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CONFIDENTIAL TREATMENT REQUESTED

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

Exhibit 10.54  

 
 

SECURITY AGREEMENT    
    

        THIS SECURITY AGREEMENT (this "Agreement") is made and entered
into as of this 21 day of December, 2004 by and between ISIS PHARMACEUTICALS, INC., a subsisting corporation under the laws of the State
of Delaware ("ISIS"), and DRUG ROYALTY USA, INC., a subsisting corporation under the laws of the
State of Nevada ("DRC"). 

RECITALS:  

	A.
	ISIS and DRC are parties to the Sale and Assignment Agreement.

	B.
	ISIS has covenanted pursuant to the terms of the Sale and Assignment Agreement to enter into this Agreement, under which ISIS grants to
DRC a first priority security interest in and to the Collateral as general and continuing security for the due performance and payment of all of ISIS' obligations to DRC under the Sale and Assignment
Agreement. 

        NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ISIS covenants, acknowledges,
represents and warrants to and in favor of DRC as follows: 

        SECTION 1.    Definitions.    

        For
purposes of this Agreement, capitalized terms used herein shall have the meanings set forth in Schedule 1 hereto. 

        SECTION 2.    Grant of Security.    

        ISIS
hereby grants to DRC a continuing security interest in and lien on all right, title and interest of ISIS in and to the following personal property, whether now or hereinafter
existing, whether tangible or intangible and wherever the same may be located (collectively, the "Collateral"): 

        (a)   the
Patent Collateral; 

        (b)   the
License Agreement, including, without limitation, (i) all rights of ISIS to receive moneys due or to become due under or pursuant to the License Agreement,
(ii) all rights of ISIS to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the License Agreement, (iii) all claims of ISIS for damages arising out of
any breach of or default under the License Agreement, and (iv) all rights of ISIS to terminate, amend, supplement, modify or exercise rights or options under the License Agreement, to perform
thereunder and to compel performance and otherwise exercise all remedies thereunder; 

        (c)   if
any court or other tribunal of competent jurisdiction determines that the Assigned Rights or any of the payments with respect thereto are property of ISIS or its
bankruptcy estate, the Assigned Rights; and 

        (d)   all
proceeds, products, royalties, payments, property and license fees of or from any and all of the foregoing collateral (excluding, for greater certainty, the Royalty
Interest unless paragraph (c) above applies) and, to the extent not otherwise included, all payments under insurance (whether or not DRC is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, excluding (i) all proceeds and other consideration arising under Permitted
Licenses of the Patent Collateral and (ii) the milestone payments pursuant to Sections 3.1.1 and 3.1.2 of the License Agreement. 

 

        Subject
to the terms and conditions of this Agreement, in no event shall the granting of a security interest in the Collateral pursuant hereto be construed to limit or otherwise restrict
ISIS' ability to exploit (including through granting Permitted Licenses) the Patents and the Licensed Patent Rights for any purposes outside the Field. 

        Each
item of Collateral listed in this Section 2 that is defined in Articles 8 or 9 of the UCC, shall have the meaning set forth in the UCC, it being the intention of ISIS that
the description of the Collateral set forth above be construed to include the broadest possible range of assets, except for assets expressly excluded as set forth in this Agreement. 

        SECTION 3.    Security for Obligations.    

        This
Agreement secures, and the Collateral charged by ISIS is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Subsection
362(a) of the Bankruptcy Code), of all Secured Obligations of ISIS. 

        SECTION 4.    ISIS to Remain Liable.    

        Anything
contained herein to the contrary notwithstanding, (a) ISIS shall remain liable under any contracts, licenses and agreements included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by DRC of any of its rights hereunder
shall not release ISIS from any of its
duties or obligations under the contracts, licenses and agreements included in the Collateral, and (c) DRC shall not have any obligation or liability under any contracts, licenses and
agreements included in the Collateral by reason of this Agreement, nor shall DRC be obligated to perform any of the obligations or duties of ISIS thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder. 

        SECTION 5.    Representations and Warranties.    

        ISIS
represents and warrants as follows: 

        (a)   Ownership of Collateral.    Except as expressly permitted by the Sale and Assignment Agreement and for the
security interest created by this Agreement, ISIS owns the Collateral free and clear of any lien. Except as expressly permitted by the Sale and Assignment Agreement and such as may have been filed in
favor of DRC relating to this Agreement, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. 

        (b)   Office Locations; Type and Jurisdiction of Organization.    The chief place of business, the chief executive
office and the office where ISIS keeps its records regarding the Collateral are, as of the date hereof, located at the locations set forth on Schedule 5(b); ISIS' type of organization (i.e.
corporation, limited partnership, etc.), jurisdiction of organization and organization number provided by the applicable government authority of the jurisdiction of organization are listed on
Schedule 5(b). 

        (c)   Names.    ISIS (or any predecessor by merger or otherwise) has not, within the four month period preceding the
date hereof, had a different name from the name listed on the signature pages hereof. 

        (d)   Patent Collateral.

        (i)    a
true and complete list of all patent applications and registered patents comprising the Licensed Patent Rights is set forth in Schedule 5(d)(i); and 

        (ii)   the
representations and warranties made by ISIS pursuant to Subsection 2.1 (g) of the Sale and Assignment Agreement shall be deemed to be incorporated herein by
reference 

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and
form part of this Agreement with all references therein to Schedule "E" changed to Schedule 5(d)(i) and all other applicable changes as the context requires. 

        (e)   Perfection.    ISIS intends for the security interests in the Collateral granted to DRC hereunder to constitute
valid security interests in the Collateral, securing the payment of the Secured Obligations. Upon (i) the filing of UCC financing statements naming ISIS as "debtor", naming DRC as "secured
party" and describing the Collateral in the filing offices with respect to ISIS set forth on Schedule 5(e), and (ii) in the case of the Patent Collateral, in addition to the filing of
such UCC financing statements, the filing of a grant of patent security interest, substantially in the form of Exhibit I annexed hereto, with a national Patent Office anywhere in the world,
including but not limited to, the United States Patent and Trademark Office (such Grant of Patent Security Interest being referred to herein as the
"Grant"), the security interests in the Collateral granted to DRC are intended by ISIS to constitute perfected security interests therein prior to all
other liens and security interests. Without limiting the generality of the foregoing, ISIS agrees that it shall not, and shall not assist or encourage any third party to, challenge or contest the
validity, attachment, perfection or priority of the security interests in the Collateral granted to DRC hereunder. 

        SECTION 6.    Further Assurances.    

        (a)   Generally.    ISIS agrees that from time to time, at the expense of ISIS, ISIS will promptly execute and
deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that DRC may request, in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable DRC to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, ISIS
will: (i) (A) execute and file such financing or continuation statements, or amendments thereto, (B) execute and deliver, and cause to be executed and delivered, agreements establishing
that DRC has control of specified items of Collateral and (C) deliver such other instruments or notices, in each case, as may be necessary or desirable, or as DRC may request, in order to
perfect and preserve the security interests granted or purported to be granted hereby, (ii) furnish to DRC from time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as DRC may reasonably request, all in reasonable detail, (iii) at DRC's request, appear in and defend any action or
proceeding that may affect ISIS' title to or DRC's security interest in all or any part of the Collateral, and (iv) use commercially reasonable efforts to obtain any necessary consents of third
parties to the assignment and perfection of a security interest to DRC with respect to any Collateral. ISIS hereby authorizes DRC to file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the signature of ISIS. ISIS agrees that a carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by ISIS shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. 

        (b)   Patent Collateral.    For the avoidance of doubt, if ISIS shall hereafter obtain rights to any reissue,
re-examination, division, continuation, renewal, extension, continuation-in-part or foreign counterpart of any Patent or any improvement of any Patent then in any
such case, the provisions of this Agreement shall automatically apply thereto. 

        SECTION 7.    Certain Covenants of ISIS.    

        ISIS
shall: 

        (a)   not
use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; 

3

 

        (b)   notify
DRC of any change in its name, identity or corporate structure within fifteen (15) days of such change; 

        (c)   give
DRC thirty (30) days' prior written notice of any change in its chief place of business, chief executive office or residence or the office where ISIS keeps
its records regarding the Collateral or a reincorporation, reorganization or other action that results in a change of the jurisdiction of organization of ISIS; and 

        (d)   pay
promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Collateral, except to the extent the validity
thereof is being contested in good faith; provided that ISIS shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5) days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment entered or filed against ISIS or any of the Collateral as a result of the failure to make such payment. 

        SECTION 8.    Special Covenants With Respect to the Collateral.    

        (a)   ISIS
shall: 

        (i)    diligently
keep reasonable records respecting the Collateral and at all times keep at least one complete set of its records concerning such Collateral at its chief
executive office or principal place of business; and 

        (ii)   use
best efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way impair or
prevent the creation of a security interest in, or the assignment of, ISIS' rights and interests in any property included within the definition of Collateral, excluding Permitted Licenses of the
Patent Collateral so long as such licenses do not in any way impair the security interest created by this Agreement or DRC's rights in the Collateral in the Field. 

        (b)   Except
as otherwise provided in this Section 8 and the Sale and Assignment Agreement (and subject to the payment of Royalties to [***]
pursuant to the Eyetech Consent), ISIS shall continue to collect, at its own expense, all amounts due or to become due to ISIS in respect of the Collateral or any portion thereof. In connection with
such collections, ISIS may take (and, after the occurrence and during the continuance of any Event of Default at DRC's reasonable direction, shall take) such action as ISIS or DRC may deem reasonably
necessary or advisable to enforce collection of such amounts; provided, DRC shall have the right at any time, upon the occurrence and during the continuation of an Event of Default and upon written
notice to ISIS of its intention to do so, to notify the obligors with respect to any such amounts of the existence of the security interest created hereby and to direct such obligors to make payment
of all such amounts directly to DRC, and, upon such notification and at the expense of ISIS, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as ISIS might have done. After receipt by ISIS of the notice from DRC referred to in the proviso to the preceding sentence and during the
continuation of any Event of Default, (i) all amounts and proceeds (including checks and other instruments) received by ISIS in respect of amounts due to ISIS in respect of the Collateral or
any portion thereof shall be received in trust for the benefit of DRC hereunder, shall be segregated from other funds of ISIS and shall be forthwith paid over or delivered to DRC in the same form as
so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 12 hereof, and (ii) ISIS shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. 

        (c)   the
covenants made by ISIS pursuant to Sections 3.1, 3.2 and 3.5 of the Sale and Assignment Agreement shall be deemed to be incorporated herein by reference and form
part of this Agreement with all applicable changes as the context requires. 

4

 

        (d)   ISIS
shall concurrently with the execution and delivery of this Agreement, execute and deliver to DRC five (5) originals of a Special Power of Attorney in the
form of Exhibit II annexed hereto for execution of an assignment of the Collateral to DRC, or the implementation of the sale or other
disposition of the Collateral pursuant to DRC's exercise of the rights and remedies granted hereunder; provided, however, DRC agrees that it will not exercise its rights under such Special Power of
Attorney unless an Event of Default has occurred and is continuing. 

        (e)   If
ISIS grants a Permitted License of the Patent Collateral, DRC shall enter into a non-disturbance agreement or other similar arrangement, at ISIS' request
and expense, with ISIS and any licensee of any Patent Collateral outside of the Field under a Permitted License in form and substance reasonably satisfactory to DRC pursuant to which (i) DRC
shall agree not to disturb or interfere with such licensee's rights under its license agreement with ISIS so long as such licensee is not in default thereunder, and (ii) such licensee shall
acknowledge and agree that the Patent Collateral licensed to it is subject to the security interest created in favor of DRC and the other terms of this Agreement and the enforcement by DRC of such
rights will not constitute a disturbance or interference of the licensee's rights under its Permitted License. 

        (f)    ISIS
further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to DRC, that DRC has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against ISIS, and ISIS hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their
stated maturities. 

        SECTION 9.    DRC Appointed
Attorney-in-Fact.    

        ISIS
hereby irrevocably appoints DRC, or any person or agent as DRC may designate, as ISIS' attorney-in-fact, with full authority in the place and stead of ISIS
and in the name of ISIS, DRC or otherwise, from time to time in DRC's discretion to take any action and to execute any instrument that DRC may in its sole discretion deem necessary or advisable to
accomplish the following: 

        (a)   upon
the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any of the Collateral; 

        (b)   upon
the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in
connection with clause (a) above; 

        (c)   upon
the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that DRC may in its sole
discretion deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights of DRC with respect to any of the Collateral; 

        (d)   to
pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge
the same to be determined by DRC in its sole discretion, any such payments made by DRC to become obligations of ISIS to DRC, due and payable immediately without demand; 

        (e)   upon
the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, drafts against debtors, assignments, verifications, notices and
other documents relating to the Collateral; and 

        (f)    upon
and at any time after the occurrence and during the continuance of an Event of Default, to prepare, file and sign ISIS' name on an assignment document in the form
of Exhibit III annexed hereto (including without limitation Schedule A thereto) with such modifications thereto 

5

 

as
DRC may in its sole discretion deem necessary or desirable to transfer ownership of the Collateral to DRC or an assignee or transferee of DRC. 

        SECTION 10.    Standard of Care.    

        The
powers conferred on DRC hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the accounting for moneys actually received by DRC hereunder, DRC shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. DRC shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which DRC accords its own property. 

        SECTION 11.    Remedies Upon Event of Default.    

        (a)   If,
and only if, any Event of Default shall have occurred and be continuing, DRC may in good faith exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein, under the Sale and Assignment Agreement or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC
applies to the Collateral), in all relevant jurisdictions, and also may: 

        (i)    require
ISIS to, and ISIS hereby agrees that it will at its expense and upon request of DRC forthwith, assemble all or part of the Collateral as directed by DRC and make
it available to DRC at a place to be designated by DRC that is reasonably convenient to both parties, and 

        (ii)   personally
or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from ISIS or any other person who has possession of any part
thereof, with or without notice or process of law, and for that purpose may enter upon ISIS' premises where any of the Collateral is located and remove same. 

        (b)   On
Closing, DRC shall grant to ISIS a sole and exclusive, royalty-free, perpetual, right and license, with the right to sublicense, world-wide,
to exploit the Patent Collateral outside the Field in the form of Exhibit IV annexed hereto, such grant to take effect upon any assignment to DRC or a transferee or assignee of DRC of any
rights, title and interests in and to the Patent Collateral pursuant to the provisions hereof. 

        (c)   Anything
contained herein to the contrary notwithstanding (subject to Subsection (d)), upon the occurrence and during the continuation of an Event of Default, DRC shall
have the right (but not the obligation) to bring suit, in the name of ISIS, DRC or otherwise, to enforce any Patent Collateral, in which event ISIS shall, at the request of DRC, do any and all lawful
acts and execute any and all documents required by DRC in aid of such enforcement and ISIS shall promptly, upon demand, reimburse and indemnify DRC as provided in the Sale and Assignment Agreement and
Section 13 hereof, as applicable, in connection with the exercise of its rights under this Section. Without limiting the generality of the foregoing, upon the occurrence and during the
continuation of an Event of Default, DRC and any assignee or transferee of the Patent Collateral shall have the right to grant license(s) to any or all of the Patent Collateral within the Field. If
DRC or any assignee or transferee of the Patent Collateral grants any such license(s), ISIS shall enter into a non-disturbance agreement or other similar arrangement, at DRC's or such
assignee's or transferee's request and expense, with DRC or such assignee or transferee and any licensee of any or all of the Patent Collateral within the Field in form and substance reasonably
satisfactory to DRC or such assignee or transferee pursuant to which ISIS shall agree not to disturb or interfere with such licensee's rights under its license agreement with DRC or such assignee or
transferee so long as such licensee is not in default thereunder. 

        (d)   Notwithstanding
any other term or condition of this Agreement, DRC acknowledges and agrees that if an Event of Default qualifies as a Special Event of Default, DRC shall
only exercise 

6

 

its
rights under this Agreement if ISIS fails to pay to DRC the Liquidated Damages Amount in accordance with Article 5.A of the Sale and Assignment Agreement, including without limitation the
amount under Subsection 5.A.2(b) or (c), as applicable. 

        SECTION 12.    Application of Proceeds.    

        Except
as expressly provided elsewhere in this Agreement, all proceeds received by DRC in respect of any sale of, collection from, or other realization upon all or any part of the
Collateral (collectively, "Proceeds") shall be applied to satisfy (to the extent of the net proceeds received by DRC) such item or part of the Secured
Obligations (including, but not limited to any Damages) as DRC may designate (with the right to reapply such proceeds to such other items or part of the Secured Obligations). Once the Proceeds have
satisfied the Secured Obligations, DRC will return to ISIS any Proceeds in excess of the amount required to satisfy the Secured Obligations, whether such excess Proceeds are then held or later
received by DRC. 

        SECTION 13.    Reimbursement of Expenses.    

        (a)   ISIS
agrees to pay to DRC upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and
agents, that DRC may incur in connection with (i) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral,
(ii) the exercise or enforcement of any of the rights of DRC hereunder, or (iii) the failure by ISIS to perform or observe any of the provisions hereof. 

        (b)   The
obligations of ISIS in this Section 13 shall (i) survive the termination of this Agreement and the discharge of ISIS' other obligations under this
Agreement and the Sale and Assignment Agreement. 

        SECTION 14.    Calculation of Damages.    

        (a)   Calculation of Damages.    Whenever DRC exercises its rights under Section 11 (an
"Enforcement"), DRC will deliver to ISIS a reasonably detailed statement of the basis for such Enforcement and DRC's commercially reasonable calculation
of its Damages (an "Enforcement Notice"). Within sixty (60) calendar days after the delivery by DRC of an Enforcement Notice, ISIS may deliver to
DRC a written notice (a "Dispute Notice") of any objection to the calculation of Damages contained therein, which Dispute Notice will contain a
reasonably detailed statement of the basis of such objection and ISIS' calculation of the Damages. If a Dispute Notice is not delivered within such 60-calendar day period, the calculations
of Damages contained in the Enforcement Notice will become final and binding upon the parties to this Agreement 

        (b)   No Dispute.    If ISIS timely delivers a Dispute Notice to DRC, DRC may deliver to ISIS a written response (the
"Dispute Response") within thirty (30) calendar days in which DRC will either agree with the calculation of Damages contained in the Dispute
Notice or dispute such calculation. If the Dispute Response is not delivered within such 30-calendar day period, the calculation of Damages contained in the Dispute Notice will become
final and binding upon the parties to this
Agreement. In such instance, or in the event DRC delivers a Dispute Response in which DRC agrees with the calculation of Damages contained in the Dispute Notice, then the calculation of Damages
contained in the Dispute Notice will become final and binding upon the parties to this Agreement. 

        (c)   Dispute.    In the event that DRC and ISIS are unable to resolve all disagreements relating to a Dispute Notice
and Dispute Response within twenty (20) calendar days following delivery of the Dispute Response, then either party shall be entitled to submit such dispute to a court of competent jurisdiction
for resolution. 

        (d)   Enforcement Not Affected.    For avoidance of doubt, the provisions of this Section 14 are intended to
govern the determination of Damages but shall in no way delay, limit, restrict, 

7

 

prejudice,
alter or affect DRC's rights and remedies including without limitation its right to enforce in good faith the security interest and lien granted herein and realize in a commercially
reasonable manner upon all or any part of the Collateral. 

        SECTION 15.    Continuing Security Interest; Termination and
Release.    

        (a)   This
Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full of the
Secured Obligations, (ii) be binding upon ISIS and its respective successors and assigns, and (iii) inure, together with the rights and remedies of DRC hereunder, to the benefit of DRC
and its successors, transferees and assigns. 

        (b)   As
contemplated by Subsection 5.A.2(a) of the Sale and Assignment Agreement and/or upon written confirmation by DRC to ISIS of the payment and performance in full of all
Secured Obligations, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to ISIS. Upon any such termination DRC will, at ISIS' expense, execute and
deliver to ISIS such documents as ISIS shall reasonably request to evidence such termination. 

        SECTION 16.    Amendments; Etc.    

        No
amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by ISIS therefrom, shall in any event be effective unless the same
shall be in writing and signed by DRC and, in the case of any such amendment or modification, by ISIS. Any such waiver or consent shall be effective only in the specific instance and for the specific
purpose for which it was given. 

        SECTION 17.    Notices.    

        All
notices, consents, waivers and other communications hereunder shall be in writing and shall be delivered in person, sent by overnight courier, facsimile transmission or posted by
registered or certified mail, return receipt requested, with postage prepaid, addressed to the address of DRC or ISIS, as applicable, provided in Section 7.3 of the Sale and Assignment
Agreement or to such other address or addresses as DRC or ISIS may from time to time designate by notice as provided herein. Any such notice shall be deemed given when actually received when so
delivered personally or by overnight courier or if mailed, other than during a period of general discontinuance or disruption of postal service due to strike, lockout or otherwise, on the fifth
(5th) day after its postmarked date thereof or if sent by facsimile transmission on the date sent if such day is a business day or the next following business day if such day is not a
business day. For the purposes of this Agreement, "business day" means any day other than Saturday, Sunday or a statutory or civic holiday observed in Toronto, Ontario or Carlsbad, California. 

        SECTION 18.    Failure or Indulgence Not Waiver; Remedies
Cumulative.    

        No
failure or delay on the part of DRC in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 

        SECTION 19.    Severability.    

        If
a court deems any part of this Agreement unenforceable, the parties agree that only the offending part shall be stricken and that the remaining parts shall be unaffected. 

        SECTION 20.    Headings.    

        Section
and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be
given any substantive effect. 

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        SECTION 21.    Governing Law; Terms; Rules of Construction.    

        THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE
UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Sale and Assignment Agreement, terms used in Articles 8 and 9 of the UCC are used herein as therein defined. 

        SECTION 22.    Consent to Jurisdiction and Service of Process.    

        ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ISIS ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, ISIS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ISIS AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 16; (IV) AGREES THAT SERVICE AS PROVIDED IN
CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER ISIS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT DRC RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ISIS IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES
THAT THE PROVISIONS OF THIS SECTION 21 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION
5-1402 OR OTHERWISE. 

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        SECTION 23.    Waiver of Jury Trial.    

        ISIS
AND DRC HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims. ISIS and DRC acknowledge that this waiver is a material inducement for ISIS and DRC to enter into a business relationship,
that ISIS and DRC have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. ISIS and DRC further warrant
and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 22 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court. 

        SECTION 24.    Counterparts.    

        This
Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same
instrument, and shall become binding when one or more counterparts have been signed by each party hereto and delivered to each other party hereto. 

        SECTION 25.    Successors and Assigns.    

        This
Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of ISIS and DRC. This Agreement may not be assigned in whole or in part by
either party without the prior written consent of the other party; provided, however that (i) DRC may assign this Agreement in whole or in part
by way of [***] and/or to [***] and/or as part of a sale of a material part of DRC whether by way of reorganization or otherwise, without the consent of
ISIS provided DRC gives prompt written notice of such assignment to ISIS and the assignee (or in the case of any financial institution or other lender, any purchaser from such financial institution or
other lender) agrees in writing to be bound hereby and (ii) ISIS may assign this Agreement in connection with the sale of all or substantially all of its business (whether by sale of assets,
stock or merger) without the consent of DRC provided ISIS gives prompt written notice of such assignment to DRC and the assignee agrees in writing to be bound hereby. 

10

 

        IN WITNESS WHEREOF, ISIS and DRC have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above. 

	 	ISIS PHARMACEUTICALS INC.
	

 	

By:	

/s/  B. LYNNE PARSHALL      

	 	 	Name:	 	B. Lynne Parshall
	 	 	Title:	 	Executive Vice President, CFO and Director
	

 	
DRUG ROYALTY USA, INC.
	

 	

By:	

/s/  BEHZAD KHOSROWSHAHI      

	 	 	Name:	 	Behzad Khosrowshahi
	 	 	Title:	 	President

11

  

 
 

SCHEDULE 1 TO
  SECURITY AGREEMENT    
    

DEFINITIONS  

        Capitalized terms used in this Agreement and not defined in this Schedule 1 shall have the meanings attributed thereto in the Sale and Assignment
Agreement. 

        "Agreement" has the meaning set forth on the cover page of this Agreement. 

        "Collateral" has the meaning set forth in Section 2 of this Agreement. 

        "DRC" has the meaning set forth on the cover page of this Agreement. 

        "Grant" has the meaning set forth in Subsection 5(f) of this Agreement. 

        "ISIS" has the meaning set forth on the cover page of this Agreement. 

        "License Agreement" means that certain License Agreement effective as of December 31, 2001 pursuant to which ISIS granted to
Eyetech a non-exclusive license under the Licensed Patent Rights to make, have made, use and sell EYE001 (for greater certainty, the Product) world-wide, with the right to
sublicense, as such agreement relates to the ISIS Rights but not the Assigned Rights and as such agreement may be amended, restated, supplemented or otherwise modified from time to time. 

        "Major Market" means [***], any [***] country, [***] or the
[***]. 

        "obligations" means indebtedness, obligations, promises, covenants, responsibilities, duties and liabilities (actual or contingent, direct
or indirect, matured or unmatured, now existing or arising hereafter), whether arising by agreement or statute, at law, in equity or otherwise, and "obliged", "obligation" and "obligated" shall have
corresponding meanings. 

        "Patent Collateral" means all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to the
Patents, including, without limitation, the [***] Patents, as the same may be amended from time to time, all rights corresponding thereto (including, without limitation, ISIS'
rights under the [***] License and the right, exercisable only upon the occurrence and during the continuation of an Event of Default, to sue for past, present and future
infringements in the name of ISIS or in the name of DRC), and all re-issues, re-examinations, divisions, continuations, renewals, extensions,
continuations-in-part and foreign counterparts thereof. 

        "proceeds" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed
of, whether such disposition is voluntary or involuntary. 

        "Sale and Assignment Agreement" means the Agreement for Sale and Assignment of Rights between ISIS and DRC dated as of December 21,
2004, as such agreement may be amended, restated, supplemented or otherwise modified from time to time, pursuant to which ISIS has agreed to sell, assign, transfer, set-over and convey to
DRC the Assigned Rights in consideration of the payment by DRC to ISIS of the Purchase Price. 

        "Secured Obligations" means all obligations and liabilities of every nature of ISIS now or hereafter existing under or arising out of or
in connection with the Sale and Assignment Agreement, whether for damages, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to ISIS,
would accrue on such obligations, whether or not a claim is allowed against ISIS for such interest in the related bankruptcy proceeding), reimbursement of fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or 

12

 

recovered
directly or indirectly from DRC as a preference, fraudulent transfer or otherwise, and all obligations of every nature of ISIS now or hereafter existing under this Agreement. 

        "UCC" means Uniform Commercial Code, as it exists on the date of this Agreement or as it may hereafter be amended, in the State of New
York. 

13

 
SCHEDULE 5(b)

TO

SECURITY AGREEMENT  

Office Locations, Type and Jurisdiction of Organization  

	Name
 
	 	Type of

Organization
	 	Office Locations
	 	Jurisdiction

of Organization
	 	Organization

Number

	ISIS Pharmaceuticals Inc.	 	Corporation	 	 	 	Delaware	 	 

14

 
 
 

SCHEDULE 5(d)(i)
  TO
  SECURITY AGREEMENT    
    

[***] 

15

 
SCHEDULE 5(e)

TO

SECURITY AGREEMENT  

Filing Offices  

	Grantor
 
	 	Filing Offices

	ISIS Pharmaceuticals Inc.	 	(a) Secretary of State for the State of Delaware
	 	 	(b) Secretary of State for the State of California

16

  

EXHIBIT I TO

SECURITY AGREEMENT  

 
 

[FORM OF GRANT OF PATENT SECURITY INTEREST]    
    

 
 

GRANT OF PATENT SECURITY INTEREST    
    

WHEREAS, ISIS PHARMACEUTICALS, INC., a Delaware corporation (the "Grantor"), has entered into a security agreement dated December 21,
2004, (said security agreement, as it may hereinafter be amended, restated, supplemented or otherwise modified from time to time, being the "Security Agreement") between the Grantor and DRC Royalty
USA Inc., a Nevada Corporation ("DRC") pursuant which the Grantor has granted to DRC certain security as general and continuing security for the due payment and performance of all of the
Grantor's obligations to DRC under that certain sale and assignment agreement between the Grantor and DRC dated December 21, 2004. All capitalized terms not defined herein have the meanings
attributed thereto in the Security Agreement. 

        NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and
conditions of the Security Agreement, the Grantor hereby grants to DRC a security interest in all of the Grantor's right, title and interest in and to the following, in each case whether now or
hereafter existing or in which the Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Patent Collateral"): 

	(a)
	all
right, title and interest (including rights acquired pursuant to a license or otherwise) in and to the patents listed on Schedule A-1 attached hereto
("Patents"), as the same may be amended from time to time, all rights corresponding thereto (including, without limitation, Debtor's rights under the [***] license and the
right, exercisable only upon the occurrence and during the continuation of an event of default, to sue for past, present and future infringements in the name of Debtor or in the name of Secured
Party), and all re-issues, re-examinations, divisions, continuations, renewals, extensions, continuations-in-part and foreign counterparts thereof; and

	(b)
	all
proceeds, products, royalties, payments, property and license fees of or from any and all of the foregoing collateral and, to the extent not otherwise included, all payments under
insurance (whether or not Secured Party is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing
collateral, excluding (i) all proceeds and other consideration arising under permitted licenses of the Patent Collateral and (ii) the milestone payments pursuant to Sections 3.1.1 and
3.1.2 of the License Agreement. 

        The
Grantor does hereby further acknowledge and affirm that the rights and remedies of DRC with respect to the security interest in the Patent Collateral granted hereby are more fully
set forth in the Security Agreement dated December 21, 2004 between the Grantor and DRC, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. 

17

 

        IN WITNESS WHEREOF, the Grantor has caused this Grant of Patent Security Interest to be duly executed and delivered by its officer
thereunto duly authorized as of the 21st day of December, 2004. 

	 	ISIS PHARMACEUTICALS, INC.
	

 	

By:	
 	

    
 Signature
	

 	

 	
 	

    
 Name (printed)
	

 	

 	
 	

    
 Title

18

 

SCHEDULE A-1  

[***] 

19

 
EXHIBIT II TO

SECURITY AGREEMENT  

SPECIAL POWER OF ATTORNEY  

	STATE OF	 	
	 	 	)	 	 	 
	 	 	 	 	 	)	ss.:	 	 
	COUNTRY OF	 	
	 	 	)	 	 	 

KNOW
ALL MEN BY THESE PRESENTS, that ISIS PHARMACEUTICALS, INC., a Delaware corporation
("Grantor"), hereby appoints and constitutes DRUG ROYALTY USA, INC., a Nevada corporation
("DRC"), and each of its officers, or any person or agent as DRC may direct, its true and lawful attorney, with full power of substitution and with full
power and authority in the place and stead of Grantor, and in the name of Grantor, DRC or otherwise, from time to time in DRC's discretion to take any action and to execute any instrument that DRC
may, in its sole discretion, deem necessary or advisable to accomplish the following: 

	(a)
	to
ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the  "Collateral" (as such term is defined
in the security agreement referred to below);

	(b)
	to
receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (a) above;

	(c)
	to
file any claims or take any action or institute any proceedings that DRC may in its sole discretion deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of DRC with respect to any of the Collateral;

	(d)
	to
pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be
determined by DRC in its sole discretion, any such payments made by DRC to become obligations of ISIS to DRC, due and payable immediately without demand;

	(e)
	to
sign and endorse any invoices, drafts against debtors, assignments, verifications, notices and other documents relating to the Collateral; and

	(f)
	to
prepare, file and sign ISIS' name on an assignment document in the form of Exhibit III annexed the security agreement referred to below (including without limitation
Schedule A thereto) with such modifications thereto as DRC may in its sole discretion deem necessary or desirable to transfer ownership of the Collateral to DRC or an assignee or transferee of
DRC. 

This
Power of Attorney is made pursuant to a security agreement dated December 21, 2004 between Grantor and DRC (the "Security Agreement") and is
subject to the terms and provisions thereof. This Power of Attorney, being coupled with an interest, is irrevocable until all "Secured Obligations", as
such term is defined in the Security Agreement, are indefeasibly paid in full and the Security Agreement is terminated in writing by DRC. 

20

 

Date:
<*> 

	 	 	ISIS PHARMACEUTICALS, INC.
	

 	
 	

By:	
 	

	 	 	 	 	Name:
	 	 	 	 	Title:

	STATE OF	 	
	 	 	)	 	 	 
	 	 	 	 	 	)	ss.:	 	 
	COUNTRY OF	 	
	 	 	)	 	 	 

On
this        day of                        , 2004, before me personally
came                        , to me known, who being duly sworn, did depose and say, that he is
the                        of  ISIS PHARMACEUTICALS, INC., the corporation
described in and which executed the foregoing instrument. 

	 	
 Notary Public

21

 
EXHIBIT III TO

SECURITY AGREEMENT  

 
 

ASSIGNMENT OF PATENTS    
    

THIS ASSIGNMENT AGREEMENT ("Assignment") entered into this <*> day of <month*>,
<year*>. [NTD: to be executed only upon the occurrence and continuance of an Event of Default] 

B E T W E E N:  

ISIS PHARMACEUTICALS, INC.
  <insert address current as at date of execution*>

(hereinafter referred to as the "Assignor") 

-and-

[DRUG ROYALTY USA, INC. or a transferee or assignee of DRUG

ROYALTY USA, INC.]
  <insert address current as at date of execution*>

(hereinafter referred to as the "Assignee") 

        WHEREAS, Assignor desires to assign, and Assignee desires to acquire, Assignor's entire, right, title and interest in and to the
(i) patent applications; and (ii) patents, filed and/or issued on such dates, under such application, serial or grant numbers, and in such countries as described in the attached Schedule
"A" (collectively the "Patents"). 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 

Assignor
does hereby sell, assign and transfer to Assignee, Assignor's whole right, title and interest to: (i) the Patents, any foreign applications or issued patents corresponding thereto, any
divisionals, continuations, continuations-in-part, re-examinations, reissues, renewals and extensions thereof, whether presently pending or filed in the future; and
(ii) all causes of action (either in law or equity) and the right to sue, counterclaim, and recover for past, present and future infringement of the rights assigned to Assignee; the same to be
held and enjoyed by Assignee as fully and exclusively as they would have been by the Assignor had this sale, assignment and transfer not been made 

Assignor
further represents and agrees with Assignee, its successors and assigns, that it will from time to time and at all times hereafter, upon every reasonable request of Assignee, its successors
and assigns, make, do and execute or cause and procure to be made, done and executed all further acts, deeds or assurances as may be reasonably required by Assignee, its successors and assigns, for
more effectually and completely vesting in Assignee, its successors and assigns the Patents hereby assigned in accordance with the terms hereof. 

This
Assignment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed
to be an original, and all of which counterparts, taken together, shall constitute but one and the same Assignment. 

22

 

IN WITNESS WHEREOF, the parties have executed and delivered this Assignment as of the date first written above. 

	ISIS PHARMACEUTICALS, INC.	 	[DRUG ROYALTY USA,

INC./TRANSFEREE/ASSIGNEE]
	

By:	

    
	
 	

By:	

    

	 	Name:	 	 	Name:
	 	Title:	 	 	Title:

	STATE OF	 	
	 	 	)	 	 	 
	 	 	 	 	 	)	ss.:	 	 
	COUNTRY OF	 	
	 	 	)	 	 	 

On
this        day of                        ,
            , before me personally came                        , to me
known, who being duly sworn, did depose and say, that he is the                        of  ISIS
PHARMACEUTICALS, INC., the corporation described in and which executed the foregoing instrument. 

	 	
 Notary Public

	STATE OF	 	
	 	 	)	 	 	 
	 	 	 	 	 	)	ss.:	 	 
	COUNTRY OF	 	
	 	 	)	 	 	 

On
this        day of                        ,
            , before me personally came                        , to me
known, who being duly sworn, did depose and say, that he is the                        of  [DRUG ROYALTY
USA, INC./TRANSFEREE/ASSIGNEE], the corporation described in and which executed the foregoing instrument. 

	 	
 Notary Public

23

 
 
 

SCHEDULE A
  PATENTS    
    

[***] 

24

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SCHEDULE 1 TO SECURITY AGREEMENT

SCHEDULE 5(d)(i) TO SECURITY AGREEMENT

[FORM OF GRANT OF PATENT SECURITY INTEREST]

GRANT OF PATENT SECURITY INTEREST

ASSIGNMENT OF PATENTS

SCHEDULE A PATENTSQuickLinks
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Exhibit 10.55  

	Optionee:	 	    
	 	Date:	 	    

 
 

Isis Pharmaceuticals, Inc.
  Supplemental Stock Option Agreement    
    

        Isis Pharmaceuticals, Inc. (the "Company"), pursuant to its 1989 Stock Option Plan (the "Plan") has this day granted to the undersigned optionee, an option
to purchase shares of the common stock of the Company ("Common Stock") as described herein. This option is not intended to qualify and will not be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). This option is subject to all of the terms and conditions as set forth herein and on
Attachment I hereto, which is incorporated herein in its entirety. 

	 	 	Number of Shares Subject to Option:	 	    

Vesting Schedule:  

	Number of Shares (installment)
	 	Date of Earliest Exercise (vesting)(1)

	    	 	 
	    	 	 
	    	 	 
	    	 	 

	

Exercise Price Per Share:(2)	
 	

$            
	
 	

Expiration Date:(3)	
 	

    

	Percentage of Full-Time Work:	 	        %

	(1)
	After
the first year, the option will vest monthly with 2.08% of the total grant vesting each month; provided, however, that during any period in which the undersigned provides
service at less than the Percentage of Full-Time Work set forth above, a reduced number of shares will vest as follows: the percentage of shares which will vest during such period of
reduced service will equal (a) the percentage of shares that would vest as set forth on this schedule, multiplied by (b) the percentage of full-time work furnished during the
period of reduced service divided by the Percentage of Full Time Work as set forth above. Increases of work percentage up to but not in excess of the Percentage of Full Time Work specified above will
result in a corresponding increase in the percentage of shares vesting. This reduction in vesting will not apply during any period of paid leave or the first 20 weeks of a period of unpaid leave. No
shares will vest during unpaid leave after the first 20 weeks of such leave. Shares which do not vest because of reductions in work percentage or unpaid leave will be canceled and no longer
subject to this option.

	(2)
	Not
less than 85% of the fair market value of the Common Stock on the date of grant of this option.

	(3)
	Less
than 7 years from the date of grant of this option. 

	Isis Pharmaceuticals, Inc.	 	 	 	 
	

By:	
 	

    
	
 	

Optionee:	
 	

    

	Duly authorized on behalf of

    the Board of Directors	 	Address:	 	 

Optionee:  

        Acknowledges receipt of the option as described herein and the attachments referenced therein and understands that all rights and liabilities with respect to this
option are set forth in the option and the
Plan; and acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the optionee and the Company regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject. 

ATTACHMENT I

TERMS OF SUPPLEMENTAL STOCK OPTION 

        The
grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or
consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). 

        The
details of your option are as follows: 

        1.     The
total number of shares of Common Stock subject to this option is set forth on the first page of the Supplemental Stock Option Agreement. Subject to the limitations
contained herein, this option shall be exercisable with respect to each installment indicated in the Vesting Schedule set forth on the first page of the Supplemental Stock Option Agreement on or after
the date of vesting applicable to such installment. 

        2.     (a) The
Exercise Price of this option is set forth on the first page of the Supplemental Stock Option Agreement. 

        (b)   Payment
of the exercise price per share is due in full in cash (including check) upon exercise of all or any part of each installment which has become exercisable by
you. 

        3.     The
minimum number of shares with respect to which this option may be exercised at any one time is 1,000, unless the number of shares available for exercise (that is, the
remaining vested shares pursuant to paragraph 1) equals less than 1,000 shares, in which case the minimum number of shares exercised must equal the number of shares then vested. 

        4.     Notwithstanding
anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered
under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 

        5.     The
term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on the Expiration Date. This option shall
terminate prior to the expiration of its term as follows: 3 months after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any
reason or for no reason unless: 

        (a)   such
termination of employment is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code), in which event the option
shall terminate on the earlier of the termination date set forth above or 1 year following such termination of employment; or 

        (b)   such
termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or 18 months
after your death; or 

        (c)   (i) such
termination of employment is due to your retirement; and (ii) you were over the age of 55 at the
time of such retirement; and (iii) you had been an employee, director or consultant (or any combination thereof) of the Company for a continuous
and uninterrupted period of at least 5 years prior to such retirement, in which event (i.e having satisfied all of the conditions set forth in
clauses (i) through (iii) above) the option shall terminate on the earlier of the termination date set forth above or 18 months after such retirement; or 

        (d)   during
any part of such 3 month period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the
option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of 3 months after the termination of
employment; or 

        (e)   exercise
of the option within 3 months after termination of your employment with the Company or with an affiliate would result in liability under
Section 16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of the termination 

date
set forth above, the 10th day after the last date upon which exercise would result in such liability or 6 months and 10 days after the termination of your employment with the
Company or an affiliate. 

However,
this option may be exercised following termination of employment only as to that number of shares as to which it was exercisable on the date of termination of employment under the provision
of paragraph 1 of this option. 

        6.     (a) This
option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then
require pursuant to subparagraph 5(f) of the Plan. 

        (b)   By
exercising this option you agree that: 

          (i)  the
Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by
reason of: the exercise of this option; the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or the disposition of shares acquired upon such
exercise. 

        7.     This
option is not transferable except by will or by the laws of descent and distribution, and is exercisable during your lifetime only by you; notwithstanding the
foregoing, you may transfer part or all of this option to any of the following: 

          (i)  your
spouse, children (by birth or adoption), stepchildren, grandchildren, or parents; 

         (ii)  a
trust or other entity established solely for your benefit or the benefit of your spouse, children (by birth or adoption), stepchildren, grandchildren, or parents for
estate planning purposes; or, 

        (iii)  an
organization which is exempt from taxation under Section 501(c)(3) of the Code or to which tax-deductible charitable contributions may be made
under Section 170 of the Code. 

        Furthermore,
you may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of your death, will thereafter be
entitled to exercise the option. 

        8.     This
option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ
of the Company, or of the Company to continue your employment with the Company. In the event that this option is granted to you in connection with the performance of services as a consultant or
director, references to employment, employee and similar terms shall be deemed to include the performance of services as a consultant or a director, as the case may be, provided, however, that no
rights as an employee shall arise by reason of the use of such terms. 

        9.     Any
notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by
the Company to you, 5 days after deposit in the United States mail, postage prepaid, addressed to you at the address specified on the attached or at such other address as you hereafter
designate by written notice to the Company. 

        10.   This
option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without
limitation the provisions of paragraph 5 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. 

Attachments: 

1989
Stock Option Plan

Notice of Exercise 

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Isis Pharmaceuticals, Inc. Supplemental Stock Option Agreement

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