Collaborative Arrangements and Licensing Agreements	6 Months Ended
Jun. 30, 2013
Collaborative Arrangements and Licensing Agreements
Collaborative Arrangements and Licensing Agreements	8. Collaborative Arrangements and Licensing Agreements Traditional Pharmaceutical Alliances and Licensing AstraZeneca In December 2012, we entered into a global collaboration agreement with AstraZeneca to discover and develop antisense drugs against five cancer targets. The agreement includes $31 million in upfront and near-term payments, comprised of a $25 million upfront payment we received in December 2012 and a $6 million payment we received in June 2013 when AstraZeneca elected to continue the research collaboration. We are also eligible to receive milestone payments, license fees and double-digit royalties on any product sales of drugs resulting from this collaboration. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize ISIS-STAT3Rx and ISIS-ARRx, which we previously referred to as ISIS-AZ1Rx, for the treatment of cancer and an option to license up to three drugs under a separate research program. Together with AstraZeneca, we are evaluating ISIS-STAT3Rx in patients with advanced cancer. AstraZeneca is conducting a Phase 1b/2a clinical study of ISIS-STAT3Rx in patients with advanced metastatic hepatocellular carcinoma, or HCC. We are concurrently completing a clinical study evaluating ISIS-STAT3Rx in patients with advanced lymphomas, including patients with diffuse large b-cell lymphoma. We are responsible for completing our clinical study in patients with advanced lymphomas and AstraZeneca is responsible for all other development activities for ISIS-STAT3Rx. We are also advancing ISIS-ARRx, an antisense drug designed to treat patients with prostate cancer by inhibiting the production of the androgen receptor, or AR. In June 2013, we earned a $10 million milestone payment when AstraZeneca added a second development candidate, ISIS-ARRx, to our collaboration. If AstraZeneca successfully develops drugs under all three programs, we could receive substantive milestone payments of more than $970 million, including up to $315.5 million for the achievement of development milestones and up to $655 million for the achievement of regulatory milestones. We could earn the next milestone payment of up to $50 million if we meet pre-agreed efficacy and safety criteria in our ongoing ISIS-STAT3Rx study in patients with advanced cancer. During the three and six months ended June 30, 2013, we earned revenue of $15.3 million and $17.8 million, respectively, from our relationship with AstraZeneca, which represented 40 percent and 22 percent, respectively, of our total revenue for those periods. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $15.4 million and $15.7 million, respectively, related to our relationship with AstraZeneca. Biogen Idec We have established three strategic collaborations with Biogen Idec that broaden and expand our severe and rare disease franchise. In January 2012, we entered into a global collaboration agreement with Biogen Idec to develop and commercialize ISIS-SMNRx for the treatment of SMA. Under the terms of the agreement, we received an upfront payment of $29 million and are eligible to receive up to $45 million, of which $3.5 million has been earned, in substantive milestone payments associated with the clinical development of ISIS-SMNRx prior to licensing. We are responsible for developing ISIS-SMNRx. Biogen Idec has the option to license ISIS-SMNRx until completion of the first successful Phase 2/3 study or the completion of two Phase 2/3 studies. If Biogen Idec exercises its option, it will pay us a license fee and will assume global development, regulatory and commercialization responsibilities. In April 2013, we initiated a Phase 2 study of ISIS-SMNRx in infants with SMA, which began the Phase 2/3 program for ISIS-SMNRx. We earned a $3.5 million milestone payment from Biogen Idec in May 2013 when we dosed the first infant in this Phase 2 study. The $3.5 million milestone payment is the first of the four payments under the March 2013 amendment to the payment terms for the $18 million milestone payment we could earn for the progression of this Phase 2/3 study in infants. We will earn a $2.0 million milestone payment, the second of four payments, if we dose the first patient in the second cohort of this study. We are also eligible to receive up to $150 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of ISIS-SMNRx. In June 2012, we and Biogen Idec entered into a second and separate collaboration and license agreement to develop and commercialize a novel antisense drug targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. Under the terms of the agreement, we received an upfront payment of $12 million and are eligible to receive up to $59 million in substantive milestone payments associated with the development of the DMPK-targeting drug prior to licensing. We are responsible for global development of the drug through the completion of a Phase 2 clinical trial. Biogen Idec has the option to license the drug through the completion of the Phase 2 trial. We are also eligible to receive up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of the drug. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for our DMPK program. In December 2012, we and Biogen Idec entered into a third and separate collaboration to develop and commercialize novel antisense drugs to three targets to treat neurological or neuromuscular diseases. We are responsible for the development of the drugs through the completion of the initial Phase 2 clinical study. Biogen Idec has the option to license a drug from each of the three programs through the completion of Phase 2 studies. Under the terms of the agreement, we received an upfront payment of $30 million and are eligible to receive development milestone payments to support research and development of each program including a $10 million milestone payment per program upon initiation of an IND-enabling toxicology study. We are also eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program including up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive double-digit royalties on any product sales of drugs resulting from each of the three programs. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for a development candidate identified under this collaboration. During the three and six months ended June 30, 2013, we earned revenue of $7.4 million and $11.2 million, respectively, from our relationships with Biogen Idec, which represented 19 percent and 14 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $1.8 million and $3.6 million for the same periods in 2012. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $55.9 million and $62.6 million, respectively, related to the upfront payments. Genzyme Corporation, a Sanofi company In January 2008, we entered into a strategic alliance with Genzyme focused on the licensing and co-development of KYNAMRO. The license and co-development agreement provides Genzyme with exclusive worldwide rights for all therapeutic purposes to our patents and know-how related to KYNAMRO, including the key product related patents and their foreign equivalents pending or granted in various countries outside the United States, including in the European Union via the European Patent Convention, Japan, Canada, Australia, South Africa and India. In addition, we agreed that we would not develop or commercialize another oligonucleotide-based compound designed to modulate apo-B by binding to the messenger RNA, or mRNA, encoding apo-B, throughout the world. The transaction included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock, and a share of worldwide profits on KYNAMRO and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales. In January 2013 we earned a $25 million milestone payment when the FDA approved the NDA for KYNAMRO. We may also receive over $1.5 billion in substantive milestone payments if Genzyme achieves pre-specified events, including up to $700 million for the achievement of regulatory milestones and up to $825 million for the achievement of commercialization milestones. The next milestone payment we could earn under our agreement with Genzyme is $25 million upon the earlier of an NDA approval for the use of KYNAMRO to treat patients who have heterozygous FH or annual net revenue equal to or greater than $250 million in a calendar year. Under this alliance, Genzyme is responsible for the continued development and commercialization of KYNAMRO. We agreed to supply the drug substance for KYNAMRO for the Phase 3 clinical trials and initial commercial launch. Genzyme is responsible for manufacturing the finished drug product for KYNAMRO, including the initial commercial launch supply, and Genzyme will be responsible for the long term supply of KYNAMRO drug substance and finished drug product. As part of the agreement, we contributed the first $125 million in funding for the development costs of KYNAMRO. In 2011, we satisfied our development funding obligation. As such, we and Genzyme shared development expenses equally in 2012 and the first half of 2013. Our shared funding of development expenses will end when KYNAMRO is profitable. The license and co-development agreement for KYNAMRO will continue in perpetuity unless we or Genzyme terminate it earlier under the following situations: · Genzyme may terminate the license and co-development agreement at any time by providing written notice to Isis; · We may terminate the license and co-development agreement on a country-by-country basis or in its entirety upon Genzyme’s uncured failure to use commercially reasonable efforts to develop and commercialize KYNAMRO in the United States, France, Germany, Italy, Spain, the United Kingdom, Japan and Canada; and · Either we or Genzyme may terminate the license and co-development agreement upon the other party’s uncured failure to perform a material obligation under the agreement. Upon termination of the license and co-development agreement, the license we granted to Genzyme for KYNAMRO will terminate and Genzyme will stop selling the product. In addition, if Genzyme voluntarily terminates the agreement or we terminate the agreement in a country or countries for Genzyme’s failure to develop and commercialize KYNAMRO, then the rights to KYNAMRO will revert back to us and we may develop and commercialize KYNAMRO in the countries that are the subject of the termination, subject to a royalty payable to Genzyme. If we are the subject of an acquisition, then within 180 days following the acquisition, Genzyme may elect to purchase all of our rights to receive payments under the KYNAMRO license and co-development agreement for a purchase price to be mutually agreed to by us and Genzyme, or, if we cannot agree, a fair market value price determined by an independent investment banking firm. Genzyme has agreed to monthly limits on the number of shares it can sell of the Company’s stock that it purchased in February 2008. In addition, Genzyme has agreed that until the earlier of the 10 year anniversary of the KYNAMRO license and co-development agreement or the date Genzyme holds less than two percent of our issued and outstanding common stock, Genzyme will not acquire any additional shares of our common stock without our consent. The price Genzyme paid for our common stock represented a significant premium over the then fair value of our common stock. In May 2012, we finished amortizing this $100 million premium along with the $175 million licensing fee that we received in the second quarter of 2008. During the three and six months ended June 30, 2013, we earned revenue of $7.5 million and $32.5 million, respectively, from our relationship with Genzyme, which represented 20 percent and 40 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $42.8 million and $59.1 million for the same periods in 2012. Our balance sheet at December 31, 2012 included deferred revenue of $3.8 million for KYNAMRO drug substance that we shipped to Genzyme in 2013. GlaxoSmithKline In March 2010, we entered into a strategic alliance with GSK, for up to six programs, in which we use our antisense drug discovery platform to seek out and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. This alliance allows us to control and facilitate rapid development of drugs while still being eligible to receive milestone payments as we advance these drugs in clinical development. In October 2012, we and GSK amended the original agreement to reflect an accelerated clinical development plan for ISIS-TTRRx. Under the amended terms of the agreement, we received a $2.5 million upfront payment in December 2012, and we received a $7.5 million milestone payment in February 2013 when we initiated the Phase 2/3 clinical study for ISIS-TTRRx. Most recently, we earned a $2 million milestone payment in July 2013 for advancing the ongoing Phase 2/3 study of ISIS-TTRRx. Including the $2 million milestone payment we recently earned, we have earned $19.5 million in milestone payments from GSK related to the development of ISIS-TTRRx, and we are eligible to earn an additional $48 million in pre-licensing milestone payments associated with the ISIS-TTRRx Phase 2/3 study. In addition, GSK has increased the regulatory and commercial milestone payments we can earn should ISIS-TTRRx receive marketing approval and meet certain sales thresholds. Our strategic alliance currently includes five active programs including the ISIS-TTRRx program. We are eligible to receive on average up to $20 million in milestone payments per program up to Phase 2 proof-of-concept. GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and if GSK exercises its option to a program it will be responsible for all further development and commercialization of the program. Under the terms of the amended agreement, if GSK successfully develops all five programs for one or more indications and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of nearly $1.2 billion, including up to $202.5 million for the achievement of development milestones, up to $526.5 million for the achievement of regulatory milestones and up to $445 million for the achievement of commercialization milestones. We will earn the next $2 milestone payment if we further progress the Phase 2/3 clinical study for ISIS-TTRRx. In addition, we are eligible to receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance. During the three and six months ended June 30, 2013, we earned revenue of $2.3 million and $12.2 million, respectively, from our relationship with GSK, which represented six percent and 15 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $2.0 million and $4.0 million for the same periods in 2012. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $15.4 million and $19.9 million, respectively, related to our relationship with GSK. Roche In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for Huntington’s disease, or HD, based on our antisense technology. Roche has the option to license the drugs from us through the completion of the first Phase 1 trial. Prior to option exercise, we are responsible for the discovery and development of an antisense drug targeting huntingtin, or HTT, protein. We will also work collaboratively with Roche on the discovery of an antisense drug utilizing Roche’s “brain shuttle” program. If Roche exercises its option, it will be responsible for global development, regulatory and commercialization activities for all drugs arising out of the collaboration. Under the terms of the agreement, we received an upfront payment of $30.0 million in April 2013 and we are eligible to receive up to $362.0 million in a license fee and substantive milestone payments including up to $67.0 million for the achievement of development milestones, up to $170.0 million for the achievement of regulatory milestones and up to $80.0 million for the achievement of commercialization milestones. In addition, we are eligible to receive up to $136.5 million in milestone payments for each additional drug successfully developed as well as up to $50.0 million in commercial milestones if a drug using Roche’s proprietary brain shuttle technology is successfully commercialized. We are also eligible to receive tiered royalties on any product sales of drugs resulting from this alliance. We will earn the next milestone payment of $22.0 million if we initiate a Phase 1 trial for a drug targeting HTT protein. During the three and six months ended June 30, 2013, we earned revenue of $1.3 million from our relationship with Roche. Our balance sheet at June 30, 2013 included deferred revenue of $28.8 million related to the upfront payment. Satellite Company Collaborations Xenon Pharmaceuticals Inc. In November 2010, we established a collaboration with Xenon to discover and develop antisense drugs as novel treatments for anemia of chronic disorders, or ACD. We received an upfront payment in the form of a convertible promissory note from Xenon to discover and develop antisense drugs to the targets hemojuvelin and hepcidin. Because repayment of the promissory note was uncertain, we did not record any revenue from the upfront payment when we entered into the agreement. In May 2012, Xenon selected XEN701, a drug designed to inhibit the production of hepcidin, as a development candidate. In June 2013, we earned a $2 million license fee when Xenon exercised its option to an exclusive worldwide license to XEN701. In addition, in June 2013 Xenon repaid the $1.5 million convertible promissory note. We recognized the $2 million license fee and the $1.5 million upfront payment as revenue in the second quarter of 2013. Under our collaboration agreement with Xenon, we may receive up to $296 million in substantive milestone payments for the achievement of pre-specified milestone events that are met by two independent products, including up to $26 million for the achievement of development milestones, up to $150 million for the achievement of regulatory milestones and up to $120 million for the achievement of commercialization milestones. In addition, we are eligible to receive royalties on future product sales of XEN701 and a portion of sublicense revenue. We will earn the next milestone payment of $3 million if Xenon initiates a Phase 2 clinical trial for XEN701. During the three and six months ended June 30, 2013, we earned revenue of $3.5 million from our relationship with Xenon. External Project Funding CHDI Foundation, Inc. Starting in November 2007, CHDI provided financial and scientific support to our HD drug discovery program through our development collaboration. In April 2013, we formed an alliance with Roche to develop treatments for HD. Under the terms of our agreement with CHDI, we will reimburse CHDI for a portion of its support of our HD program out of the payments we receive from Roche. In April 2013, we paid CHDI $1.5 million associated with the signing of the Roche agreement, which we recorded as research and development expense. We will also pay CHDI $1.5 million when we select an HD development candidate. If we achieve certain milestones under our collaboration with Roche, we will make additional payments to CHDI. During the three and six months ended June 30, 2013, we earned revenue of $122,000 and $414,000, respectively, from our relationship with CHDI.

8. Collaborative Arrangements and Licensing Agreements

Traditional Pharmaceutical Alliances and Licensing

AstraZeneca

In December 2012, we entered into a global collaboration agreement with AstraZeneca to discover and develop antisense drugs against five cancer targets. The agreement includes $31 million in upfront and near-term payments, comprised of a $25 million upfront payment we received in December 2012 and a $6 million payment we received in June 2013 when AstraZeneca elected to continue the research collaboration. We are also eligible to receive milestone payments, license fees and double-digit royalties on any product sales of drugs resulting from this collaboration. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize ISIS-STAT3Rx and ISIS-ARRx, which we previously referred to as ISIS-AZ1Rx, for the treatment of cancer and an option to license up to three drugs under a separate research program.

Together with AstraZeneca, we are evaluating ISIS-STAT3Rx in patients with advanced cancer. AstraZeneca is conducting a Phase 1b/2a clinical study of ISIS-STAT3Rx in patients with advanced metastatic hepatocellular carcinoma, or HCC. We are concurrently completing a clinical study evaluating ISIS-STAT3Rx in patients with advanced lymphomas, including patients with diffuse large b-cell lymphoma. We are responsible for completing our clinical study in patients with advanced lymphomas and AstraZeneca is responsible for all other development activities for ISIS-STAT3Rx. We are also advancing ISIS-ARRx, an antisense drug designed to treat patients with prostate cancer by inhibiting the production of the androgen receptor, or AR. In June 2013, we earned a $10 million milestone payment when AstraZeneca added a second development candidate, ISIS-ARRx, to our collaboration. If AstraZeneca successfully develops drugs under all three programs, we could receive substantive milestone payments of more than $970 million, including up to $315.5 million for the achievement of development milestones and up to $655 million for the achievement of regulatory milestones. We could earn the next milestone payment of up to $50 million if we meet pre-agreed efficacy and safety criteria in our ongoing ISIS-STAT3Rx study in patients with advanced cancer.

During the three and six months ended June 30, 2013, we earned revenue of $15.3 million and $17.8 million, respectively, from our relationship with AstraZeneca, which represented 40 percent and 22 percent, respectively, of our total revenue for those periods. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $15.4 million and $15.7 million, respectively, related to our relationship with AstraZeneca.

Biogen Idec

We have established three strategic collaborations with Biogen Idec that broaden and expand our severe and rare disease franchise. In January 2012, we entered into a global collaboration agreement with Biogen Idec to develop and commercialize ISIS-SMNRx for the treatment of SMA. Under the terms of the agreement, we received an upfront payment of $29 million and are eligible to receive up to $45 million, of which $3.5 million has been earned, in substantive milestone payments associated with the clinical development of ISIS-SMNRx prior to licensing. We are responsible for developing ISIS-SMNRx. Biogen Idec has the option to license ISIS-SMNRx until completion of the first successful Phase 2/3 study or the completion of two Phase 2/3 studies. If Biogen Idec exercises its option, it will pay us a license fee and will assume global development, regulatory and commercialization responsibilities. In April 2013, we initiated a Phase 2 study of ISIS-SMNRx in infants with SMA, which began the Phase 2/3 program for ISIS-SMNRx. We earned a $3.5 million milestone payment from Biogen Idec in May 2013 when we dosed the first infant in this Phase 2 study. The $3.5 million milestone payment is the first of the four payments under the March 2013 amendment to the payment terms for the $18 million milestone payment we could earn for the progression of this Phase 2/3 study in infants. We will earn a $2.0 million milestone payment, the second of four payments, if we dose the first patient in the second cohort of this study. We are also eligible to receive up to $150 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of ISIS-SMNRx.

In June 2012, we and Biogen Idec entered into a second and separate collaboration and license agreement to develop and commercialize a novel antisense drug targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. Under the terms of the agreement, we received an upfront payment of $12 million and are eligible to receive up to $59 million in substantive milestone payments associated with the development of the DMPK-targeting drug prior to licensing. We are responsible for global development of the drug through the completion of a Phase 2 clinical trial. Biogen Idec has the option to license the drug through the completion of the Phase 2 trial. We are also eligible to receive up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of the drug. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for our DMPK program.

In December 2012, we and Biogen Idec entered into a third and separate collaboration to develop and commercialize novel antisense drugs to three targets to treat neurological or neuromuscular diseases. We are responsible for the development of the drugs through the completion of the initial Phase 2 clinical study. Biogen Idec has the option to license a drug from each of the three programs through the completion of Phase 2 studies. Under the terms of the agreement, we received an upfront payment of $30 million and are eligible to receive development milestone payments to support research and development of each program including a $10 million milestone payment per program upon initiation of an IND-enabling toxicology study. We are also eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program including up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive double-digit royalties on any product sales of drugs resulting from each of the three programs. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for a development candidate identified under this collaboration.

During the three and six months ended June 30, 2013, we earned revenue of $7.4 million and $11.2 million, respectively, from our relationships with Biogen Idec, which represented 19 percent and 14 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $1.8 million and $3.6 million for the same periods in 2012. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $55.9 million and $62.6 million, respectively, related to the upfront payments.

Genzyme Corporation, a Sanofi company

In January 2008, we entered into a strategic alliance with Genzyme focused on the licensing and co-development of KYNAMRO. The license and co-development agreement provides Genzyme with exclusive worldwide rights for all therapeutic purposes to our patents and know-how related to KYNAMRO, including the key product related patents and their foreign equivalents pending or granted in various countries outside the United States, including in the European Union via the European Patent Convention, Japan, Canada, Australia, South Africa and India. In addition, we agreed that we would not develop or commercialize another oligonucleotide-based compound designed to modulate apo-B by binding to the messenger RNA, or mRNA, encoding apo-B, throughout the world.

The transaction included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock, and a share of worldwide profits on KYNAMRO and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales. In January 2013 we earned a $25 million milestone payment when the FDA approved the NDA for KYNAMRO. We may also receive over $1.5 billion in substantive milestone payments if Genzyme achieves pre-specified events, including up to $700 million for the achievement of regulatory milestones and up to $825 million for the achievement of commercialization milestones. The next milestone payment we could earn under our agreement with Genzyme is $25 million upon the earlier of an NDA approval for the use of KYNAMRO to treat patients who have heterozygous FH or annual net revenue equal to or greater than $250 million in a calendar year.

Under this alliance, Genzyme is responsible for the continued development and commercialization of KYNAMRO. We agreed to supply the drug substance for KYNAMRO for the Phase 3 clinical trials and initial commercial launch. Genzyme is responsible for manufacturing the finished drug product for KYNAMRO, including the initial commercial launch supply, and Genzyme will be responsible for the long term supply of KYNAMRO drug substance and finished drug product. As part of the agreement, we contributed the first $125 million in funding for the development costs of KYNAMRO. In 2011, we satisfied our development funding obligation. As such, we and Genzyme shared development expenses equally in 2012 and the first half of 2013. Our shared funding of development expenses will end when KYNAMRO is profitable.

The license and co-development agreement for KYNAMRO will continue in perpetuity unless we or Genzyme terminate it earlier under the following situations:

· Genzyme may terminate the license and co-development agreement at any time by providing written notice to Isis;

· We may terminate the license and co-development agreement on a country-by-country basis or in its entirety upon Genzyme’s uncured failure to use commercially reasonable efforts to develop and commercialize KYNAMRO in the United States, France, Germany, Italy, Spain, the United Kingdom, Japan and Canada; and

· Either we or Genzyme may terminate the license and co-development agreement upon the other party’s uncured failure to perform a material obligation under the agreement.

Upon termination of the license and co-development agreement, the license we granted to Genzyme for KYNAMRO will terminate and Genzyme will stop selling the product. In addition, if Genzyme voluntarily terminates the agreement or we terminate the agreement in a country or countries for Genzyme’s failure to develop and commercialize KYNAMRO, then the rights to KYNAMRO will revert back to us and we may develop and commercialize KYNAMRO in the countries that are the subject of the termination, subject to a royalty payable to Genzyme.

If we are the subject of an acquisition, then within 180 days following the acquisition, Genzyme may elect to purchase all of our rights to receive payments under the KYNAMRO license and co-development agreement for a purchase price to be mutually agreed to by us and Genzyme, or, if we cannot agree, a fair market value price determined by an independent investment banking firm.

Genzyme has agreed to monthly limits on the number of shares it can sell of the Company’s stock that it purchased in February 2008. In addition, Genzyme has agreed that until the earlier of the 10 year anniversary of the KYNAMRO license and co-development agreement or the date Genzyme holds less than two percent of our issued and outstanding common stock, Genzyme will not acquire any additional shares of our common stock without our consent.

The price Genzyme paid for our common stock represented a significant premium over the then fair value of our common stock. In May 2012, we finished amortizing this $100 million premium along with the $175 million licensing fee that we received in the second quarter of 2008. During the three and six months ended June 30, 2013, we earned revenue of $7.5 million and $32.5 million, respectively, from our relationship with Genzyme, which represented 20 percent and 40 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $42.8 million and $59.1 million for the same periods in 2012. Our balance sheet at December 31, 2012 included deferred revenue of $3.8 million for KYNAMRO drug substance that we shipped to Genzyme in 2013.

GlaxoSmithKline

In March 2010, we entered into a strategic alliance with GSK, for up to six programs, in which we use our antisense drug discovery platform to seek out and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. This alliance allows us to control and facilitate rapid development of drugs while still being eligible to receive milestone payments as we advance these drugs in clinical development.

In October 2012, we and GSK amended the original agreement to reflect an accelerated clinical development plan for ISIS-TTRRx. Under the amended terms of the agreement, we received a $2.5 million upfront payment in December 2012, and we received a $7.5 million milestone payment in February 2013 when we initiated the Phase 2/3 clinical study for ISIS-TTRRx. Most recently, we earned a $2 million milestone payment in July 2013 for advancing the ongoing Phase 2/3 study of ISIS-TTRRx. Including the $2 million milestone payment we recently earned, we have earned $19.5 million in milestone payments from GSK related to the development of ISIS-TTRRx, and we are eligible to earn an additional $48 million in pre-licensing milestone payments associated with the ISIS-TTRRx Phase 2/3 study. In addition, GSK has increased the regulatory and commercial milestone payments we can earn should ISIS-TTRRx receive marketing approval and meet certain sales thresholds.

Our strategic alliance currently includes five active programs including the ISIS-TTRRx program. We are eligible to receive on average up to $20 million in milestone payments per program up to Phase 2 proof-of-concept. GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and if GSK exercises its option to a program it will be responsible for all further development and commercialization of the program. Under the terms of the amended agreement, if GSK successfully develops all five programs for one or more indications and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of nearly $1.2 billion, including up to $202.5 million for the achievement of development milestones, up to $526.5 million for the achievement of regulatory milestones and up to $445 million for the achievement of commercialization milestones. We will earn the next $2 milestone payment if we further progress the Phase 2/3 clinical study for ISIS-TTRRx. In addition, we are eligible to receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance.

During the three and six months ended June 30, 2013, we earned revenue of $2.3 million and $12.2 million, respectively, from our relationship with GSK, which represented six percent and 15 percent, respectively, of our total revenue for those periods. In comparison, we earned revenue of $2.0 million and $4.0 million for the same periods in 2012. Our balance sheets at June 30, 2013 and December 31, 2012 included deferred revenue of $15.4 million and $19.9 million, respectively, related to our relationship with GSK.

Roche

In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for Huntington’s disease, or HD, based on our antisense technology. Roche has the option to license the drugs from us through the completion of the first Phase 1 trial. Prior to option exercise, we are responsible for the discovery and development of an antisense drug targeting huntingtin, or HTT, protein. We will also work collaboratively with Roche on the discovery of an antisense drug utilizing Roche’s “brain shuttle” program. If Roche exercises its option, it will be responsible for global development, regulatory and commercialization activities for all drugs arising out of the collaboration. Under the terms of the agreement, we received an upfront payment of $30.0 million in April 2013 and we are eligible to receive up to $362.0 million in a license fee and substantive milestone payments including up to $67.0 million for the achievement of development milestones, up to $170.0 million for the achievement of regulatory milestones and up to $80.0 million for the achievement of commercialization milestones. In addition, we are eligible to receive up to $136.5 million in milestone payments for each additional drug successfully developed as well as up to $50.0 million in commercial milestones if a drug using Roche’s proprietary brain shuttle technology is successfully commercialized. We are also eligible to receive tiered royalties on any product sales of drugs resulting from this alliance. We will earn the next milestone payment of $22.0 million if we initiate a Phase 1 trial for a drug targeting HTT protein.

During the three and six months ended June 30, 2013, we earned revenue of $1.3 million from our relationship with Roche. Our balance sheet at June 30, 2013 included deferred revenue of $28.8 million related to the upfront payment.

Satellite Company Collaborations

Xenon Pharmaceuticals Inc.

In November 2010, we established a collaboration with Xenon to discover and develop antisense drugs as novel treatments for anemia of chronic disorders, or ACD. We received an upfront payment in the form of a convertible promissory note from Xenon to discover and develop antisense drugs to the targets hemojuvelin and hepcidin. Because repayment of the promissory note was uncertain, we did not record any revenue from the upfront payment when we entered into the agreement. In May 2012, Xenon selected XEN701, a drug designed to inhibit the production of hepcidin, as a development candidate. In June 2013, we earned a $2 million license fee when Xenon exercised its option to an exclusive worldwide license to XEN701. In addition, in June 2013 Xenon repaid the $1.5 million convertible promissory note. We recognized the $2 million license fee and the $1.5 million upfront payment as revenue in the second quarter of 2013. Under our collaboration agreement with Xenon, we may receive up to $296 million in substantive milestone payments for the achievement of pre-specified milestone events that are met by two independent products, including up to $26 million for the achievement of development milestones, up to $150 million for the achievement of regulatory milestones and up to $120 million for the achievement of commercialization milestones. In addition, we are eligible to receive royalties on future product sales of XEN701 and a portion of sublicense revenue. We will earn the next milestone payment of $3 million if Xenon initiates a Phase 2 clinical trial for XEN701.

During the three and six months ended June 30, 2013, we earned revenue of $3.5 million from our relationship with Xenon.

External Project Funding

CHDI Foundation, Inc.

Starting in November 2007, CHDI provided financial and scientific support to our HD drug discovery program through our development collaboration. In April 2013, we formed an alliance with Roche to develop treatments for HD. Under the terms of our agreement with CHDI, we will reimburse CHDI for a portion of its support of our HD program out of the payments we receive from Roche. In April 2013, we paid CHDI $1.5 million associated with the signing of the Roche agreement, which we recorded as research and development expense. We will also pay CHDI $1.5 million when we select an HD development candidate. If we achieve certain milestones under our collaboration with Roche, we will make additional payments to CHDI. During the three and six months ended June 30, 2013, we earned revenue of $122,000 and $414,000, respectively, from our relationship with CHDI.