITNESSETH:  

        WHEREAS, Merck and Isis have entered into a Research Collaboration And License Agreement effective as of June 1, 1998 and agreed to extend the Research
Program Term in a First Amendment dated February 28, 2001(collectively "License Agreement"). Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to them
in the License Agreement. 

        WHEREAS,
the Extended Research Program Term is to expire on June 1, 2002; and 

        WHEREAS,
the PARTIES desire to further extend the Extended Research Program Term; 

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

	1.
	Isis
and Merck shall extend their engagement in the Extended Research Program upon the terms and conditions set forth in this Amendment. The activities to be undertaken in the course
of the Extended Research Program are set forth in Article II and in Attachment 2.1 of the License Agreement as modified by this Amendment.

	2.
	The
Extended Research Program Term shall be one year, from June 1, 2002 to May 31, 2003.

	3.
	In
consideration for Isis's performance of its obligations under the Research Program as amended, Merck shall pay Isis: (a) an amount equal to [***] The
first such installment shall be due no later than June 30, 2002. The remaining installments shall be due at the end of each succeeding calendar quarter.

	4.
	During
the Extended Research Program Term, Isis shall dedicate the efforts of [***] FTEs.

	5.
	Within
thirty (30) days of the execution of this Amendment, Merck shall make a payment to Isis of [***]dollars in full satisfaction of the obligation set
forth in by Section 5.3.7 of the Agreement.

	6.
	Replace
Section 5.3.2 in its entirety with new 5.3.2: 

5.3.2.(new)  The
Milestones set forth in Section 5.3.1 shall be paid for the first HCV Human Product. In the event a second HCV Human Product is being developed in addition to the
first HCV Human Product, a Milestone of [***]upon approval by Merck's Research Management Committee (or its successors) in its sole discretion, of a
[***]and the Milestones in Sections 5.3.1(d) and (e) will be paid for the second HCV Human Product. No additional Milestone payments will be made on any other HCV Human
Products. 

	7.
	Should
Merck determine at any time during the Extended Research Program Term that productivity of the Isis personnel is not reasonably expected to adequately satisfy the objectives of
the Research Program, then Merck may terminate the extended Research Program on ninety (90) days written notice. Such termination of the extended Research Program shall not terminate the
License Agreement.

	8.
	From
and after the date first written above, all references in the License Agreement to "this Agreement" or "this License Agreement", "hereunder", "hereof", "herein" or words of
similar import, shall be reference to the License Agreement, as amended by this Second Amendment. 

 

Except
as expressly amended by this Second Amendment, the License Agreement remains in full force and effect and unchanged. 

	9.
	The
Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

        IN
WITNESS WHEREOF, the Parties have executed this Amendment as of the date first set forth above. 

	MERCK & CO., INC.	 	ISIS PHARMACEUTICALS, INC.
	

BY:	
 	

/s/  PETER S. KIM          
	
 	

BY:	
 	

/s/  B. LYNNE PARSHALL          

	Name	 	 	 	Name:	 	B. Lynne Parshall
	Title:	 	 	 	Title:	 	Executive Vice President

2

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SECOND AMENDMENT TO RESEARCH COLLABORATION AND LICENSE AGREEMENT

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