SEC Filing | Ionis Pharmaceuticals, Inc.

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001
OR

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-19125

ISIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporations or organization)

33-0336973
(I.R.S. Employer Identification No.)

2292 Faraday Avenue, Carlsbad, CA 92008
(Address of principal executive offices, including zip code)

(760) 931-9200
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1) Yes X

(2) Yes X

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common stock $.001 par value
(Class)

42,247,956 shares
(Outstanding at June 30, 2001)

ISIS PHARMACEUTICALS, INC.
FORM 10-Q

INDEX

		Page
PART I	FINANCIAL INFORMATION
ITEM 1:	Financial Statements
	Condensed Balance Sheets as of June 30, 2001 and December 31, 2000	3
	Condensed Statements of Operations for the three and six months ended June 30, 2001 and 2000	4
	Condensed Statements of Cash Flows for the six months ended June 30, 2001 and 2000	5
	Notes to Financial Statements	6
ITEM 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
	Results of Operations	9
	Liquidity and Capital Resources	10
	Risk Factors	12
	Quantitative and Qualitative Disclosures About Market Risk	15
PART II	OTHER INFORMATION
ITEM 1:	Legal Proceedings	16
ITEM 2:	Changes in Securities	16
ITEM 3:	Default upon Senior Securities	16
ITEM 4:	Submission of Matters to a Vote of Security Holders	16
ITEM 5:	Other Information	16
ITEM 6:	Exhibits and Reports on Form 8-K	16
SIGNATURES		17

ISIS PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share data)

				June 30, 2001			December 31, 2000
				(Unaudited)			(Note)
ASSETS
Current assets:
Cash and cash equivalents				$	12,736		$	39,615
	Short-term investments				93,562			87,647
	Contracts receivable				2,098			3,346
	Prepaids and other current assets				2,545			2,596

		Total current assets			110,941			133,204
Property, plant and equipment, net					23,330			22,625
Licenses, net					29,934			500
Patents, net					15,016			13,815
Investments in affiliates					7,094			12,491
Deposits and other assets					1,213			621

		Total assets		$	187,528		$	183,256

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	2,805		$	2,231
	Accrued compensation				2,744			3,598
	Accrued liabilities				1,742			1,429
	Deferred revenues				5,877			2,771
	Current portion of long term obligations				12,766			4,607

		Total current liabilities			25,934			14,636
Long-term obligations, less current portion					115,666			102,254
Stockholders' equity:
	Series A Convertible Exchangeable 5% Preferred stock, $.001 par value, 120,150 shares authorized, issued and outstanding at June 30, 2001 and December 31, 2000				12,015			12,015
	Accretion of Series A Preferred stock dividends				1,376			1,050
	Series B Convertible Exchangeable 5% Preferred stock, $.001 par value, 16,620 shares authorized, 12,015 shares issued and outstanding at June 30, 2001 and December 31, 2000				12,015			12,015
	Accretion of Series B Preferred Stock dividends				899			584
	Common stock, $.001 par value, 100,000,000 shares authorized, 42,247,956 shares and 40,085,447 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively				42			40
	Additional paid-in capital				377,333			352,854
	Deferred compensation				(329	)		(858	)
	Accumulated other comprehensive income				569			126
	Accumulated deficit				(357,992	)		(311,460	)

		Total stockholders' equity			45,928			66,366

			Total liabilities and stockholders' equity	$	187,528		$	183,256

Note: The balance sheet at December 31, 2000 has been derived
from the audited financial statements at that date.
See accompanying notes.

ISIS PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

			Three months ended June 30,						Six months ended June 30,
			2001			2000			2001			2000
Revenue:
	Research and development revenues under collaborative agreements		$	5,114		$	4,139		$	7,903		$	6,888
	Research and development revenues from affiliates			2,432			2,761			4,148			3,929
	Licensing and royalty revenue			46			85			174			222

		Total revenue		7,592			6,985			12,225			11,039

Expenses:
	Research and development			19,924			12,746			39,059			25,985
	General and administrative			2,778			2,414			5,593			4,238
	Compensation related to stock options			1,354			—			1,271			—
	Restructuring activities			—			—			—			1,608

		Total operating expenses		24,056			15,160			45,923			31,831

Loss from operations				(16,464	)		(8,175	)		(33,698	)		(20,792	)
	Equity in loss of affiliates			(4,194	)		(4,594	)		(8,158	)		(8,089	)
	Interest income			1,106			1,596			3,083			2,488
	Interest expense			(3,491	)		(3,129	)		(7,117	)		(6,236	)

Net loss				(23,043	)		(14,302	)		(45,890	)		(32,629	)
	Accretion of dividends on preferred stock			(323	)		(306	)		(642	)		(587	)

Net loss applicable to common stock			$	(23,366	)	$	(14,608	)	$	(46,532	)	$	(33,216	)

Basic and diluted net loss per share			$	(0.58	)	$	(0.40	)	$	(1.15	)	$	(0.95	)

Shares used in computing basic and diluted Net loss per share				40,492			36,979			40,322			35,021

See accompanying notes.

ISIS PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six months ended June 30,
	2001			2000
Net cash used in operating activities	$	(24,222	)	$	(19,385	)
Investing activities:
Short-term investments		(5,472	)		(40,745	)
Property and equipment		(3,006	)		(924	)
Licenses and other assets		(17,683	)		(876	)
Investment in affiliates		(3,333	)		(15,865	)

Net cash used in investing activities		(29,494	)		(58,410	)

Financing activities:
Net proceeds from issuance of equity securities		24,379			102,103
Proceeds from long-term borrowings		4,043			3,850
Principal payments on debt and capital lease obligations		(1,585	)		(1,411	)

Net cash provided from financing activities		26,837			104,542

Net (decrease) increase in cash and cash equivalents		(26,879	)		26,747
Cash and cash equivalents at beginning of period		39,615			35,296

Cash and cash equivalents at end of period	$	12,736		$	62,043

Supplemental disclosures of cash flow information:
Interest paid	$	1,524		$	530

Supplemental disclosures of non-cash investing and financing activities:
Conversion of preferred stock dividends into preferred stock	$	—		$	308

Additions to debt for licensing costs	$	13,500		$

See accompanying notes.

ISIS PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim financial statements for the six month periods ended June 30, 2001 and 2000 have been prepared on the same basis as the Company's audited financial statements for the year ended December 31, 2000. The financial statements include all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position at such dates and the operating results and cash flows for those periods. Results for the interim periods are not necessarily indicative of the results for the entire year. For more complete financial information, these financial statements, and notes thereto, should be read in conjunction with the audited financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission.

Revenue Recognition

Revenue is generally recognized when all contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Research and development contract revenues from cost-reimbursement agreements are recorded as the related expenses are incurred, up to the contractual limits. Payments received that are related to future performance are deferred and recorded as revenue as they are earned over specified future performance periods. Research and development payments for which no services are required to be performed in the future are recognized as revenues upon receipt of such payments. Revenues related to nonrefundable, upfront fees are recognized over the period of the contractual arrangements as performance obligations related to the services to be provided have been satisfied. Revenue from product sales is recognized at the time products are shipped.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2. Strategic Alliances

Affiliates

Isis currently has two joint ventures with Elan Corporation, plc (Elan). In April 1999, Orasense Ltd. (Orasense) was formed to develop technology for the formulation of oral oligonucleotide drugs. In January 2000, the second joint venture, HepaSense Ltd. (HepaSense), was formed to treat patients chronically infected with the Hepatitis C virus. Both affiliates are Bermuda limited companies. Each entity's outstanding common stock is owned 80.1% by Isis and 19.9% by Elan.

Elan and its subsidiaries have retained significant minority investor rights that are considered "participating rights" as defined in EITF 96-16 in each entity. Therefore, Isis does not consolidate the financial statements of Orasense or HepaSense, but instead accounts for the investments in each under the equity method of accounting. For the quarter and six month periods ended June 30, 2001, Isis recognized $2.4 million and $4.1 million, respectively, in revenue for research and development activities performed for these joint ventures. For the three and six month periods ended June 30, 2000,

Isis reported $2.8 million and $3.9 million in revenue, respectively. These amounts are included as research and development revenues from affiliates for the respective periods.

The results of operations of Orasense for the quarter and six month periods ended June 30, 2001 and 2000 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001			2000
Revenue	$	—		$	—		$	—		$	—
Research and development expense		3,173			3,037			5,633			6,151

Net loss	$	(3,173	)	$	(3,037	)	$	(5,663	)	$	(6,151	)

The results of operations of HepaSense for the quarter and six month periods ended June 30, 2001 and 2000 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001			2000
Revenue	$	—		$	—		$	—		$	—
Research and development expense		2,062			2,689			4,216			3,939

Net loss	$	(2,062	)	$	(2,689	)	$	(4,216	)	$	(3,939	)

Agouron Pharmaceuticals, Inc., a Pfizer Company

In May 2001, Ibis Therapeutics™, a division of Isis, earned a $2.5 million research milestone payment from Agouron Pharmaceuticals, Inc., a Pfizer Company (Pfizer), for progress in Ibis' collaboration to discover small molecule drugs that bind to RNA. The payment was included as research and development revenue under collaborative agreements for the three and six month periods ended June 30, 2001.

Merck & Company, Inc.

In May 2001, Isis and Merck & Company, Inc. (Merck) announced that Isis licensed its preclinical Type 2 diabetes antisense drug candidate, ISIS 113715, to Merck. Merck will undertake the future development and commercialization of the compound. Isis received an upfront payment for certain expenses associated with the preclinical development of the drug. In addition, Merck will make a series of milestone payments to Isis on the achievement of development and regulatory milestones for the drug. Merck will also make royalty payments based on sales of the drug. Isis recorded a portion of the payment as research and development revenue during the second quarter of 2001 with the balance to be recognized over the period of Isis' continued involvement with the agreement.

Hybridon, Inc.

In May 2001, Isis and Hybridon, Inc. entered into an agreement under which Isis acquired an exclusive license to all of Hybridon's antisense chemistry and delivery patents and technology. Hybridon received a license to Isis' suite of RNase H patents. In exchange for the license to Hybridon's antisense patents, Isis paid $15.0 million in cash and will pay Hybridon $19.5 million in Isis common stock over the next two years. In return for access to Isis' patents, Hybridon will pay Isis $6.0 million in Hybridon common stock over the next three years. Isis' balance sheet at June 30, 2001 reflects a licensing asset for the net amount of $28.3 million related to this agreement.

3. Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income, requires the Company to report, in addition to net loss, comprehensive income (loss) and its components. A summary follows:

	Statements of Comprehensive Loss (Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001			2000
Comprehensive loss:
Change in unrealized gains(losses)	$	(30	)	$	(68	)	$	443		$	3
Net loss		(23,366	)		(14,608	)		(46,532	)		(33,216	)

Comprehensive loss	$	(23,396	)	$	(14,676	)	$	(46,089	)	$	(33,213	)

4. Financing

In June 2001, Isis issued 1,986,874 shares of common stock at prices ranging from $11.03 to $11.50 per share.

5. Subsequent Events

In July 2001, Isis entered into a collaboration with PE Corporation through the Celera Genomics Group (Celera), in which Celera will employ Isis' GeneTrove division to identify the biological role of more than 200 genes. Isis will recognize the related revenue over the 18 month term of the agreement as the services are performed.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements regarding our business and the therapeutic and commercial potential of our technologies and products in development. Such statements are subject to certain risks and uncertainties, particularly those risks and uncertainties inherent in the process of discovering, developing and commercializing drugs that can be proven to be safe and effective for use as human therapeutics, and the endeavor of building a business around such potential products. Actual results could differ materially from those discussed in this Form 10-Q. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2000 which is on file with the U.S. Securities and Exchange Commission and those identified in the section of Item 2 entitled "Risk Factors" of this report. As a result, the reader is cautioned not to rely on these forward-looking statements.

Since our inception in January 1989, almost all of our resources have been devoted to research, drug discovery and drug development programs. We are not yet profitable and expect to continue to have operating losses for the next several years. Our revenue comes from collaborative research and development agreements with pharmaceutical companies, the sale and licensing of our intellectual property, research grants and interest income. The revenue from the collaboration agreements increases the amount of research and development activity that we are able to fund and offsets a portion of our research and development costs. In 1998, we received approval from the U.S. Food and Drug Administration, or FDA, to begin marketing our first product, Vitravene™, a drug used to treat CMV retinitis.

Results of Operations

Our total revenue for the quarter and six months ended June 30, 2001 was $7.6 million and $12.2 million, respectively, compared to $7.0 million and $11.0 million for the same periods of 2000. The increase in revenue for the quarter and six months ended June 30, 2001 compared to the same periods of 2000, was due primarily to our licensing of ISIS 113715, a preclinical Type 2 diabetes candidate, to Merck and the $2.5 million milestone that our Ibis Therapeutics division earned in its collaboration with Pfizer. The increase was partially offset by the conclusion of research funding from AstraZeneca and certain government grants.

Our research and development expenses were $19.9 million for the three months ended June 30, 2001, and $39.1 million for the six months ended June 30, 2001, compared with $12.7 million and $26.0 million for the same periods of 2000. The increase in expenses in 2001 compared to 2000 was driven by the cost of preclinical and clinical activities to advance the development of our drugs. Currently we have eleven products in development, up from seven in the same period of last year. Additionally, seven of the eleven products are in the more expensive stages of development, Phase 2 or Phase 3 clinical trials.

Our general and administrative expenses increased slightly to $2.8 million for the second quarter and $5.6 million for the six months ended June 30, 2001, from $2.4 million and $4.2 million for the same periods of 2000. The increase was primarily due to additional expense required to support our increasing research and development activities.

Our compensation related to stock options for the quarter and six months ended June 30, 2001 was $1.4 million and $1.3 million, respectively. There was no similar expense recorded for the same periods of 2000. The expense was primarily a result of an exchange we made regarding certain existing options to non-officer employees completed in January 2000. These exchanged options are required to be accounted for as variable stock options in accordance with Financial Accounting Standards Board Interpretation No. 44. Variable stock options can result in significant increases and decreases in compensation expense subject to the variability of our stock price. In addition, we account for stock

options granted to consultants in accordance with EITF 96-18, which also contributed to these expenses.

Our interest expense for the quarter and six months ended June 30, 2001 was $3.5 million and $7.1 million, respectively, compared to $3.1 million and $6.2 million for the same periods of 2000. The increase was due to the increase in debt on the convertible debt facilities available to us from Elan to fund research and development activities for Orasense and HepaSense. During the second quarter we borrowed an additional $3.3 million resulting in a June 30, 2001 balance of $15.6 million, compared to $6.4 million for the same period of 2000. Also contributing to the increase in our interest expense, was the interest accruing on our $40 million debt financing that was completed in the fourth quarter of 1997 and the second quarter of 1998. In this financing, interest accrues for the first five years and no principal payments are due for 10 years.

Interest income decreased to $1.1 million for the second quarter and increased to $3.1 million for the six months ended June 30, 2001, from $1.6 million and $2.5 million for the same periods of 2000. The decrease in interest income for the quarter ended June 30, 2001 compared to the same period of 2000 is related to lower average cash and investment balances for the quarter combined with lower rates of return on investments in 2001 compared to 2000. The increase in interest income for the six months ending June 30, 2001 compared to the same period in 2000 was due to higher average investment balances during the 2001 period offset by lower rates of return in 2001 compared to 2000.

During the quarter and six months ended June 30, 2001 we recorded a net loss applicable to common stock of $23.4 million and $46.5 million, or $0.58 and $1.15 per share, respectively, compared with $14.6 million and $33.2 million, or $0.40 and $0.95 per share, respectively, for the same periods in 2000. Our loss from operations was $16.5 million for the second quarter of 2001, compared to $8.2 million for the same period in 2000. The increases in our net loss applicable to common stock and loss from operations were primarily the result of increased operating expenses related to the eleven products we have in development, including the ongoing Phase 3 trial of Isis 3521 in patients with non small cell lung cancer. This program, the planned Phase 3 trial of Isis 2302 in patients with Crohn's disease, and the continued aggressive development of the remaining drugs in our pipeline, will result in increased expenses and lead to an increase in our net loss from operations for 2001 over our 2000 net loss from operations. Additionally, non-cash compensation related to stock options included in expenses for the quarter and six months ended June 30, 2001 was $1.4 million and $1.3 million, respectively. We expect operating losses to fluctuate from quarter to quarter because of differences in the timing of revenue recognized, and expenses incurred.

We believe that inflation and changing prices have not had a material effect on our operations to date.

Liquidity and Capital Resources

We have financed our operations with revenue from contract research and development, revenue from the sale or licensing of our intellectual property, the sale of our equity securities, and the issuance of long-term debt. From our inception through June 30, 2001, we have earned approximately $230 million in revenue from contract research and development and the sale and licensing of our intellectual property. Since we were founded, we have raised net proceeds of approximately $392 million from the sale of equity securities. We have borrowed approximately $86.3 million under long-term debt arrangements to finance a portion of our operations.

As of June 30, 2001, we had cash, cash equivalents and short-term investments totaling $106.3 million and working capital of $85.0 million. In comparison, we had cash, cash equivalents and short-term investments of $127.3 million and working capital of $118.6 million as of December 31, 2000. The decreases in our cash, cash equivalents and short-term investments, and working capital in 2001 from 2000 were due primarily to cash used to fund our operations, and the decision to strengthen

our intellectual property by entering into a licensing agreement with Hybridon, Inc. The decrease was partially offset by the sale of our common stock to an institutional investor in the second quarter of 2001.

In 1997 and 1998, we borrowed a total of $40 million in private transactions. The loans bear interest at 14% per annum and must be repaid on November 1, 2007. The interest accrues during the first five years of the loans. After the first five years, interest must be paid quarterly. No principal payments are required until November 1, 2007. In conjunction with these transactions, we issued warrants to purchase 800,000 shares of common stock at a price of $25 per share. The warrants issued in connection with both of these financings expire on November 1, 2004. Because interest is accrued during the first five years, the balance of these borrowings will accrue to a total of $78 million on November 1, 2002. The debt under these arrangements is carried on our balance sheet, net of the amortized amount allocated to the warrants and including accrued interest. The combined carrying amount of these notes at June 30, 2001 was $64.8 million.

As of June 30, 2001, our long-term obligations totaled $115.7 million, versus $102.3 million at December 31, 2000. The increase was primarily due to the accrual of interest on the ten-year notes described above and our convertible debt facilities. This increase was partially offset by principal repayments on existing obligations. We expect that capital lease obligations will increase over time to fund capital equipment acquisitions required for our growing business. We will continue to use lease financing as long as the terms remain commercially attractive. We believe that our existing cash, cash equivalents and short-term investments at June 30, 2001, combined with contract revenue and interest income should be sufficient to fund our operations for the next 30 to 36 months.

RISK FACTORS

Please consider the following risk factors carefully in addition to the other information contained in this report.

Our business will suffer if we fail to obtain regulatory approval for our products.

We must conduct time-consuming, extensive and costly clinical trials, in compliance with U.S. Food and Drug Administration regulations, and by comparable authorities in other countries, to show the safety and efficacy of each of our drug candidates, as well as the optimum dosage for each, before the FDA can approve a drug candidate for sale. We may not be able to obtain necessary regulatory approvals on a timely basis, if at all, for any of our products under development. Delays in receiving these approvals, failure by us or our partners to receive these approvals at all or failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Significant additional trials may be required, and we may not be able to demonstrate that our drug candidates are safe or effective. We have only introduced one commercial product, Vitravene. We cannot guarantee that any of our other product candidates will obtain required government approvals or that we can successfully commercialize any products.

Our business will suffer if our products are not used by doctors to treat patients.

We cannot guarantee that any of our products in development, if approved for marketing, will be used by doctors to treat patients. We currently have one product, Vitravene, a treatment for CMV retinitis in AIDS patients, which addresses a small commercial market with significant competition. However, we may not be successful in commercializing additional products.

The degree of market acceptance for any of our products depends upon a number of factors, including: the receipt and scope of regulatory approvals; the establishment and demonstration in the medical and patient community of the clinical efficacy and safety of our product candidates and their potential advantages over competitive products; and reimbursement policies of government and third-party payors. In addition, physicians, patients, patient advocates, payors or the medical community in general may not accept and use any products that we may develop.

Our business will suffer if any of our collaborative partners fail to develop, fund or sell any of our products under development or if we are unable to obtain additional partners.

If any collaborative partner fails to develop or sell any product in which we have rights, our business may be negatively affected. While we believe that our collaborative partners will have sufficient motivation to continue their funding, development and commercialization activities, we cannot be sure that any of these collaborations will be continued or result in commercialized products. The failure of a corporate partner to continue funding any particular program could delay or stop the development or commercialization of any products resulting from such program.

Collaborative partners may be pursuing other technologies or developing other drug candidates either on their own or in collaboration with others, including our competitors, to develop treatments for the same diseases targeted by our own collaborative programs.

We also may wish to rely on additional collaborative arrangements to develop and commercialize our products in the future. However, we may not be able to negotiate acceptable collaborative arrangements in the future, and, even if successfully negotiated, the collaborative arrangements themselves may not be successful.

Our business could suffer if the results of clinical testing indicate that any of our products under development are not suitable for commercial use.

Drug discovery and development involves inherent risks, including the risk that molecular targets prove unsuccessful and the risk that compounds that demonstrate attractive activity in preclinical studies do not demonstrate similar activity in human beings or have undesirable side effects. Most of our resources are dedicated to applying molecular biology and medicinal chemistry to the discovery and development of drug candidates based upon antisense technology, a novel drug discovery tool for designing drugs that work at the genetic level to block the production of disease-causing proteins.

We have incurred losses and our business will suffer if we fail to achieve profitability in the future.

Because of the nature of the business of drug discovery and development, our expenses have exceeded our revenues since we were founded in January 1989. As of June 30, 2001, our accumulated losses were approximately $358 million. Most of the losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our growth and operations. These costs have exceeded our revenues, most of which have come from collaborative arrangements, interest income and research grants. Our product revenues to date have been derived solely from sales of Vitravene. This product has limited sales potential. We expect to incur additional operating losses over the next several years, and we expect losses to increase as our preclinical testing and clinical trial efforts continue to expand. We cannot guarantee that we will successfully develop, receive regulatory approval for, commercialize, manufacture, market or sell any additional products, or achieve or sustain future profitability.

Our business will suffer if we fail to obtain timely funding.

Based on our current operating plan, we believe that our available cash and existing sources of revenue and credit, together with the interest earned on those funds, will be adequate to satisfy our capital needs for the next 30 to 36 months. We expect that we will need substantial additional funding in the future. Our future capital requirements will depend on many factors, such as the following: continued scientific progress in our research, drug discovery and development programs; the size of these programs and progress with preclinical and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs involved in filing, prosecuting and enforcing patent claims; competing technological and market developments, including the introduction of new therapies that address our markets; costs of commercialization of products; and changes in existing collaborative relationships and our ability to establish and maintain additional collaborative arrangements.

Additional funds will need to be raised through public or private financing. Additional financing may not be available, or, if available, may not be available on acceptable terms. If additional funds are raised by issuing equity securities, the shares of existing stockholders will be subject to further dilution and share prices may decline. If adequate funds are not available, we may be required to cut back on one or more of our research, drug discovery or development programs or obtain funds through arrangements with collaborative partners or others if available. These arrangements may require us to give up rights to certain of our technologies, product candidates or products.

Our business will suffer if we cannot manufacture our products or have a third party manufacture our products at low costs so as to enable us to charge competitive prices to buyers.

To establish additional commercial manufacturing capability on a large scale, we must improve our manufacturing processes and reduce our product costs. The manufacture of sufficient quantities of new drugs is typically a time-consuming and complex process. Pharmaceutical products based on chemically modified oligonucleotides have never been manufactured on a large commercial scale. There are a limited number of suppliers for certain capital equipment and raw materials that we use to manufacture

our drugs, and some of these suppliers will need to increase their scale of production to meet our projected needs for commercial manufacturing. We may not be able to manufacture at a cost or in quantities necessary to make commercially successful products.

Our business will suffer if we fail to compete effectively with our competitors.

Our competitors are engaged in all areas of drug discovery in the United States and other countries, are numerous, and include, among others, major pharmaceutical and chemical companies, specialized biopharmaceutical firms, universities and other research institutions. Our competitors may succeed in developing other new therapeutic drug candidates that are more effective than any drug candidates that we are developing. These competitive developments could make our technology and products obsolete or non-competitive before we have had enough time to develop and commercialize our products, or to recover our research, development or commercialization expenses.

Many of our competitors have substantially greater financial, technical and human resources than we do. In addition, many of these competitors have significantly greater experience than we do in conducting preclinical testing and human clinical trials of new pharmaceutical products and in obtaining FDA and other regulatory approvals of products for use in health care. Accordingly, our competitors may succeed in obtaining regulatory approval for products earlier than we do. We will also compete with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited or no experience.

Our business will suffer if we are unable to protect our patents or our proprietary rights.

Our success depends to a significant degree upon our ability to develop proprietary products. However, patents may not be granted on any of our pending patent applications in the United States or in other countries. In addition, the scope of any of our issued patents may not be sufficiently broad to offer meaningful protection. Furthermore, our issued patents or patents licensed to us could potentially be successfully challenged, invalidated or circumvented so that our patent rights would not create an effective competitive barrier.

Intellectual property litigation could harm our business

It is possible that we may have to defend our intellectual property rights in the future. In the event of an intellectual property dispute, we may be forced to litigate or otherwise defend our intellectual property assets. Disputes could involve litigation or proceedings declared by the United States Patent and Trademark Office or the International Trade Commission. Intellectual property litigation can be extremely expensive, and this expense, as well as the consequences should we not prevail, could seriously harm our business.

If a third party claimed an intellectual property right to technology we use, we might be forced to discontinue an important product or product line, alter our products and processes, pay license fees or cease certain activities. We may not be able to obtain a license to such intellectual property on favorable terms, if at all.

The loss of key personnel, or the inability to attract and retain highly skilled personnel, could adversely affect our business.

We are dependent on the principal members of our management and scientific staff. We do not have employment agreements with any of our management. The loss of our management and key scientific employees might slow the achievement of important research and development goals. It is also critical to our success that we recruit and retain qualified scientific personnel to perform research and development work. We may not be able to attract and retain skilled and experienced scientific

personnel on acceptable terms, because of intense competition for experienced scientists among many pharmaceutical and health care companies, universities and non-profit research institutions.

Our stock price may continue to be highly volatile.

The market price of our common stock, like that of the securities of many other biopharmaceutical companies, has been and is likely to continue to be highly volatile. During the past twelve months, the market price of our common stock has ranged from $7.94 to $15.00 per share. The market price can be affected by many factors, including, for example, fluctuations in our operating results, announcements of clinical trial results, technological innovations or new drug products being developed by us or our competitors, governmental regulation, regulatory approval, developments in patent or other proprietary rights, public concern regarding the safety of our drugs and general market conditions.

Provisions in our Certificate of Incorporation, other agreements and Delaware law may prevent stockholders from receiving a premium for their shares.

Our certificate of incorporation provides for classified terms for the members of our board of directors. Our certificate also includes a provision that requires at least 66²/3% of our voting stockholders to approve a merger or certain other business transactions with, or proposed by, any holder of 15% or more of our voting stock, except in cases where certain directors approve the transaction or certain minimum price criteria and other procedural requirements are met.

Our certificate of incorporation also requires that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of stockholders and may not be taken by written consent. In addition, special meetings of our stockholders may be called only by the board of directors, the chairman of the board or the president, or by any holder of 10% or more of our outstanding common stock. These provisions, as well as Delaware law and other of our agreements including our stockholders' Rights Plan, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our stockholders to approve transactions that they think may be in their best interests. In addition, our board of directors has the authority to fix the rights and preferences of and issue shares of preferred stock, which may have the effect of delaying or preventing a change in control of Isis without action by the stockholders.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates primarily from our long-term debt arrangements and, secondarily, investments in certain short-term investments. We invest our excess cash in highly liquid short-term investments that are typically held for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 9, 2001, Isis filed suit against Sequitur, Inc. in the United States District Court for the Southern District of California. The suit alleges infringement of United States Patent No. 6,001,653 entitled "Human Type 2 RNase H", which was issued to Isis on December 14, 1999.

ITEM 2. CHANGES IN SECURITIES

Not applicable.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.: Exhibits

3.1		Bylaws of Isis Pharmaceuticals, Inc.
3.2		Amended and Restated Certificate of Incorporation filed April 9, 2001
10.1		Agreement between the Registrant and Merck & Co., Inc., dated May 22, 2001 (with certain confidential information deleted)
10.2		Master Agreement between the Registrant and Hybridon, Inc., dated May 24, 2001 (with certain confidential information deleted)
10.3		Agreement between the Registrant and PE Corporation through the Celera Genomics Group, dated July 9, 2001 (with certain confidential information deleted)

b.: Reports on Form 8-K

Not applicable.

ISIS PHARMACEUTICALS, INC.
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ISIS PHARMACEUTICALS, INC.
(Registrant)

Date: August 10, 2001	By:	/s/ STANLEY T. CROOKE Stanley T. Crooke, M.D., Ph.D. Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Date: August 10, 2001	By:	/s/ B. LYNNE PARSHALL B. Lynne Parshall Executive Vice President and Chief Financial Officer (Principal Financial Officer)

QuickLinks

INDEX
CONDENSED BALANCE SHEETS
CONDENSED STATEMENTS OF OPERATIONS
CONDENSED STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RISK FACTORS

PART II—OTHER INFORMATION

SIGNATURES

BYLAWS

ISIS PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)

TABLE OF CONTENTS

PAGE

ARTICLE I OFFICES..............................................................................1

Section 1. Registered Office..................................................................1

Section 2. Other Offices......................................................................1

ARTICLE II CORPORATE SEAL.......................................................................1

Section 3. Corporate Seal.....................................................................1

ARTICLE III STOCKHOLDERS' MEETINGS...............................................................1

Section 4. Place Of Meetings..................................................................1

Section 5. Annual Meetings....................................................................1

Section 6. Special Meetings...................................................................4

Section 7. Notice Of Meetings.................................................................4

Section 8. Quorum.............................................................................5

Section 9. Adjournment And Notice Of Adjourned Meetings.......................................5

Section 10. Voting Rights......................................................................6

Section 11. Joint Owners Of Stock..............................................................6

Section 12. List Of Stockholders...............................................................6

Section 13. Action Without Meeting.............................................................6

Section 14. Organization.......................................................................7

ARTICLE IV DIRECTORS............................................................................7

Section 15. Number And Term Of Office..........................................................7

Section 16. Powers.............................................................................7

Section 17. Classes of Directors...............................................................7

Section 18. Vacancies..........................................................................8

Section 19. Resignation........................................................................8

Section 20. Meetings...........................................................................8

Section 21. Quorum And Voting..................................................................9

Section 22. Action Without Meeting............................................................10

Section 23. Fees And Compensation.............................................................10

Section 24. Committees........................................................................10

Section 25. Organization......................................................................11

ARTICLE V OFFICERS............................................................................11

TABLE OF CONTENTS
(Continued)
PAGE

Section 26. Officers Designated...............................................................11

Section 27. Tenure And Duties Of Officers.....................................................12

Section 28. Delegation Of Authority...........................................................13

Section 29. Resignations......................................................................13

Section 30. Removal...........................................................................13

ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION.........................................................................14

Section 31. Execution Of Corporate Instruments................................................14

Section 32. Voting Of Securities Owned By The Corporation.....................................14

ARTICLE VII SHARES OF STOCK.....................................................................14

Section 33. Form And Execution Of Certificates................................................14

Section 34. Lost Certificates.................................................................15

Section 35. Transfers.........................................................................15

Section 36. Fixing Record Dates...............................................................15

Section 37. Registered Stockholders...........................................................16

ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.................................................16

Section 38. Execution Of Other Securities.....................................................16

ARTICLE IX DIVIDENDS...........................................................................17

Section 39. Declaration Of Dividends..........................................................17

Section 40. Dividend Reserve..................................................................17

ARTICLE X FISCAL YEAR.........................................................................17

Section 41. Fiscal Year.......................................................................17

ARTICLE XI INDEMNIFICATION.....................................................................17

Section 42. Indemnification Of Directors, Executive Officers, Other Officers, Employees
And Other Agents..................................................................17

ARTICLE XII NOTICES.............................................................................20

Section 43. Notices...........................................................................20

Section 44. Amendments........................................................................21

ARTICLE XIV LOANS TO OFFICERS...................................................................22

Section 45. Loans To Officers.................................................................22

BYLAWS

ISIS PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent. (Del.
Code Ann., tit. 8, Section 131)

SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))

ARTICLE II

CORPORATE SEAL

SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal. The corporate seal shall consist of a die bearing the name of
the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. (Del. Code Ann., tit. 8, Section 122(3))

ARTICLE III

STOCKHOLDERS' MEETINGS

SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation may be held at such place, either within or without the State of
Delaware, as may be determined from time to time by the Board of Directors. The
Board of Directors may, in its sole discretion, determine that the meeting shall
not be held at any place, but may instead be held solely by means of remote
communication as provided under the Delaware General Corporation Law ("DGCL").
(Del. Code Ann., tit. 8, Section 211(a))

SECTION 5. ANNUAL MEETINGS.

(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.

Nominations of persons for election to the Board of Directors of the corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders: (i) pursuant to the corporation's notice of
meeting of stockholders; (ii) by or at the direction of the Board of Directors;
or (iii) by any stockholder of the corporation who was a stockholder of record
at the time of giving of notice provided for in the following paragraph, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 5. (Del. Code Ann., tit. 8, Section 211(b)).

(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, (ii) such other business must be a proper
matter for stockholder action under DGCL, (iii) if the stockholder, or the
beneficial owner on whose behalf any such proposal or nomination is made, has
provided the corporation with a Solicitation Notice (as defined in this Section
5(b)), such stockholder or beneficial owner must, in the case of a proposal,
have delivered a proxy statement and form of proxy to holders of at least the
percentage of the corporation's voting shares required under applicable law to
carry any such proposal, or, in the case of a nomination or nominations, have
delivered a proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section 5. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the ninetieth (90th) day
nor earlier than the close of business on the one hundred twentieth (120th) day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced more
than thirty (30) days prior to or delayed by more than thirty (30) days after
the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the one hundred twentieth (120th) day prior to such annual meeting
and not later than the close of business on the later of the ninetieth (90th)
day prior to such annual meeting or the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made. In no event
shall the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth: (A) as to each person whom the
stockholder proposed to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (B) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting

and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal, at
least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"Solicitation Notice").

(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.

(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.

(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation's proxy statement pursuant to
Rule 14a-8 under the 1934 Act.

(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.

SECTION 6. SPECIAL MEETINGS.

(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).

(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by certified or registered mail, return
receipt requested, to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the Board of Directors
may be held.

(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.

SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, notice, given in writing or by electronic
transmission, of each meeting of stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting, such notice to specify the place,
if any, date and hour and purpose or purposes of the meeting and the means of
remote communications, if any, by which stockholders and proxy holders may be
deemed to be

present in person and vote at such meeting. Notice of the time, place, if any,
and purpose of any meeting of stockholders may be waived in writing, signed by
the person entitled to notice thereof, or by electronic transmission by such
person, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person, by remote communication, if
applicable, or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given. (Del. Code Ann., tit. 8, Sections 222, 229)

SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person, by remote communication, if applicable,
or by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the transaction
of business. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by
statute or by applicable stock exchange or Nasdaq rules, or by the Certificate
of Incorporation or these Bylaws, in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person, by
remote communication, if applicable, or represented by proxy at the meeting and
entitled to vote generally on the subject matter shall be the act of the
stockholders. Except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, directors shall be elected by a plurality of the
votes of the shares present in person, by remote communication, if applicable,
or represented by proxy at the meeting and entitled to vote generally on the
election of directors. Where a separate vote by a class or classes or series is
required, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person, by remote communication, if
applicable, or represented by proxy duly authorized, shall constitute a quorum
entitled to take action with respect to that vote on that matter. Except where
otherwise provided by statute or by the Certificate of Incorporation or these
Bylaws, the affirmative vote of the majority (plurality, in the case of the
election of directors) of shares of such class or classes or series present in
person, by remote communication, if applicable, or represented by proxy at the
meeting shall be the act of such class or classes or series. (Del. Code Ann.,
tit. 8, Section 216)

SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
present in person, by remote communication, if applicable, or represented by
proxy at the meeting. When a meeting is adjourned to another time or place, if
any, notice need not be given of the adjourned meeting if the time and place, if
any, thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if

after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. (Del. Code Ann., tit. 8, Section 222(c))

SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person, by
remote communication, if applicable, or by an agent or agents authorized by a
proxy granted in accordance with Delaware law. An agent so appointed need not be
a stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8,
Sections 211(e), 212(b))

SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the DGCL, Section 217(b). If the instrument
filed with the Secretary shows that any such tenancy is held in unequal
interests, a majority or even-split for the purpose of subsection (c) shall be a
majority or even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))

SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting, (a)
on a reasonably accessible electronic network, provided that the information
required to gain access to such list is provided with the notice of the meeting,
or (b) during ordinary business hours, at the principal place of business of the
corporation. In the event that the corporation determines to make the list
available on an electronic network, the corporation may take reasonable steps to
ensure that such information is available only to stockholders of the
corporation. The list shall be open to examination of any stockholder during the
time of the meeting as provided by law. (Del. Code Ann., tit. 8, Section 219)

SECTION 13. ACTION WITHOUT MEETING.

(a) No action shall be taken by the stockholders except at an
annual or special meeting of stockholders called in accordance with these
Bylaws, and no action shall be taken by the stockholders by written consent or
by electronic transmission.

SECTION 14. ORGANIZATION.

(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b),
211(b), (c))

SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))

SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. At the first annual meeting of
stockholders following the initial classification of the Board of Directors, the

term of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following such initial classification, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
such initial classification, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.

Notwithstanding the foregoing provisions of this section, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

SECTION 18. VACANCIES.

(a) Unless otherwise provided in the Certificate of
Incorporation and subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director. (Del. Code Ann., tit.
8, Section 223(a), (b))

SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his or her notice in writing or by electronic transmission to the
Secretary, such resignation to specify whether it will be effective at a
particular time, upon receipt by the Secretary or at the pleasure of the Board
of Directors. If no such specification is made, it shall be deemed effective at
the pleasure of the Board of Directors. When one or more directors shall resign
from the Board of Directors, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each Director so chosen
shall hold office for the unexpired portion of the term of the Director whose
place shall be vacated and until his successor shall have been duly elected and
qualified. (Del. Code Ann., tit. 8, Sections 141(b), 223(d))

SECTION 20. MEETINGS.

(a) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors, either orally or in writing, by telephone, including

a voice-messaging system or other system designed to record and communicate
messages, facsimile, telegraph or telex, or by electronic mail or other
electronic means. No further notice shall be required for regular meetings of
the Board of Directors. (Del. Code Ann., tit. 8, Section 141(g))

(b) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or a majority of the
authorized number of directors. (Del. Code Ann., tit. 8, Section 141(g))

(c) MEETINGS BY ELECTRONIC COMMUNICATIONS EQUIPMENT. Any member
of the Board of Directors, or of any committee thereof, may participate in a
meeting by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting. (Del. Code Ann., tit. 8, Section 141(i))

(d) NOTICE OF SPECIAL MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing, or by electronic transmission, at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. (Del. Code Ann., tit. 8, Section 229)

(e) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present who did not receive
notice shall sign a written waiver of notice or shall waive notice by electronic
transmission. All such waivers shall be filed with the corporate records or made
a part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)

SECTION 21. QUORUM AND VOTING.

(a) Unless the Certificate of Incorporation requires a greater
number, a quorum of the Board of Directors shall consist of a majority of the
exact number of directors fixed from time to time by the Board of Directors in
accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))

(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit.
8, Section 141(b))

SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing or by electronic
transmission, and such writing or writings or transmission or transmissions are
filed with the minutes of proceedings of the Board of Directors or committee.
Such filing shall be in paper form if the minutes are maintained in paper form
and shall be in electronic form if the minutes are maintained in electronic
form. (Del. Code Ann., tit. 8, Section 141(f))

SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))

Section 24. Committees.

(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, Section 141(c))

(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, Section
141(c))

(c) TERM. The Board of Directors, subject to any requirements
of any outstanding series of Preferred Stock and the provisions of subsections
(a) or (b) of this Bylaw, may at any time increase or decrease the number of
members of a committee or terminate the existence of a committee. The membership
of a committee member shall terminate on the date of his or her death or
voluntary resignation from the committee or from the Board of Directors.

The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. (Del. Code Ann., tit. 8, Section 141(c))

(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
notice to members of the Board of Directors of the time and place of special
meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Unless otherwise provided by the Board of
Directors in the resolutions authorizing the creation of the committee, a
majority of the authorized number of members of any such committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at any meeting at which a quorum is present shall be the act of
such committee. (Del. Code Ann., tit. 8, Sections 141(c), 229)

SECTION 25. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his or her absence, any
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.

ARTICLE V

OFFICERS

SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers

and agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors. (Del. Code Ann.,
tit. 8, Sections 122(5), 142(a), (b))

SECTION 27. TENURE AND DUTIES OF OFFICERS.

(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))

(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to the office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))

(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to the
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time. (Del. Code Ann., Tit.
8, Section 142(a))

(d) DUTIES OF EXECUTIVE VICE PRESIDENT AND VICE PRESIDENTS. The
Executive Vice President may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of President
is vacant. The Executive Vice President and Vice Presidents shall perform other
duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))

(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties provided
for in these Bylaws and other duties commonly incident to the office and shall
also perform such other

duties and have such other powers, as the Board of Directors shall designate
from time to time. The President may direct any Assistant Secretary to assume
and perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform other duties commonly
incident to the office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. (Del. Code Ann., tit. 8, Section 142(a))

(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to the office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to the office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, Section 142(a))

SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
notice in writing or by electronic transmission to the Board of Directors or to
the President or to the Secretary. Any such resignation shall be effective when
received by the person or persons to whom such notice is given, unless a later
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance of
any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the corporation
under any contract with the resigning officer. (Del. Code Ann., tit. 8, Section
142(b))

SECTION 30. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION

SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)

All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158).

SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)

ARTICLE VII

SHARES OF STOCK

SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by such
stockholder in the corporation. Any or all of the signatures on the certificate
may be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each

stockholder who so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. (Del. Code Ann.,
tit. 8, Section 158)

SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or the owner's
legal representative, to agree to indemnify the corporation in such manner as it
shall require or to give the corporation a surety bond in such form and amount
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)

SECTION 35. TRANSFERS.

(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, Section 201, tit. 6, Section 8- 401(1))

(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL. (Del. Code Ann., tit. 8, Section 160 (a))

SECTION 36. FIXING RECORD DATES.

(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to

vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. (Del. Code Ann., tit. 8, Section 213)

SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible by applicable law, facsimile signature, of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.

ARTICLE IX

DIVIDENDS

SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8, Sections 170, 173)

SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)

ARTICLE X

FISCAL YEAR

SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.

(A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, PROVIDED, FURTHER, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).

(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.

(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director or
executive officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
provided, however, that if the DGCL requires, an advancement of expenses
incurred by a director or executive officer in his or her capacity as a director
or executive officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 42 or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 42, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by a majority vote of directors who were not parties to the proceeding,
even if not a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or such directors so direct, by independent legal
counsel in a written opinion, that the facts known to the decision-making party
at the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the corporation.

(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 42 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting the claim. In connection with any claim for indemnification, the

corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standard of conduct set forth in the DGCL or any other applicable
law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.

(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the DGCL, or by any other
applicable law.

(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
executive officer, officer, employee or other agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 42.

(h) AMENDMENTS. Any repeal or modification of this Section 42
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.

(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 42 that
shall not have been invalidated, or by any other applicable law. If this Section
42 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.

(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.

(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 42 with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.

(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.

(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 42.

ARTICLE XII

NOTICES

SECTION 43. NOTICES.

(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to the stockholder's last known post office address as
shown by the stock record of the corporation or its transfer agent.

Notice by electronic transmission may be given as provided in the DGCL. (Del.
Code Ann., tit. 8, Section 222)

(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.

(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation, its transfer agent
or another agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices was
or were given, and the time and method of giving the same, shall in the absence
of fraud, be prima facie evidence of the facts therein contained. (Del. Code
Ann., tit. 8, Section 222)

(d) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all recipients of notice, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.

(e) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.

ARTICLE XIII

AMENDMENTS

SECTION 44. AMENDMENTS. The Board of Directors is expressly empowered
to adopt, amend or repeal the Bylaws of the corporation. The stockholders shall
also have power to adopt, amend or repeal the Bylaws of the corporation;
provided, however, that, in addition to any vote of the holders of any class or
series of stock of the corporation required by law or by the Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the capital stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provision of the Bylaws of the corporation.

ARTICLE XIV

LOANS TO OFFICERS

SECTION 45. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, Section 143)



                           CERTIFICATE OF AMENDMENT OF
                    RESTATED CERTIFICATE OF INCORPORATION OF
                           ISIS PHARMACEUTICALS, INC.

          Isis Pharmaceuticals, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:

          FIRST: The name of the Corporation is Isis Pharmaceuticals, Inc. (the
"Corporation").

          SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware is
March 25, 1991.

          THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions at a meeting held on December 8, 2000
to amend Article V of the Restated Certificate of Incorporation of the
Corporation to read in its entirety as follows:

                      The Corporation is authorized to issue two classes of
                shares designated respectively "Common Stock" and "Preferred
                Stock." The total number of shares of all classes of stock which
                the Corporation has authority to issue is 115,000,000 shares,
                consisting of 100,000,000 shares of Common Stock, each having a
                par value of $.001, and 15,000,000 shares of Preferred Stock,
                each having a par value of $.001. The Preferred Stock may be
                issued in one or more series. The Board of Directors is
                authorized to fix the number of shares of any such series of
                Preferred Stock and to determine the designation of any such
                series (a "Preferred Stock Designation"), subject to (a) such
                stockholder approvals as may be provided for herein and (b) the
                number of shares of Preferred Stock authorized at that time by
                this Article V. Subject to such stockholder approvals as may be
                provided for herein, the Board of Directors is further
                authorized to determine or alter the rights, preferences,
                privileges and restrictions granted to or imposed upon any
                wholly unissued series of Preferred Stock, and to increase or
                decrease (but not below the number of shares of such series then
                outstanding) the number of shares of any series of Preferred
                Stock. In case the number of shares of any series shall be so
                decreased, the shares constituting such decrease shall resume
                the status that they had prior to the adoption of the resolution
                or amendment originally fixing the number of shares of such
                series.

          FOURTH: The foregoing amendment was submitted to the stockholders of
the Corporation for their approval and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.



          IN WITNESS WHEREOF, Isis Pharmaceuticals, Inc. has caused this
Certificate of Amendment to be signed by its duly authorized officers this 9th
day of April, 2001.


                                        By:  /s/ Stanley T. Crooke
                                             -----------------------------
                                             Stanley T. Crooke
                                             Chairman of the Board of Directors
                                             and Chief Executive Officer

                                       2



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





                        DEVELOPMENT AND LICENSE AGREEMENT

                                     between

                                MERCK & CO., INC.

                                       and

                           ISIS PHARMACEUTICALS, INC.



                        DEVELOPMENT AND LICENSE AGREEMENT


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

                                    RECITALS:

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

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

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

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

                                    ARTICLE I

                                   DEFINITIONS


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

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

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

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

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

                                       1


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

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

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

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

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

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

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

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

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

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

*Confidential Treatment Requested          2


       Gapmer Technology antisense oligonucleotides exert their effect. ISIS
       Core Technology does not include any target gene specific technology.

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

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

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

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

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

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

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

                                       3


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

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

        (c)  retroactive price reductions;

        (d)  sales commissions paid to third party distributors;

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

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

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

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

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

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

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

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

*Confidential Treatment Requested      4


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

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

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

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




                                   ARTICLE II

                  PRECLINICAL AND CLINICAL DEVELOPMENT PROGRAM



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

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

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

                                       5


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

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

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

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

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

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

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

                                       6

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

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

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

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

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

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

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



                                   ARTICLE III
                       LICENSE; DISCLOSURE OF INFORMATION

3.1      LICENSE GRANT.

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

                                       7

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

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

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

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

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

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

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

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

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

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

                                       8

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

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

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

                                   ARTICLE IV

                         CONFIDENTIALITY AND PUBLICATION

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

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

         (b)   is properly in the public domain;

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

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

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

         (f)   is deemed necessary by MERCK to be disclosed to MERCK
               sublicensees, agents, consultants, Affiliates and/or other third
               parties for the development, manufacturing and/or marketing of
               the Product (or for such parties to determine their interest in
               performing such activities) in accordance with this Agreement on
               the condition that such third parties agree to be bound by the
               confidentiality obligations contained this Agreement, PROVIDED
               the term of confidentiality for such third parties shall be no
               less than seven (7) years; or

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

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

                                       9


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

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



                                    ARTICLE V

                         PAYMENTS; ROYALTIES AND REPORTS

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

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

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

*Confidential Treatment Requested      10


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

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


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

5.2      CONSIDERATION FOR RESEARCH FUNDING. [ * ]

5.3      MILESTONE PAYMENTS.

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

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

         (i) [ * ]

         (ii) [ * ]

         (iii) [ * ]

         (iv) [ * ]

         (v) [ * ]

*Confidential Treatment Requested      11


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

         (i) [ * ]

         (ii) [ * ]

         (iii) [ * ]

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

ROYALTIES.

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

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

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

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

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

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

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

*Confidential Treatment Requested      12


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


                                             [ * ]



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

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

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

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

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

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

5.6      AUDITS.

*Confidential Treatment Requested      13


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

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

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

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

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

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

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

                                   ARTICLE VI

                    REPRESENTATIONS, WARRANTIES AND INDEMNITY

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

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

*Confidential Treatment Requested      14


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

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

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

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

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

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

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

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

                                   ARTICLE VII

                     CLINICAL SUPPLY AND TECHNOLOGY TRANSFER

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

                                       15


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

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

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

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

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

                                       16


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

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

                                  ARTICLE VIII

                                PATENT PROVISIONS

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

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

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

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

                                       17


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

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

8.4      ENFORCEMENT AND DEFENSE.

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

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

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

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

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

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

                                       18


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

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

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

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

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

                                   ARTICLE IX

                              TERM AND TERMINATION

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

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

                                       19

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

9.3      TERMINATION.

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

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

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

9.3.2    EFFECT OF TERMINATION FOR CAUSE ON LICENSE.

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

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

*Confidential Treatment Requested       20


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

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

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





                                    ARTICLE X

                                  MISCELLANEOUS

10.1     FORCE MAJEURE. Neither party shall be held liable or responsible to the
         other party nor be deemed to have defaulted under or breached the
         Agreement for failure or delay in fulfilling or performing any term of
         the Agreement when such failure or delay is caused by or results from
         causes beyond the reasonable control of the affected party including
         without limitation embargoes, war, acts of war (whether war be declared
         or not), insurrections, riots, civil commotions, strikes, lockouts or
         other labor disturbances, or acts of God. The affected party shall
         notify the other party of such force majeure circumstances as soon as
         reasonably practical and shall make every reasonable effort to mitigate
         the effects of such force majeure circumstances.

10.2     ASSIGNMENT. This Agreement shall inure to the benefit and be binding
         upon each party, its successors and assigns. The Agreement may not be
         assigned or otherwise transferred, nor, except as expressly provided
         hereunder, may any right or obligations hereunder be assigned or
         transferred by either party without the prior written consent of the
         other party; PROVIDED, HOWEVER, that MERCK may, without such consent,
         assign the Agreement and its rights and obligations hereunder to an
         Affiliate or in connection with the transfer or sale of all or
         substantially all of its assets related to the Product or the business,
         or in the event of its merger or consolidation or change in control or
         similar transaction, and PROVIDED, HOWEVER, that ISIS may, without such
         consent, assign the Agreement and its rights and obligations hereunder
         in connection with the transfer or sale of all or substantially all of
         its assets, or in the event of its merger or consolidation or change in
         control or similar transaction. Any permitted assignee shall assume all
         obligations of its assignor under the Agreement. Any attempted
         assignment not in accordance with this Section 10.2 shall be void.

10.3     SEVERABILITY. In the event any one or more of the provisions contained
         in this Agreement should be held invalid, illegal or unenforceable in
         any respect, the validity, legality and enforceability of the remaining
         provisions contained herein shall not in any way be affected or
         impaired thereby, unless the absence of the invalidated provision(s)
         adversely affect the substantive rights of the parties. The parties
         shall in such an instance use their best efforts to replace the
         invalid, illegal or unenforceable provision(s) with valid, legal and
         enforceable provision(s) which, insofar as practical, implement the
         purposes of this Agreement.

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

                                       21


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

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

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



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






              with a copy to:           Attention: Office of the Secretary

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

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

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

                                       22


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

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

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

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

10.10    WAIVER. The waiver by either party hereto of any right hereunder, or
         the failure to perform, or a breach by the other party shall not be
         deemed a waiver of any other right hereunder or of any other breach or
         failure by said other party whether of a similar nature or otherwise.

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

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



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

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



BY:______________________           BY:____________________________



TITLE: __________________           TITLE: ________________________



DATE: ___________________           DATE: _________________________

                                       23


                                  SCHEDULE 1.5

                                      [ * ]





*Confidential Treatment Requested       24


                               ISIS PATENT RIGHTS

                              SCHEDULE 1.16 (a)(i)

                                      [ * ]

                                and 1.16 (a)(ii)

                                      [ * ]

                               and 1.16 (a)(iii)

                                      [ * ]





*Confidential Treatment Requested       25


                                  SCHEDULE 2.2

                                      [ * ]





*Confidential Treatment Requested       26


                               SCHEDULE 2.2.1 (b)

                                      [ * ]





*Confidential Treatment Requested       27


                                 SCHEDULE 2.2.6

                                      [ * ]






*Confidential Treatment Requested       28


                                  SCHEDULE 2.4

                                      [ * ]






*Confidential Treatment Requested       29


                                  SCHEDULE 7.2

                                      [ * ]





*Confidential Treatment Requested       30



                                              *Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                           Under 17 C.F.R. Sections 200.80(b)(4)
                                                              200.83 and 240b-2




                       COLLABORATION AND LICENSE AGREEMENT

                                 BY AND BETWEEN

                           ISIS PHARMACEUTICALS, INC.

                                       AND

                                 HYBRIDON, INC.






                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----

                                                                           
ARTICLE I  DEFINITIONS.........................................................1

   SECTION 1.1  "AFFILIATE"....................................................1

   SECTION 1.2  "AMINO PATENT RIGHTS"..........................................2

   SECTION 1.3  "ANTISENSE PRODUCTS"...........................................2

   SECTION 1.4   "ANTISENSE TECHNOLOGY"........................................2

   SECTION 1.5  "CONFIDENTIAL INFORMATION".....................................2

   SECTION 1.6  "DOCKET 104"...................................................2

   SECTION 1.7  "DOCKET 105"...................................................3

   SECTION 1.8  "DRUG POTENTIATION PATENT RIGHTS"..............................3

   SECTION 1.9  "EXHIBIT K PATENTS"............................................3

   SECTION 1.10  "FACILITATOR PATENT RIGHTS"...................................3

   SECTION 1.11  "FINDERON PATENT RIGHTS"......................................3

   SECTION 1.12  "HYBRIDON ANTISENSE DRUG".....................................4

   SECTION 1.13  "HYBRIDON ANTISENSE PATENT RIGHTS"............................4

   SECTION 1.14  "HYBRIDON EXCLUDED PATENT RIGHTS".............................5

   SECTION 1.15  "HYBRIDON INTELLECTUAL PROPERTY"..............................5

   SECTION 1.16  "IMMUNE STIMULATION PATENT RIGHTS"............................5

   SECTION 1.17  "ISIS INTELLECTUAL PROPERTY RIGHTS"...........................5

   SECTION 1.18  [*]

   SECTION 1.19  "MOTIFS"......................................................6

   SECTION 1.20  "NAKED SUBLICENSE"............................................6

   SECTION 1.21  "NON-PARENT AFFILIATE"........................................6

   SECTION 1.22  "OPTIMIZATION"................................................6

   SECTION 1.23  "PARTY".......................................................6

   SECTION 1.24  "RIBOZYMES"...................................................6

   SECTION 1.25  "RIBOZYME TECHNOLOGY".........................................6

   SECTION 1.26  "RNASEH DEPENDENT MECHANISMS OF ACTION".......................7

   SECTION 1.27  "SUBLICENSE INCOME"...........................................7

*Confidential Treatment Requested    - i -


   SECTION 1.28  "SUBLICENSEE".................................................7

   SECTION 1.29  "SUBSIDIARY"..................................................7

   SECTION 1.30  "THIRD PARTY LICENSE AGREEMENTS"..............................8

   SECTION 1.31  "TULLIS NET SALES"............................................8

   SECTION 1.32  "TULLIS PATENTS"..............................................8

   SECTION 1.33  "TULLIS PRODUCT"..............................................8

   SECTION 1.34  "UMASS PATENT RIGHTS".........................................8

   SECTION 1.35  "VALID CLAIM".................................................8


ARTICLE II  GRANT OF RIGHTS BY HYBRIDON........................................9

   SECTION 2.1  LICENSE GRANT..................................................9

   SECTION 2.2  SUBLICENSING RIGHT............................................11

   SECTION 2.3  NO IMPLIED LICENSES; RETAINED RIGHTS..........................13

   SECTION 2.4  COMMERCIALIZATION EFFORTS.....................................13

   SECTION 2.5  LICENSE AGREEMENTS TO WHICH HYBRIDON IS A PARTY...............13

   SECTION 2.6  METHYLGENE LICENSE AGREEMENT..................................14

   SECTION 2.7  ORIGENIX LICENSE AGREEMENT....................................14

   SECTION 2.8  AFFILIATES....................................................14


ARTICLE III  GRANT OF RIGHTS BY ISIS..........................................14

   SECTION 3.1  LICENSE GRANT.................................................14

   SECTION 3.2  SUBLICENSING RIGHT............................................14

   SECTION 3.3  TULLIS PATENTS................................................15

   SECTION 3.4  SCOPE OF LICENSE..............................................16

   SECTION 3.5  NO IMPLIED LICENSES...........................................17

   SECTION 3.6  LIMITATION ON LICENSE GRANT WITH RESPECT TO TARGET
                     VALIDATION AND GENE FUNCTIONALIZATION ACTIVITIES.........17

   SECTION 3.7  NOTICE OF HYBRIDON ANTISENSE DRUGS............................17

   SECTION 3.8  AFFILIATES....................................................18

                                     - ii -


ARTICLE IV PAYMENT OBLIGATIONS................................................18

   SECTION 4.1  CONSIDERATION FOR LICENSES OF HYBRIDON INTELLECTUAL
                      PROPERTY AND ISIS INTELLECTUAL PROPERTY.................18

   SECTION 4.2  CONSIDERATION FOR SUBLICENSE OF TULLIS PATENTS................18

   SECTION 4.3  ISIS SUBLICENSE INCOME........................................19

   SECTION 4.4  RECORDS; AUDITS...............................................19

   SECTION 4.5  PAYMENT CURRENCY..............................................19

   SECTION 4.6  LATE PAYMENTS; COLLECTIONS....................................19


ARTICLE V  COLLABORATION......................................................20


ARTICLE VI INTELLECTUAL PROPERTY PROTECTION...................................20

   SECTION 6.1  PATENT PROSECUTION AND COOPERATION............................20

   SECTION 6.2  ENFORCEMENT OF HYBRIDON ANTISENSE PATENT RIGHTS...............24


ARTICLE VII  CONFIDENTIALITY..................................................27

   SECTION 7.1  CONFIDENTIAL INFORMATION......................................27


ARTICLE VIII  DISPUTE RESOLUTION..............................................28


ARTICLE IX TERM AND TERMINATION...............................................29

   SECTION 9.1  TERM..........................................................29

   SECTION 9.2  TERMINATION OF LICENSES AND SUBLICENSES FOR BREACH............30

   SECTION 9.3  TERMINATION OF SUBLICENSE OF TULLIS PATENTS...................31

   SECTION 9.4  SURVIVAL......................................................31

   SECTION 9.5  SUBLICENSE SURVIVAL...........................................31

   SECTION 9.6  FAILURE TO MAKE MASTER AGREEMENT DELIVERIES...................32


ARTICLE X MISCELLANEOUS PROVISIONS............................................32

   SECTION 10.1  INDEMNIFICATION..............................................32

   SECTION 10.2  GOVERNING LAW................................................33

   SECTION 10.3  ASSIGNMENT...................................................33

   SECTION 10.4  ENTIRE AGREEMENT; AMENDMENTS.................................33

   SECTION 10.5  NOTICES......................................................33

   SECTION 10.6  FORCE MAJEURE................................................35

   SECTION 10.7  DISCLOSURE OF PROVISIONS OF AGREEMENT........................35

                                     - iii -



   SECTION 10.8  INDEPENDENT CONTRACTORS......................................36

   SECTION 10.9  NO STRICT CONSTRUCTION.......................................36

   SECTION 10.10  HEADINGS....................................................36

   SECTION 10.11  NO IMPLIED WAIVERS; RIGHTS CUMULATIVE.......................36

   SECTION 10.12  SEVERABILITY................................................37

   SECTION 10.13  EXECUTION IN COUNTERPARTS...................................37

   SECTION 10.14  NO CONSEQUENTIAL DAMAGES....................................37

   SECTION 10.15  PATENT VALIDITY.............................................37






EXHIBITS:
- ---------

Exhibit A through Exhibit G    - Omitted
                
Exhibit H-1   -    Third Party License Agreements
Exhibit H-2   -    Other License Agreements
Exhibit I     -    Tullis Patents
Exhibit J     -    UMass Agreement
Exhibit K     -    Excluded Hybridon Intellectual Property
Exhibit L     -    UMass Patent Rights
Exhibit M     -    Drug Potentiation Patent Rights
Exhibit N     -    Tullis Agreement


                                     - iv -


                       COLLABORATION AND LICENSE AGREEMENT

      This Collaboration and License Agreement (the "Agreement") is entered into
as of the 24th day of May, 2001 (the "Effective Date") by and between Isis
Pharmaceuticals, Inc., a corporation organized and existing under the laws of
the State of Delaware ("Isis"), and Hybridon, Inc., a corporation organized and
existing under the laws of the State of Delaware ("Hybridon").

                                  INTRODUCTION

      1. Hybridon is the owner or has the right to use under license certain
patents and patent applications relating to the practice of Antisense Technology
(as defined below).

      2. Isis is the owner or has the right to use under license certain patents
and patent applications relating to the practice of Antisense Technology.

      3. Hybridon and Isis are interested in licensing or sublicensing to the
other party these patents and patent applications and in collaborating from time
to time on the further research and development of Antisense Products.

      4. Hybridon and Isis have entered into a Master Agreement dated as of the
date hereof (the "Master Agreement").

5. Isis and Hybridon each recognizes that the other Party has expended
significant efforts and resources in the research and development of Antisense
Technology and the payments to be made under the Master Agreement to each Party
for the patent licenses and sublicenses granted hereunder will allow each Party
to recoup such expenditures.

      NOW, THEREFORE, Hybridon and Isis agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

When used in this Agreement, each of the following terms shall have the meanings
set forth in this Article I:

      Section 1.1 "AFFILIATE". Affiliate shall mean, with respect to a person or
entity, any corporation, company, partnership, joint venture or other entity
which controls, is controlled by, or is under common control with such person or
entity. For purposes of this Section 1.1 and Section 1.21, "control" shall mean
(a) in the case of corporate entities, direct or indirect ownership of fifty
percent (50%) or more of the stock or shares having the right to vote for the
election of directors, and (b) in the case of non-corporate entities, direct or
indirect ownership of fifty percent (50%) or more of the equity interest with
the



power to direct the management and policies of such non-corporate entities,
provided that in either such case such person or entity has the power to direct
the management and policies of such entities, whether by contract or through
representation on the board of directors or other governing body of such
entities.

      Section 1.2 "AMINO PATENT RIGHTS". Amino Patent Rights shall mean the
claims of all patents and patent applications set forth on EXHIBIT A hereto and
any continuations or divisions thereof, any patent issued with respect to any
such patent applications, any reissue, reexamination, renewal or extension
(including any supplemental patent certificate) of any such patent, any
confirmation patent or registration patent or patent of addition based on any
such patent, and all foreign counterparts of any of the foregoing.

      Section 1.3 "ANTISENSE PRODUCTS". Antisense Products shall mean
oligonucleotides or oligonucleotide analogs or mimics thereof targeted to a
specific sequence of RNA that hybridize to such sequence and through such
hybridization modulate the production of the targeted gene product. The term
Antisense Products shall not include Ribozymes.

      Section 1.4 "ANTISENSE TECHNOLOGY". Antisense Technology shall mean the
use of any oligonucleotide or oligonucleotide analog or mimic thereof targeted
to a specific sequence of RNA that hybridizes to such sequence and through such
hybridization modulates the production of the targeted gene product. The term
Antisense Technology shall not include Ribozyme Technology.

      Section 1.5 "CONFIDENTIAL INFORMATION". Confidential Information shall
mean all information, including, without limitation, proprietary information and
materials (whether or not patentable) regarding a Party's technology, products,
business information or objectives, which is designated as confidential in
writing by the disclosing Party, whether by letter or by the use of an
appropriate stamp or legend, prior to or at the time any such information is
disclosed by the disclosing Party to the other Party. Notwithstanding the
foregoing, all information which is orally, electronically or visually disclosed
by a Party, or is disclosed in writing without an appropriate letter, stamp or
legend, shall constitute Confidential Information of a Party if the disclosing
Party, within thirty (30) days after such disclosure, delivers to the other
Party a written document or documents describing the information and referencing
the place and date of such oral, visual, electronic or written disclosure and
the names of the persons to whom such disclosure was made.

      Section 1.6 "DOCKET 104". Docket 104 shall mean all patents and patent
applications set forth on EXHIBIT B-1 hereto and any continuations or divisions
thereof, any patent issued with respect to any such patent applications, any
reissue, reexamination, renewal or extension (including any

                                     - 2 -


supplemental patent certificate) of any such patent, any confirmation patent or
registration patent or patent of addition based on any such patent, and all
foreign counterparts of any of the foregoing.

      Section 1.7 "DOCKET 105". Docket 105 shall mean all patents and patent
applications set forth on EXHIBIT B-2 hereto and any continuations or divisions
thereof, any patent issued with respect to any such patent applications, any
reissue, reexamination, renewal or extension (including any supplemental patent
certificate) of any such patent, any confirmation patent or registration patent
or patent of addition based on any such patent, and all foreign counterparts of
any of the foregoing.

      Section 1.8 "DRUG POTENTIATION PATENT RIGHTS". Drug Potentiation Patent
Rights shall mean the claims of all patents and patent applications set forth on
EXHIBIT M hereto and any continuations or divisions thereof, any patent issued
with respect to any such patent applications, any reissue, reexamination,
renewal or extension (including any supplemental patent certificate) of any such
patent, any confirmation patent or registration patent or patent of addition
based on any such patent, and all foreign counterparts of any of the foregoing.

      Section 1.9 "EXHIBIT K PATENTS". Exhibit K Patents shall mean the claims
of all patents and patent applications set forth on EXHIBIT K hereto and any
continuations or divisions thereof, any patent issued with respect to any such
patent applications, any reissue, reexamination, renewal or extension (including
any supplemental patent certificate) of any such patent, any confirmation patent
or registration patent or patent of addition based on any such patent, and all
foreign counterparts of any of the foregoing.

      Section 1.10 "FACILITATOR PATENT RIGHTS". Facilitator Patent Rights shall
mean the claims of all patents and patent applications set forth on EXHIBIT C
hereto and any continuations or divisions thereof, any patent issued with
respect to any such patent applications, any reissue, reexamination, renewal or
extension (including any supplemental patent certificate) of any such patent,
any confirmation patent or registration patent or patent of addition based on
any such patent, and all foreign counterparts of any of the foregoing.

      Section 1.11 "FINDERON PATENT RIGHTS". Finderon Patent Rights shall mean
the claims of all patents and patent applications set forth on EXHIBIT D hereto
and any continuations or divisions thereof, any patent issued with respect to
any such patent applications, any reissue, reexamination, renewal or extension
(including any supplemental patent certificate) of any such patent, any
confirmation patent or registration patent or patent of addition based on any
such patent, and all foreign counterparts of any of the foregoing.

                                     - 3 -


      Section 1.12 "HYBRIDON ANTISENSE DRUG". Hybridon Antisense Drug shall mean
an Antisense Product which is a therapeutic or prophylactic product for the
treatment or prevention of disease in a human or an animal that is discovered,

                                     - 4 -


developed and/or Optimized either by Hybridon or a Subsidiary alone or as
part of a "bona fide drug discovery collaboration".

      For purposes of this Section 1.12 only, a "bona fide drug discovery
collaboration" is an arrangement between Hybridon or a Subsidiary and a third
party (i) in which the intent of the collaborators in engaging in discovery,
development and/or Optimization activities is to discover, develop, Optimize and
commercialize an Antisense Product. [*] Initiation of IND supporting
toxicology is the initiation of animal toxicity studies in support of the filing
of an Investigational New Drug application with the U.S. Food and Drug
Administration or a similar regulatory filing with a similar regulatory
authority in another jurisdiction. If a contractor (which is not the third party
collaborator) in the business of performing preclinical studies provides such
services through the performance of IN VIVO animal studies under the supervision
of Hybridon or a Subsidiary, the services so provided shall be treated as work
performed directly by Hybridon or a Subsidiary for purposes of this definition.
Work performed by a contractor of, and paid for by, Hybridon or a Subsidiary
under the supervision of Hybridon or a Subsidiary shall be treated as work
performed directly by Hybridon or a Subsidiary for purposes of this definition.
The Parties acknowledge that a part of the discovery, development and
Optimization of an Hybridon Antisense Drug may involve the validation and
prioritization of gene targets to form the basis for antisense drug discovery
activities.

      In the event of a sale or other transfer of the assets of Hybridon, no
Antisense Product developed by the acquiring company prior to the acquisition
will be deemed to be a Hybridon Antisense Drug unless (i) such acquiring company
acquires all or substantially all of the assets of the antisense business of
Hybridon, and (ii) such Antisense Product [*]by the acquiring company prior to
the acquisition; provided, however, that an Antisense Product that would qualify
as a Hybridon Antisense Drug irrespective of the acquisition will not lose its
status as such as a result of such acquisition.

      Section 1.13 "HYBRIDON ANTISENSE PATENT RIGHTS". Hybridon Antisense Patent
Rights shall mean the claims of all patents and patent applications and any
continuations or divisions thereof, whether now existing, now filed or later
filed on inventions invented, licensed or sublicensed by Hybridon prior to April
26, 2001, any patent issued with respect to any such patent applications, any
reissue, reexamination, renewal or extension (including any supplemental patent
certificate) of any such patent, any confirmation patent or registration patent
or patent of addition based on any such patent, and all foreign counterparts of
any of the foregoing, which Hybridon owned or had the right to sublicense as of
April 26, 2001 and which are necessary or useful to practice Antisense
Technology, including without limitation the patents and patent applications set
forth on EXHIBIT E, but not including the Hybridon Excluded Patent Rights and
the patents and patent

* Confidential Treatment Requested   - 4 -


applications licensed to Hybridon (the "Hybridon IDT Patent Rights") pursuant
to the Non-Exclusive License Agreement dated as of March 12, 1999 between
Integrated DNA Technologies, Inc. ("IDT") and Hybridon.

      Section 1.14 "HYBRIDON EXCLUDED PATENT RIGHTS". Hybridon Excluded Patent
Rights shall mean the Amino Patent Rights, Docket 104, Docket 105, Facilitator
Patent Rights, Finderon Patent Rights, Immune Stimulation Patent Rights, Drug
Potentiation Patent Rights and the Exhibit K Patents.

      Section 1.15 "HYBRIDON INTELLECTUAL PROPERTY". Hybridon Intellectual
Property shall mean collectively the Hybridon Antisense Patent Rights and the
Hybridon Excluded Patent Rights (all solely to the extent licensed to Isis under
Section 2.1), but shall exclude the Hybridon IDT Patent Rights.

      Section 1.16 "IMMUNE STIMULATION PATENT RIGHTS". Immune Stimulation Patent
Rights shall mean the claims of all patents and patent applications set forth on
EXHIBIT F hereto and any continuations or divisions thereof, any patent issued
with respect to any such patent applications, any reissue, reexamination,
renewal or extension (including any supplemental patent certificate) of any such
patent, any confirmation patent or registration patent or patent of addition
based on any such patent, and all foreign counterparts of any of the foregoing.

      Section 1.17 "ISIS INTELLECTUAL PROPERTY RIGHTS". Isis Intellectual
Property Rights shall mean the claims that cover Motifs or RNaseH Dependent
Mechanisms of Action of all patents and patent applications and any
continuations or divisions thereof, whether now existing, now filed or later
filed on inventions invented, licensed or sublicensed by Isis prior to April 26,
2001, any patent issued with respect to any such patent applications, any
reissue, reexamination, renewal or extension (including any supplemental patent
certificate) of any such patent, any confirmation patent or registration patent
or patent of addition based on any such patent, and all foreign counterparts of
any of the foregoing, which Isis owned or had the right to sublicense as of
April 26, 2001, including without limitation the patents and patent applications
set forth on EXHIBIT G hereto; provided, however, that Isis Intellectual
Property Rights shall not include manufacturing methods, including without
limitation reagents, synthons and processes used in manufacturing and analyzing
oligonucleotides; chemistries, including without limitation modifications made
to the backbone, sugar or base of an oligonucleotide and oligonucleotide
conjugates (including the chemistries of the conjugate and the conjugation
methods); formulations, including without limitation methods and reagents for
delivery and uptake of oligonucleotides; gene-related patents, including without
limitation patents to specific gene structures, gene targets and treatments
based upon a genetic target; and patents and patent applications licensed to

*Confidential Treatment Requested    - 5 -


Isis pursuant to the Non-Exclusive License Agreement dated March 19, 1999
between IDT and Isis.

      Section 1.18 [*]

*Confidential Treatment Requested    - 6 -


      Section 1.19 "MOTIFS". Motifs shall mean hybrid oligonucleotide structures
that have at least two regions within the oligonucleotide that have different
chemistries, one of which will support cleavage via RNaseH Dependent Mechanisms
of Action. Motifs do not include specific chemistries necessary or useful to
create or Optimize such structures, whether or not such chemistries are also
disclosed by or claimed in the same patent or patent application.

      Section 1.20 "NAKED SUBLICENSE". Naked Sublicense shall mean any license
or sublicense of intellectual property granted by a Party or a Subsidiary to a
third party other than a license or sublicense which is granted as part of a
bona fide research, development, manufacturing or commercialization
collaboration between the Party or a Subsidiary and the third party (it being
agreed by the Parties that the definition of the term "collaboration" in this
Section 1.20 shall not be interpreted by reference to the definition of
collaboration used in Section 1.12). For purposes of this definition, a bona
fide research, development, manufacturing or commercialization collaboration may
include collaborative research and discovery, including without limitation gene
functionalization and target validation.

      Section 1.21 "NON-PARENT AFFILIATE". Non-Parent Affiliate shall mean, with
respect to a person or entity, any Affiliate of such person or entity other than
any corporation, company, partnership, joint venture or other entity which
controls (as defined in Section 1.1) such person or entity.

      Section 1.22 "OPTIMIZATION". Optimization shall mean the process by which
the properties of an Antisense Product are improved by making chemical
modifications to such Antisense Product or by selecting a different sequence of
RNA for such Antisense Product.

      Section 1.23 "PARTY". Party shall mean Isis or Hybridon; "Parties" shall
mean Isis and Hybridon. As used in this Agreement, references to "third parties"
do not include a Party or its Subsidiaries.

      Section 1.24 "RIBOZYMES". Ribozymes shall mean oligonucleotides or
oligonucleotide analogs or mimics containing a catalytic core having a bulge or
stem loop and regions flanking the catalytic core that hybridize to a targeted
RNA and modulate the targeted RNA by cleavage at a site next to a specific
ribonucleotide triplet by an oligonucleotide catalyzed transesterification
reaction.

      Section 1.25 "RIBOZYME TECHNOLOGY". Ribozyme Technology shall mean the use
of any oligonucleotides or oligonucleotide analogs or mimics thereof containing
a catalytic core having a bulge or stem loop and regions flanking the catalytic
core that hybridize to a targeted RNA and modulate the

                                     - 6 -


targeted RNA by cleavage at a site next to a specific ribonucleotide triplet
by an oligonucleotide catalyzed transesterification reaction.

                                     - 7 -


      Section 1.26 "RNASEH DEPENDENT MECHANISMS OF ACTION". RNaseH Dependent
Mechanisms of Action shall mean methods of using RNaseH enzymes to cleave a
targeted RNA in vitro or in vivo. RNaseH Dependent Mechanisms of Action do not
include chemistries necessary or useful to facilitate or Optimize such cleavage,
whether or not such chemistries are also disclosed by or claimed in the same
patent or patent application.

      Section 1.27 "SUBLICENSE INCOME". Sublicense Income shall mean all
consideration received from Sublicensees by Isis or a Subsidiary pursuant to a
Naked Sublicense by Isis or a Subsidiary which covers, in whole or in part,
Hybridon Intellectual Property and all consideration received from Sublicensees
by Isis or an Affiliate pursuant to a Naked Sublicense not involving Hybridon
Intellectual Property if such Naked Sublicense arose out of the same transaction
as, or was otherwise related to, a Naked Sublicense which covers, in whole or in
part, Hybridon Intellectual Property. Sublicense Income does not include (i)
payments made by a Sublicensee in consideration for the issuance of equity or
debt securities of Isis to the extent such payments do not exceed the fair
market value of the securities being issued. [*] If non-monetary consideration
is received from Sublicensees by Isis or its Subsidiaries, then a commercially
reasonable monetary value will be assigned for purposes of calculating
Sublicense Income.

      Section 1.28 "SUBLICENSEE". Sublicensee shall mean any third party granted
the right hereunder by a Party, its Subsidiaries or a Sublicensee having the
right to grant further sublicenses, to discover, develop, make, have made, use,
sell, have sold, offer to sell, import or have imported products covered by the
Hybridon Intellectual Property (in the case of a Sublicensee of Isis, its
Subsidiaries or a Sublicensee having the right to grant further sublicenses) or
Isis Intellectual Property or Tullis Patents (in the case of a Sublicensee of
Hybridon, its Subsidiaries or a Sublicensee having the right to grant further
sublicenses).

      Section 1.29 "SUBSIDIARY". Subsidiary shall mean with respect to a Party,
any corporation, company, partnership, joint venture or other entity, 100% of
the equity securities of which are directly or indirectly owned by such Party;
provided, however, that if such Party does not directly or indirectly own 100%
of the equity securities of the entity, such entity shall nevertheless be deemed
a Subsidiary for purposes of this definition if the equity securities not owned
directly or indirectly by such Party consist solely of: (a) director qualifying
shares, (b) equity securities of the entity owned by employees, directors or
officers of the Party or the entity so long as such ownership by employees,
directors and officers does not exceed 10% of the equity securities of the
entity and/or (c) in the case of entities, the operations of which are
substantially conducted outside the United States, equity securities of the
entity owned by financial investors so long as such ownership by financial
investors does not exceed 20% of the equity securities of the entity. For

*Confidential Treatment Requested    - 7 -


purposes of this Section 1.29, indirect ownership shall mean ownership through
an entity or a chain

                                      - 8 -


      Section 1.30 of entities as to each member of which the Party or another
entity in the chain owns 100% of the equity securities (other than director
qualifying shares).

      Section 1.31 "THIRD PARTY LICENSE AGREEMENTS". Third Party License
Agreements shall mean those agreements set forth on EXHIBIT H-1 attached hereto
pursuant to which Hybridon has licensed Hybridon Intellectual Property to third
parties.

      Section 1.32 "TULLIS NET SALES". Tullis Net Sales shall mean the gross
sales revenues received by Hybridon, its Subsidiaries or Sublicensees from the
sale of Tullis Products, minus (a) all sales, use, and excise taxes, and customs
duties or other charges; (b) transportation and handling charges (including
transport insurance) actually incurred and paid by the buyer as part of the
purchase price; and (c) amounts repaid or credited by reason of rejections or
returns. Sales of a Tullis Product by Hybridon to a Subsidiary of Hybridon for
sale by the Subsidiary shall not be considered a sale of Tullis Products
hereunder.

      Section 1.33 "TULLIS PATENTS". Tullis Patents shall mean the Technology
Rights (as defined in the Non-Exclusive Patent License Agreement dated September
14, 1992 (the "Tullis Agreement") between Isis and Molecular Biosystems, Inc.
("MBI")) licensed by Isis from MBI under the Tullis Agreement, including without
limitation the patents and patent applications set forth on EXHIBIT I hereto.

      Section 1.34 "TULLIS PRODUCT". Tullis Product shall mean any product whose
use, manufacture or sale by Hybridon, its Subsidiaries or Sublicensees, in any
jurisdiction in which a patent which is a Tullis Patent has been allowed, would
but for the provisions of Section 3.3 constitute an infringement of such patent.

      Section 1.35 "UMASS PATENT RIGHTS". UMass Patent Rights shall mean the
Patent Rights (as defined in the UMass Agreement (as defined below)) licensed by
Hybridon from UMass under the UMass Agreement, including without limitation the
patents and patent applications set forth on EXHIBIT L hereto.

      Section 1.36 "VALID CLAIM". Valid Claim shall mean a claim which (i) in
the case of any unexpired United States or foreign patent, shall not have been
donated to the public, disclaimed or held invalid or unenforceable by a court of
competent jurisdiction in an unappealed or unappealable decision, or (ii) in the
case of any United States or foreign patent application, shall not have been
permanently cancelled, withdrawn, abandoned or been pending for more than seven
(7) years.

                                     - 8 -


                                   ARTICLE II
                           GRANT OF RIGHTS BY HYBRIDON

Section 2.1 LICENSE GRANT.

            (a) License Grant to Hybridon Antisense Patent Rights. Subject to
the terms and conditions of this Agreement, including without limitation
Hybridon's retained rights under Section 2.3 and Section 2.5(a) of this
Agreement, Hybridon hereby grants to Isis and its Subsidiaries an exclusive
worldwide license or sublicense, as applicable, under the Hybridon Antisense
Patent Rights, to practice Antisense Technology and to discover, develop, make,
have made, use, sell, have sold, offer to sell, import and have imported
Antisense Products. These rights shall only be sublicensable as explicitly
provided in Section 2.2.

            (b) Limited License Grant to Hybridon Excluded Patent Rights.
Subject to the terms and conditions of this Agreement, including without
limitation Hybridon's retained rights under Section 2.3 and Section 2.5(a) of
this Agreement, Hybridon hereby grants to Isis and its Subsidiaries the limited
worldwide licenses or sublicenses, as applicable, under the Hybridon Excluded
Patent Rights to practice Antisense Technology and to discover, develop, make,
have made, use, sell, have sold, offer to sell, import and have imported
Antisense Products, in each case solely to the extent specifically described
below. These rights shall only be sublicensable as explicitly provided in
Section 2.2.

                     (i)   [*]

                     (ii)  [*]

            (iii)    under the Immune Stimulation Patent Rights (A) to discover,
                     develop, make, have made, use, sell, have sold, offer to
                     sell, import and have imported Antisense Products which
                     contain modifications which have neutralized the immune
                     stimulation caused by an immunostimulatory CpG dinucleotide
                     in such Antisense Products, (B) to practice Antisense
                     Technology using oligonucleotides which contain
                     modifications which have neutralized the immune stimulation
                     caused by an immunostimulatory CpG dinucleotide in such
                     oligonucleotides, and (C) to discover, develop, make, have
                     made, use, sell, have sold, offer to sell, import and have
                     imported Antisense Products which target genes involved in
                     immunity modulation;

*Confidential Treatment Requested    - 9 -


            (iv)     under the Facilitator Patent Rights to discover, develop,
                     make, have made, use, sell, have sold, offer to sell,
                     import and have imported Antisense Products and practice
                     Antisense Technology, provided that neither such Antisense
                     Products nor such Antisense Technology use, or are used
                     with, a Ribozyme or Ribozyme Technology;

            (v)      under the Finderon Patent Rights to discover, develop,
                     make, have made, use, sell, have sold, offer to sell,
                     import and have imported Antisense Products and practice
                     Antisense Technology, provided that neither such Antisense
                     Products nor such Antisense Technology use, or are used
                     with, a Ribozyme or Ribozyme Technology;

            (vi)     under the Amino Patent Rights to discover, develop, make,
                     have made, use, sell, have sold, offer to sell, import and
                     have imported Antisense Products and practice Antisense
                     Technology, provided that such Antisense Products and
                     Antisense Technology use, or are used with, the technology
                     covered by the claims of the Amino Patent Rights solely for
                     the conjugation of functional groups for therapeutic or
                     prophylactic purposes only;

            (vii)    under the Drug Potentiation Patent Rights to discover,
                     develop, make, have made, use, sell, have sold, offer to
                     sell, import and have imported Antisense Products and
                     practice Antisense Technology, which Antisense Products and
                     Antisense Technology primarily act against a gene target
                     implicated in cancer through an antisense mechanism, but
                     which may incidentally potentiate an anti-cancer prodrug;
                     and

            (viii)   under the Exhibit K Patents to discover, develop, make,
                     have made, use, sell, have sold, offer to sell, import and
                     have imported Antisense Products and practice Antisense
                     Technology; provided, however, that the license
                     contemplated by this clause (viii) shall not extend to
                     Antisense Products or Antisense Technology related to
                     specific claimed gene targets or pseudo-cyclic
                     oligonucleotide structures and applications.

      The Parties agree that if, during the term of the license and sublicense
granted by Hybridon to Isis and its Subsidiaries in this Section 2.1(b), a claim

                                     - 10 -


issues from any patent application included in Hybridon Excluded Patent Rights
that is necessary or useful for the practice of Antisense Technology, Hybridon
shall not use such claim to preclude or otherwise interfere with the ability of
Isis or its Subsidiaries to discover, develop, make, have made, use, sell, have
sold, offer to sell, import and have imported Antisense Products and practice
Antisense Technology; provided, however, that to the extent that the license or
sublicense grant set forth above in this Section 2.1(b) is limited in scope as
to its application to Antisense Products or Antisense Technology, such
limitation shall also be applicable to the restrictions on Hybridon's rights to
preclude or otherwise interfere with Isis and its Subsidiaries set forth in this
paragraph (i.e., if the license or sublicense grant is not applicable, Hybridon
shall not be restricted from precluding or interfering).

                  (c) The licenses and sublicenses granted by Hybridon to Isis
      and its Subsidiaries in Sections 2.1(a) and (b) to the extent such
      licenses or sublicenses cover UMass Patent Rights are subject to, without
      limitation Sections 2.2(a), 2.2(b), 2.2(d), 2.6, 2.7, 4.3(a), 4.3(d), 7.1,
      10.4 and 12.4(a) of the License Agreement dated as of February 21, 1990
      and restated as of September 8, 1993 by and between Hybridon and
      University of Massachusetts Medical Center (formerly the Worcester
      Foundation for Biomedical Research, Inc. and referred to herein as
      "UMass") (the "UMass Agreement"). A copy of the UMass Agreement is
      attached to this Agreement as EXHIBIT J. Hybridon hereby represents and
      warrants as of the date hereof: (i) that Exhibit J is a true, correct and
      complete copy of the UMass Agreement and all amendments and/or other
      changes thereto, (ii) that the UMass Agreement is in full force and
      effect, (iii) that Hybridon is not in default thereunder and (iv) that
      there has been no waiver of rights by Hybridon thereunder. Hybridon
      further represents and warrants as of the date hereof that Isis shall have
      no payment obligation to UMass arising out of the execution and delivery
      of this Agreement or the sublicensing by Hybridon of the UMass Patent
      Rights hereby and that any payment obligations that do arise under the
      UMass Agreement shall be the sole responsibility of Hybridon; provided
      that Isis may have payment obligations to UMass directly in the case of a
      termination of the UMass Agreement pursuant to the last paragraph of
      Section 2.2(c) of the UMass Agreement.

      Section 2.2 SUBLICENSING RIGHT.

                  (a) Isis and its Subsidiaries shall have the right to grant
      sublicenses under the licenses and sublicenses from Hybridon set forth in
      Section 2.1 above to third parties. Each such sublicense shall be subject
      and subordinate to, and consistent with, the terms and conditions of this
      Agreement, and shall provide that any Sublicensee shall have no right to
      grant further sublicenses except on terms consistent with this Section
      2.2. In the event of a material default by any

                                     - 11 -


      Sublicensee under a sublicense agreement, Isis will inform Hybridon and
      take commercially reasonable efforts to cause the Sublicensee to cure
      the default or will terminate the sublicense or, if Isis is not the
      sublicensor under such sublicense, Isis will cause the sublicensor under
      such sublicense to take commercially reasonable efforts to cause the
      Sublicensee to cure the default or to terminate such sublicense; provided,
      however that none of Isis, its Subsidiaries or the sublicensor under such
      sublicense shall be responsible to Hybridon for the default by the
      Sublicensee under the sublicense agreement.

                  (b) (i) Isis shall provide UMass with a copy of any sublicense
      granted pursuant to this Section 2.2 by Isis or its Subsidiaries or
      Sublicensees which includes a sublicense of UMass Patent Rights, within
      thirty (30) days after the grant of such sublicense. Hybridon shall use
      its reasonable best efforts to cause UMass to enter into a confidentiality
      agreement with Isis with respect to sublicenses provided to UMass under
      this clause (i) (it being understood that Hybridon shall not be obligated
      to make any payment or to provide any other consideration to UMass for
      such confidentiality agreement by UMass).

                      (ii) Isis shall provide Hybridon with written notice of
any sublicense (an "Isis Sublicense") granted pursuant to this Section 2.2 by
Isis or its Subsidiaries or Sublicensees within thirty (30) days after the grant
of such sublicense, such written notice specifying the name of the Sublicensee,
the date of the sublicense and whether such Isis Sublicense includes UMass
Patent Rights or is a Naked Sublicense. Hybridon shall have the right, not more
than twice during any calendar year, to have any Isis Sublicense reviewed by an
independent third party chosen by Hybridon to ascertain whether such Isis
Sublicense includes UMass Patent Rights or is a Naked Sublicense. Isis shall
cooperate in all reasonable respects with the review of such Isis Sublicense by
the independent third party under this Section 2.2(b)(ii), including without
limitation responding to questions directed at determining whether such Isis
Sublicense includes UMass Patent Rights or is a Naked Sublicense. Hybridon shall
pay all costs of such review; provided, however, that if, contrary to the
information provided by Isis in the written notice provided to Hybridon in
connection with the grant of such Isis Sublicense, such Isis Sublicense does in
fact include UMass Patent Rights or is a Naked Sublicense, Isis shall reimburse
Hybridon for the costs of such review. If the independent third party determines
that such Isis Sublicense includes UMass Patent Rights or is a Naked Sublicense,
such independent third party shall notify Isis and Hybridon. If Isis disagrees
with the determination of the independent third party, the third party shall be
permitted hereunder to provide Hybridon with a copy of the Isis Sublicense.

                                     - 12 -


                  (c) Any Naked Sublicense of Hybridon Intellectual Property by
      Isis or its Subsidiaries to (i) third parties which are parties to license
      or sublicense agreements with Isis or its Affiliates or Subsidiaries not
      involving Hybridon Intellectual Property and (ii) Affiliates of Isis or
      its Subsidiaries shall be made by Isis or its Subsidiaries on commercially
      reasonable terms. Isis and its Subsidiaries shall not sublicense Hybridon
      Intellectual Property separately from any intellectual property of Isis or
      its Affiliates or Subsidiaries, including without limitation the Isis
      Intellectual Property, for the purpose of reducing the amount of
      Sublicense Income payable by Isis or its Subsidiaries to Hybridon under
      Section 4.3.

      Section 2.3 NO IMPLIED LICENSES; RETAINED RIGHTS. Other than those rights
and licenses explicitly granted herein, no right or license under the Hybridon
Intellectual Property is granted to Isis or its Subsidiaries or Sublicensees.
Notwithstanding the rights and licenses granted herein, Hybridon shall retain
its rights under the Hybridon Intellectual Property for all purposes, including
without limitation its rights to discover, develop, make, have made, use, sell,
have sold, offer to sell, import and have imported Antisense Products, to
practice Antisense Technology and to license or sublicense Hybridon Intellectual
Property; provided, that, except for licenses and sublicenses provided under the
Third Party License Agreements, Hybridon and its Subsidiaries shall not grant
any Naked Sublicenses of the Hybridon Antisense Patent Rights to any third
parties (other than Subsidiaries).

      Section 2.4 COMMERCIALIZATION EFFORTS. Isis hereby agrees to undertake
reasonable efforts to bring one or more products covered by a claim of the UMass
Patent Rights into commercial use as quickly as is reasonably possible.

      Section 2.5 LICENSE AGREEMENTS TO WHICH HYBRIDON IS A PARTY.

                  (a) Notwithstanding Section 2.1 of this Agreement, Hybridon
      shall not and is not licensing or sublicensing to Isis or its Subsidiaries
      any rights under the Hybridon Intellectual Property to the extent that
      such Hybridon Intellectual Property has been licensed or sublicensed by
      Hybridon under the Third Party License Agreements.

                  (b) Hybridon hereby represents and warrants as of the date
      hereof that, except for the agreements set forth on EXHIBIT H-2 attached
      hereto: (i) Hybridon has not entered into any agreement under which it has
      licensed from another party any of the Hybridon Intellectual Property and
      (ii) Hybridon has not entered into any agreement under which it has
      licensed to another party any of the Hybridon Intellectual Property other
      than the Third Party License Agreements.

                                     - 13 -


                  (c) Hybridon agrees that it shall not amend or expand any
      Third Party License Agreement in a manner that is inconsistent with this
      Agreement, including without limitation amending any Third Party License
      Agreement to grant any new exclusive license under the Hybridon Antisense
      Patent Rights, without the prior written consent of Isis, which consent
      shall not be unreasonably withheld or delayed.

                  (d) Hybridon hereby represents and warrants as of the date
      hereof as to the Third Party License Agreements: (i) that it has provided
      true

                                     - 14 -


      and correct copies of all such agreements to Isis, (ii) that all such
      agreements are in full force and effect, (iii) that Hybridon is not in
      default under any such agreement and (iv) that there has been no waiver of
      rights by Hybridon thereunder.

      Section 2.6 METHYLGENE LICENSE AGREEMENT. If Methylgene Inc.
("Methylgene") designates a target which Methylgene desires to select as a
Second Molecular Target or a Third Molecular Target (as such terms are defined
in the Amended and Restated License Agreement made effective as of January 4,
1996, as amended and restated on September 21, 2000 (the "Methylgene License
Agreement")) pursuant to the terms of the Methylgene License Agreement [*].

      Section 2.7 ORIGENIX LICENSE AGREEMENT. Hybridon shall [*] License
Agreement dated as of January 22, 1999 (the "OriGenix License Agreement")
between Hybridon and OriGenix Technologies Inc. ("OriGenix")) and shall [*]

      Section 2.8 AFFILIATES. Hybridon hereby represents and warrants as of the
date hereof that no Affiliate of Hybridon owns or controls any patents, patent
applications or inventions invented, licensed or sublicensed by such Affiliate
prior to April 26, 2001 which are necessary or useful to practice Antisense
Technology.

                                  ARTICLE III
                             GRANT OF RIGHTS BY ISIS

      Section 3.1 LICENSE GRANT. Subject to the terms and conditions of this
Agreement, Isis hereby grants to Hybridon and its Subsidiaries a worldwide
non-exclusive license or sublicense, as applicable under the Isis Intellectual
Property Rights to discover, develop, make, have made, use, sell, have sold,
offer to sell, import and have imported Hybridon Antisense Drugs. These rights
shall only be sublicensable as explicitly provided in Section 3.2.

      Section 3.2 SUBLICENSING RIGHT. Hybridon and its Subsidiaries shall have
the right to grant sublicenses under the license from Isis set forth in Section
3.1 above to third parties only to discover, develop, make, have made, use,
sell, have sold, offer to sell, import and have imported Hybridon Antisense
Drugs. Each such sublicense shall be subject and subordinate to, and consistent
with, the terms and conditions of this Agreement, and shall provide that any
Sublicensee shall have no right to grant further sublicenses except on

*Confidential Treatment Requested    - 14 -


terms consistent with this Section 3.2. In the event of a material default by
any Sublicensee under a sublicense agreement, Hybridon will inform Isis and
take commercially reasonable efforts to cause the Sublicensee to cure the
default or will terminate the sublicense or, if Hybridon is not the sublicensor
under such sublicense, Hybridon will cause the sublicensor under such
sublicense to take commercially reasonable efforts to cause the Sublicensee
to cure the default or to terminate such sublicense; provided however that none
of Hybridon, its Subsidiaries or the sublicensor under such sublicense shall
be responsible to Isis for the default by the Sublicensee under the sublicense
agreement. Notwithstanding the rights granted under this Section 3.2, Hybridon
and its Subsidiaries shall [*]

      Section 3.3 TULLIS PATENTS.

                  (a) Subject to the terms and conditions of this Agreement,
      Isis hereby grants to Hybridon and its Subsidiaries a worldwide
      non-exclusive sublicense, with the right to grant sublicenses as provided
      in Section 3.3(b), under the Tullis Patents to discover, develop, make,
      have made, use, sell, have sold, offer to sell, import and have imported
      Hybridon Antisense Drugs, provided that such Hybridon Antisense Drugs
      employ technology covered by the Isis Intellectual Property as a material
      element thereof.

                  (b) (i) Hybridon and its Subsidiaries shall have the right to
      grant sublicenses under the license from Isis set forth in Section 3.3(a)
      to third parties (x) provided that such sublicense may only be granted to
      third parties in connection with the grant of a sublicense to such third
      parties of Isis Intellectual Property under Section 3.2, and (y) solely to
      discover, develop, make, have made, use, sell, have sold, offer to sell,
      import and have imported Hybridon Antisense Drugs that employ technology
      covered by the Isis Intellectual Property as a material element thereof.
      Each such sublicense shall be subject and subordinate to, and consistent
      with, the terms and conditions of this Agreement, and shall provide that
      any such Sublicensee shall have no right to grant further sublicenses
      except on terms consistent with this Section 3.3(b).

                      (ii) Hybridon shall provide MBI with a copy of any
sublicense granted by Hybridon or its Subsidiaries or Sublicensees pursuant to
this Section 3.3(b) within thirty (30) days after the grant of such sublicense.
Isis shall use its reasonable best efforts to cause MBI to enter into a
confidentiality agreement with Hybridon with respect to sublicenses provided to
MBI under this Section 3.3(b) (it being understood that Isis shall not be
obligated to make any payment or to provide any other consideration to MBI for
such confidentiality agreement by MBI). In the event that MBI does not sign such
a confidentiality agreement with Hybridon, Isis shall enforce against MBI, for
and on behalf of Hybridon, the confidentiality provisions of the Tullis

*Confidential Treatment Requested    - 15 -


Agreement with respect to the sublicenses provided by Hybridon, its Subsidiaries
or Sublicensees to MBI and with respect to any other confidential information
of Hybridon or a Subsidiary or Sublicensee of Hybridon that MBI receives.

                      (iii)  In the event of a material default by any
Sublicensee under a sublicense agreement pursuant to this Section 3.3(b),
Hybridon will inform Isis and take commercially reasonable efforts to cause the
Sublicensee to cure the default or will terminate the sublicense, or if Hybridon
is not the sublicensor under such sublicense, Hybridon will cause the
sublicensor under such sublicense to take commercially reasonable efforts to
cause the Sublicensee to cure the default or to terminate such sublicense;
provided however that none of Hybridon, its Subsidiaries or the sublicensor
under such sublicense shall be responsible to Isis for the default by the
Sublicensee under the sublicense agreement. Notwithstanding the rights granted
under this Section 3.3(b), Hybridon shall [*]

                  (c) A copy of the Tullis Agreement is attached to this
      Agreement as EXHIBIT N. Isis hereby represents and warrants as of the date
      hereof: (i) that Exhibit N is a true, correct and complete copy of the
      Tullis Agreement and all amendments and/or other changes thereto that
      affect the rights of Hybridon as a sublicensee thereunder, (ii) that the
      Tullis Agreement is in full force and effect, (iii) that Isis is not in
      default thereunder and (iv) that there has been no waiver of rights by
      Isis thereunder. Isis further represents and warrants as of the date
      hereof that Hybridon shall have no payment obligation to MBI arising out
      of the execution and delivery of this Agreement or the sublicensing by
      Isis of the Tullis Patents hereby and that any payment obligations that do
      arise shall be the sole responsibility of Isis.

      Section 3.4 SCOPE OF LICENSE. Hybridon acknowledges that Isis claims
intellectual property covering numerous chemical modifications to
oligonucleotides including without limitation modifications to backbone
linkages, sugars, heterocyclic bases and conjugates and to methods of making the
same, including methods of making various oligonucleotide intermediates (the
"Isis Chemistry Intellectual Property"). Hybridon acknowledges and agrees that
no Isis Chemistry Intellectual Property is included in the Isis Intellectual
Property being licensed or sublicensed to Hybridon and its Subsidiaries pursuant
to Section 3.1 of this Agreement, except as expressly set forth below in this
Section 3.4. [*] Isis hereby agrees that any patents owned or controlled by
Isis or an Affiliate as of the date hereof or any patents that may issue in the
future to Isis or an Affiliate from or in respect of any patent applications
which Isis or an Affiliate owned or had the right to sublicense as of April 26,
2001, which would otherwise be infringed by the practice of the Hybridon 2'-O
Methyl Chemistry, shall constitute Isis Intellectual Property for all purposes
of this Agreement, including without limitation the license grant provided in
Section

*Confidential Treatment Requested    - 16 -


3.1; provided, however, that the license grant with respect to such patents
shall only provide Hybridon and its Subsidiaries with the right to discover,
develop, make, have made, use, sell, have sold, offer to sell, import and have
imported Hybridon Antisense Drugs which incorporate the Hybridon 2'-O

*Confidential Treatment Requested    - 17 -


Methyl Chemistry. If any patent of Isis or an Affiliate includes claims to a
combination of modifications to both substitution with 2'-O-methyl and Isis
Chemistry Intellectual Property in addition to 2'-O-methyl substituents, nothing
in this Section 3.4 shall be deemed to be a grant of rights to Hybridon or its
Subsidiaries to practice the Isis Chemistry Intellectual Property other than
2'-O-methyl substituents.

      Section 3.5 NO IMPLIED LICENSES. Other than those rights and licenses
explicitly granted herein, no right or license under the Isis Intellectual
Property or the Tullis Patents is granted to Hybridon or its Subsidiaries or
Sublicensees.

      Section 3.6 LIMITATION ON LICENSE GRANT WITH RESPECT TO TARGET VALIDATION
AND GENE FUNCTIONALIZATION ACTIVITIES. Notwithstanding anything to the contrary
in Sections 3.1 and 3.3(a), the licenses set forth in Sections 3.1 and 3.3(a)
above do not grant Hybridon and its Subsidiaries the right:

                  (a) to use the Isis Intellectual Property and the Tullis
      Patents for target validation and gene functionalization activities,
      except when, and only to the extent that, (i) such activities are directed
      to the discovery, development, Optimization and commercialization of a
      Hybridon Antisense Drug and (ii) such activities are performed only by
      Hybridon or a Subsidiary and not by a contractor or a collaborator, or

                  (b) to use, or enable any third party to use, any information
      that is developed during such target validation and gene functionalization
      activities in the development of a drug other than a Hybridon Antisense
      Drug, including without limitation, small molecules, ribozymes, proteins
      and pseudocyclic oligonucleotide structures.

      Section 3.7 NOTICE OF HYBRIDON ANTISENSE DRUGS. Hybridon shall provide
Isis with written notice of any Hybridon Antisense Drugs developed under a
sublicense granted by Hybridon or its Subsidiaries under Section 3.2 (a
"Hybridon Antisense Drug Sublicense") promptly after such Hybridon Antisense
Drug is developed. Isis shall have the right, not more than twice during any
calendar year, to have any Hybridon Antisense Drug Sublicense reviewed by an
independent third party chosen by Isis to confirm whether such Hybridon
Antisense Drug qualifies as a Hybridon Antisense Drug as defined under this
Agreement. Hybridon shall cooperate in all reasonable respects with the review
of such Hybridon Antisense Drug Sublicense by the independent third party under
this Section 3.6, including without limitation responding to questions directed
at determining whether such Hybridon Antisense Drug qualifies as a Hybridon
Antisense Drug. Isis shall pay all costs of such review; provided, however, that
if such Hybridon Antisense Drug does not qualify as a Hybridon Antisense Drug as
defined under this Agreement, Hybridon shall reimburse Isis for the costs of
such review. If the independent third party determines that such Hybridon
Antisense Drug does not qualify as

                                     - 17 -


a Hybridon Antisense Drug as defined under this Agreement, such independent
third

                                     - 18 -


party shall notify Hybridon and Isis. If Hybridon disagrees with the
determination of the independent third party, the third party shall be permitted
to provide Isis with a copy of the Hybridon Antisense Drug Sublicense.

      Section 3.8 AFFILIATES. Isis hereby represents and warrants as of the date
hereof that no Affiliate of Isis owns or controls any patents, patent
applications or inventions invented, licensed or sublicensed by such Affiliate
prior to April 26, 2001 which cover or claim Motifs or RNaseH Dependent
Mechanisms of Action.


                                   ARTICLE IV
                               PAYMENT OBLIGATIONS

      Section 4.1 CONSIDERATION FOR LICENSES OF HYBRIDON INTELLECTUAL PROPERTY
AND ISIS INTELLECTUAL PROPERTY. In consideration of the licenses and sublicenses
granted under Sections 2.1 and 3.1 of this Agreement and the restrictions on use
agreed to by Hybridon under this Agreement, Hybridon and Isis each shall pay to
the other the consideration set forth in the Master Agreement and Section 4.2
and Section 4.3 of this Agreement. Isis and Hybridon each recognizes that the
other Party has expended significant efforts and resources in the research and
development of Antisense Technology and the payments to be made under the Master
Agreement to each Party for the patent licenses and sublicenses granted
hereunder will allow each Party to recoup such expenditures.

      Section 4.2 CONSIDERATION FOR SUBLICENSE OF TULLIS PATENTS. In
consideration of the sublicense granted by Isis to Hybridon under Section 3.3 of
this Agreement, Hybridon shall pay to Isis the annual maintenance fee and
royalties provided below:

                  (a) On the date hereof and each anniversary of such date
      thereafter (until the earlier of the termination of the sublicense grant
      under Section 3.3 or the date on which there ceases to be any Valid Claims
      included in the Tullis Patents), an annual maintenance fee of [*]

                  (b) Hybridon shall pay to Isis earned royalties at the rate of
      [*] of Tullis Net Sales of Tullis Products. Hybridon shall be obligated
      to pay such royalties on a country-by-country basis, so long as there
      continues to be a Valid Claim included in the Tullis Patents which covers
      the manufacture, use or sale of the applicable Tullis Product in such
      country. During the term of the sublicense under Section 3.3 and for so
      long thereafter as Hybridon is required to report royalties payable under
      this Section 4.2, Hybridon shall deliver to Isis within thirty (30) days
      after March 31, June 30, September 30 and December 31 of each year a
      report indicating (i) Tullis Net Sales for each Tullis Product, on a
      Tullis

*Confidential Treatment Requested    - 18 -


      Product-by-Tullis Product and country-by-country basis, including an
      accounting of the deductions from Tullis Net Sales permitted by the
      definition thereof and (ii) total royalties owed. Simultaneously with the
      delivery of each such report, Hybridon shall pay to Isis the royalty
      payments due under this Agreement for the period covered by such report.
      If no royalties are due, it shall be so reported.

      Section 4.3 ISIS SUBLICENSE INCOME. Isis shall pay to Hybridon [*] of all
Sublicense Income, [*] in respect of Sublicense Income received in connection
with a Naked Sublicense [*]. Such payment by Isis shall be paid to Hybridon
within 30 days after the calendar quarter in which the Sublicense Income was
received by Isis or a Subsidiary. Isis shall deliver to Hybridon with such
payment a report describing such Sublicense Income and how such Sublicense
Income was calculated, all on a country-by-country and product-by-product basis.

      Section 4.4 RECORDS; AUDITS. For a period not less than three (3) years
after the relevant period, each Party shall keep full, true and accurate books
of account sufficient to determine the amounts payable pursuant to Section
4.2(b) or 4.3, as the case may be. Each Party shall have the right, not more
than once during any calendar year, to have the books and records of the other
Party audited by a qualified independent accounting firm of its choosing, under
appropriate confidentiality provisions, to ascertain the accuracy of the reports
and payments hereunder and compliance by the other Party and its Subsidiaries
and Sublicensees with their obligations under Section 4.2(b) or 4.3, as the case
may be. Such audit shall be conducted upon at least ten (10) days' advance
notice during normal business hours and in a manner that does not interfere
unreasonably with the business of the audited entity. Any underpayment or
overpayment determined by such audit shall promptly be paid or refunded by
Hybridon or Isis, as the case may be. If a Party has underpaid an amount due
under Section 4.2(b) or 4.3, as the case may be, by more than five percent (5%),
such Party shall also reimburse the other Party for the cost of such audit (with
the cost of the audit to be paid by the other Party in all other cases).

      Section 4.5 PAYMENT CURRENCY. All amounts due under this Agreement shall
be paid to the designated Party in United States currency by wire transfer to an
account in a United States bank specified by such Party or in such other form
and/or manner as such Party may reasonably request. The payments due on sales in
currencies other than United States dollars shall be calculated using the
appropriate exchange rate of such currency quoted in the Wall Street Journal on
the close of business on the last business day prior to which such payment is
made.

      Section 4.6 LATE PAYMENTS; COLLECTIONS. Any amount not paid when due under
this Agreement or the Master Agreement shall bear interest at the lesser

*Confidential Treatment Requested    - 19 -


of (i) one and one-half percent (1.5%) per month, compounded monthly, or (ii)
the highest rate permitted by law. Each Party agrees to pay all costs of
collection, including reasonable attorneys' fees, incurred by the other Party in
enforcing the payment obligations of the first Party under this Agreement and
the Master Agreement.

                                    ARTICLE V
                                 COLLABORATION

      In addition to the collaboration between the Parties with respect to
intellectual property protection under Article VI, the Parties shall further
collaborate hereunder through a committee (the "Collaboration Committee")
consisting of two representatives of each Party. The Parties shall establish the
Collaboration Committee within thirty (30) days after the Effective Date. The
Collaboration Committee shall meet at least twice each calendar year in person
or by video conference during the term of this Agreement to review the progress
of Isis' development efforts with respect to Isis' Antisense Products that are
covered by Hybridon Intellectual Property. The Parties intend that the
Collaboration Committee shall act as a forum for the Parties to work
cooperatively [*] The Parties also anticipate that the Collaboration Committee
may recommend to the Parties from time to time that certain aspects of the drug
development process be performed by Hybridon for Isis or that the Parties
consider entering into further collaborations. Neither Party shall be bound by
any recommendation of the Collaboration Committee but shall consider its
recommendations in good faith. In addition, neither Party shall be obligated to
disclose any Confidential Information to the Collaboration Committee.

                                   ARTICLE VI
                        INTELLECTUAL PROPERTY PROTECTION

      Section 6.1 Patent Prosecution and Cooperation.

                  (a) PROSECUTION AND MAINTENANCE OF HYBRIDON ANTISENSE PATENT
      RIGHTS.

                      (i) Hybridon will be responsible for prosecuting and
maintaining the Hybridon Antisense Patent Rights. Hybridon shall promptly
forward to Isis' patent counsel any substantive actions prepared for or received
from the U.S. Patent and Trademark Office or any foreign patent office which may
materially affect patent rights, e.g., claim scope or patent term. Isis' patent
counsel shall provide any comments to Hybridon in sufficient time for Hybridon
to reflect such comments in any response. Any comments made by Isis shall be
made in good faith and shall be directed to maximizing the claims covered by the
Hybridon Antisense Patent Rights.

                      (ii)  If Hybridon agrees with the comments of Isis' patent
counsel, it shall reflect such comments in its response. If Hybridon

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disagrees with such comments, it shall notify Isis, and either Party may then
submit such dispute (a "Patent Comment Dispute") for resolution by an
intellectual property lawyer (the "Neutral Lawyer") with at least five years of
experience and a background in biotechnology or pharmaceutical patent matters.
The Neutral Lawyer shall be selected by mutual agreement of the Parties;
provided, however, that if the Parties

*Confidential Treatment Requested    - 21 -


cannot agree on a Neutral Lawyer within five days of a Party's request for a
Neutral Lawyer under this provision, the Neutral Lawyer shall be selected by the
American Arbitration Association in Washington, D.C. Each Party shall submit its
position as to the Patent Comment Dispute to the Neutral Lawyer, who shall
resolve the dispute by agreeing to one of the submitted positions of the Parties
without any changes to such position. The Parties agree that the position agreed
to by the Neutral Lawyer shall be reflected in the action or response being
prepared and that the costs of the Neutral Lawyer shall be paid by the Party
whose position is not agreed to by the Neutral Lawyer. The decision of the
Neutral Lawyer shall be final and binding on the Parties. In light of the
foregoing dispute resolution mechanism, neither Party shall submit a Patent
Comment Dispute to binding arbitration in accordance with the provisions of
Article VIII. The Parties shall cooperate in all respects to resolve any Patent
Comment Dispute in sufficient time to avoid any loss of rights, including
without limitation jointly instructing the Neutral Lawyer to make a decision in
sufficient time to avoid any loss of rights.

                      (iii)  Isis will be responsible for and pay fifty percent
(50%) of Hybridon's costs incurred in prosecuting and maintaining the Hybridon
Antisense Patent Rights, net of amounts paid to Hybridon for such costs by other
licensees and not including any costs of Hybridon incurred in connection with a
Patent Comment Dispute (except as otherwise specified in the foregoing Section
6.1(a)(ii)). Hybridon shall direct its counsel to invoice Isis directly for
Isis' share of such costs as such costs are incurred.

                  (b) JOINT PATENT COMMITTEE. Hybridon and Isis will, within
      sixty (60) days after the execution of this Agreement, establish a
      committee (the "Joint Patent Committee") consisting of three
      representatives of each Party. The Joint Patent Committee shall confer
      twice each calendar year or as necessary to support timely decision making
      during the term of this Agreement to discuss patent prosecution issues,
      budgets and strategies relating to the Hybridon Antisense Patent Rights.
      The Joint Patent Committee shall also, as set forth in Section 5.2(b),
      determine which Party faces the greatest competitive threat in the event
      of infringement by a third party of any of the Hybridon Antisense Patent
      Rights. In the event that the Joint Patent Committee is unable to resolve
      any matter presented for resolution,. either Party shall have the right to
      submit such matter to binding arbitration in accordance with the
      provisions of Article VIII.

                  (c) INTERFERENCE BETWEEN ISIS INTELLECTUAL PROPERTY AND
      HYBRIDON ANTISENSE PATENT RIGHTS. If an interference is declared between
      any of the Isis Intellectual Property and any of the Hybridon Antisense
      Patent Rights (other than the UMass Patent Rights), each Party shall be
      represented by its own counsel in the interference proceedings; provided,
      however, that Hybridon's counsel shall be jointly selected by Isis and

                                     - 21 -


      Hybridon; and provided further that if Hybridon and Isis can not agree on
      counsel for Hybridon, a patent lawyer with at least five years of
      experience in interference practice and a background in biotechnology or
      pharmaceutical patent matters shall be selected to represent Hybridon by
      the American Arbitration Association in Washington, D.C. Each Party shall
      seek to resolve the interference in a manner that maximizes the value to
      both parties of the combined portfolio of the Hybridon Antisense Patent
      Rights and the Isis Intellectual Property. If an interference is declared
      between any UMass Patent Rights and any Isis Intellectual Property,
      Hybridon will cooperate with Isis in the resolution thereof to the extent
      permitted under the UMass Agreement or, if Hybridon cannot so cooperate
      due to obligations to UMass, Isis will not be obligated to reimburse
      Hybridon for any expenses related to the interference proceedings. If an
      interference is declared between any of the Hybridon Antisense Patent
      Rights and the intellectual property of a third party or between any of
      the Isis Intellectual Property and the intellectual property of a third
      party, then Hybridon or Isis, as the case may be, shall have sole control
      of prosecuting the interference.

                  (d) PATENT COOPERATION. Isis hereby represents and warrants as
      of the date hereof that since April 26, 2001, neither Isis nor any of its
      Affiliates has challenged, opposed or taken any action to provoke any
      interference with any Hybridon Intellectual Property, and Isis agrees that
      from and after the date of this Agreement Isis shall not, and shall cause
      its Non-Parent Affiliates to not, challenge, oppose or take any action to
      provoke any interference with, or maintain any current challenge or
      opposition to, any Hybridon Intellectual Property. Hybridon hereby
      represents and warrants as of the date hereof that since April 26, 2001,
      neither Hybridon nor any of its Affiliates has challenged, opposed or
      taken any action to provoke any interference with any Isis Intellectual
      Property, and Hybridon agrees that from and after the date of this
      Agreement Hybridon shall not, and shall cause its Non-Parent Affiliates to
      not, challenge, oppose or take any action to provoke any interference
      with, or maintain any current challenge or opposition to, any Isis
      Intellectual Property. Hybridon further agrees that it will not use any
      Hybridon Antisense Patent Rights to challenge or interfere with any
      patents owned by Isis arising out of inventions invented, licensed or
      sublicensed by Isis prior to April 26, 2001, including those included in
      the Isis Intellectual Property, and that Hybridon will not oppose any
      patents claiming inventions invented, licensed or sublicensed by Isis
      prior to April 26, 2001, including those included in the Isis Intellectual
      Property, that cover chemical modifications to antisense oligonucleotides.
      The foregoing obligations not to challenge, oppose or interfere include,
      without limitation obligations not to directly or indirectly provoke an
      interference, participate in an opposition or make any claims of
      invalidity; PROVIDED THAT either Party and its Affiliates may raise a
      claim

                                     - 22 -


      of invalidity as a defense in a lawsuit filed by the other Party or its
      Affiliates. In addition, in the context of any interference between any of
      the Isis Intellectual Property and any of the Hybridon Antisense Patent
      Rights provoked by the U.S. Patent and Trademark Office, the Parties shall
      use commercially reasonable efforts to reach a settlement that maximizes
      the value to both Parties of the combined portfolio of the Hybridon
      Antisense Patent Rights and the Isis Intellectual Property.

                  (e) Notwithstanding any provision of this Section 6.1 to the
      contrary, nothing in this Section 6.1 shall (x) prevent Hybridon from
      complying with its obligations with respect to the Hybridon Intellectual
      Property under the UMass Agreement or the Third Party License Agreements,
      as applicable, or (y) limit the rights of the third parties under such
      agreements with respect to the Hybridon Intellectual Property, including
      as to clauses (x) and (y):

      (i)   UMass' right to prepare, file, prosecute and maintain certain
            patents and patent applications in the name of UMass pursuant to
            Section 8.1 of the UMass Agreement;

            (ii)  Hybridon's obligation to use counsel acceptable to UMass
            and to consult with UMass regarding the preparation, filing,
            prosecution or maintenance of certain patents and patent
            applications pursuant to Section 8.1 of the UMass Agreement;

            (iii) Hybridon's obligation pursuant to Section 8.2 of the
            UMass Agreement (A) to provide notice to UMass prior to abandoning,
            or failing to make payment or take other necessary actions to
            maintain, certain patents and patent applications and (B) to
            continue the prosecution or maintenance of such patents after notice
            has been provided and before UMass has had sufficient time to assume
            the prosecution or maintenance of such patent;

            (iv) Methylgene's right under Section 5.5 of the Methylgene License
            Agreement to take measures to ensure the registration and
            maintenance of certain patents and patent applications if Hybridon
            fails to register and maintain such patents and patent applications;

            (v) Methylgene's right under Section 5.5 of the Methylgene License
            Agreement to (A) approve the patent agent selected to prosecute
            certain patents and patent applications, (B) be kept informed
            regarding progress or problems related to certain patents and patent
            applications and (C) have its comments on such progress or problems
            be considered;

                                     - 23 -


            (vi) OriGenix's right under Section 5.5 of the OriGenix License
            Agreement to take measures to ensure the registration and
            maintenance of certain patents and patent applications if Hybridon
            fails to register and maintain such patents and patent applications;

            (vii) OriGenix's right under Section 5.5 of the OriGenix License
            Agreement to (A) approve the patent agent selected to prosecute
            certain patents and patent applications, (B) be kept informed
            regarding progress or problems related to certain patents and patent
            applications and (C) have its comments on such progress or problems
            be considered;

            (viii) EpiGenesis' right pursuant to Section 6.2.2 of the
            Development and License Agreement between EpiGenesis
            Pharmaceuticals, Inc. and Hybridon, dated as August 9, 2000 (the
            "EpiGenesis License Agreement") to file, prosecute and maintain
            certain patents and patent applications if Hybridon elects not to
            continue to seek or maintain patent protection on such patents or
            patent applications;

            (ix) EpiGenesis' right pursuant to Section 6.2.2 of the EpiGenesis
            License Agreement to (A) have Hybridon consult with EpiGenesis
            regarding the prosecution of certain patents and patent
            applications, (B) have a reasonable amount of time to consider and
            comment on any document to be filed in connection with the
            prosecution of such patents and patent applications and (c) have its
            comments on such comments be seriously considered;

            (x) Hybridon's obligation pursuant to Section 6.2.3 of the
            EpiGenesis License Agreement (A) to provide notice to EpiGenesis
            prior to abandoning, or failing to make payment or take other
            necessary actions to maintain certain patents and patent
            applications and (B) to continue the prosecution or maintenance of
            such patents and patent applications after notice has been provided
            and before EpiGenesis has had sufficient time to assume the
            prosecution or maintenance of such patents and patent applications;
            and

            (xi) Boston Biosystems, Inc.'s (BBI) right and Avecia Holdings plc's
            right to prosecute or maintain certain patents and patent
            applications if Hybridon declines to prosecute or maintain such
            patents or patent applications pursuant to (A) Section 4.03 of the
            PNT Monomer Patent License and Option Agreement dated as of
            September 20, 2000 by and between Hybridon and BBI, (B) Section 4.03
            of the Oligonucleotide Purification Patent License Agreement

                                     - 24 -


            dated as of September 20, 2000 by and between Hybridon and BBI, and
            (C) Section 5.03 of the Interference Patent Sublicense Option
            Agreement dated as of September 20, 2000 by and between Hybridon and
            BBI.

      Section 6.2 ENFORCEMENT OF HYBRIDON ANTISENSE PATENT RIGHTS

              (a) NOTICE. If Hybridon or Isis becomes aware that any of the
      Hybridon Antisense Patent Rights is infringed by a third party or is
      subject to a declaratory judgment action relating to infringement or
      invalidity, Hybridon or Isis, as the case may be, shall promptly notify
      the other Party.

              (b) FIRST RIGHT OF ENFORCEMENT. In the event of infringement of
      the Hybridon Antisense Patent Rights by a third party, the Party facing
      the greatest competitive threat from the infringement shall have the first
      right (but not the obligation), at its sole expense, to undertake such
      action as it shall determine, in its discretion, appropriate to enforce
      the Hybridon Antisense Patent Rights; provided, however, that such Party
      shall not admit the invalidity or unenforceability of any Hybridon
      Antisense Patent Rights, grant a license to the allegedly infringing third
      party or enter into any settlement agreement without the other Party's
      prior written consent. The determination of which Party faces the greatest
      competitive threat from the infringement shall be made by the Joint Patent
      Committee. If the Joint Patent Committee determines that neither Party
      faces a greater competitive threat than the other Party, then Hybridon
      shall have the first right to enforce the Hybridon Antisense Patent
      Rights. The Party enforcing the Hybridon Antisense Patent Rights shall
      keep the other Party reasonably informed on a quarterly basis, in person
      or by telephone, prior to and during any such enforcement. The other Party
      shall assist the Party enforcing the Hybridon Antisense Patent Rights,
      upon the enforcing Party's request and at the enforcing Party's sole
      expense, in taking any action to enforce the Hybridon Antisense Patent
      Rights and shall join in any such action if deemed by a court of competent
      jurisdiction to be a necessary party. Neither Party shall incur liability
      to the other Party as a consequence of such litigation or any unfavorable
      decision resulting therefrom, including any decision holding any of the
      Hybridon Antisense Patent Rights invalid, not infringed or unenforceable.
      Notwithstanding the foregoing, if Isis is the Party enforcing the Hybridon
      Antisense Patent Rights under this Section 6.2(b) and such Hybridon
      Antisense Patent Rights are included in the claims that are the subject
      matter of the UMass Agreement or are licensed by Hybridon under the Third
      Party License Agreements, Isis' rights to enforce such Hybridon Antisense
      Patent Rights shall be limited to the rights of Hybridon to enforce such
      Hybridon Antisense Patent Rights, and subject to and limited by the rights
      of the other parties to the

                                     - 25 -


      UMass Agreement and the Third Party License Agreements, as set forth in
      the UMass Agreement or the Third Party License Agreements, as applicable,
      including:

      (i)   UMass's right pursuant to Section 9.2 of the UMass Agreement to
            prosecute any infringements of certain patents and patent
            applications licensed to Hybridon pursuant to the UMass Agreement;

            (ii) Hybridon's obligation pursuant to Section 9.3 of the UMass
            Agreement to seek the consent of UMass to any settlement, consent
            judgement or other voluntary final disposition of a suit involving
            certain patents and patent applications licensed to Hybridon
            pursuant to the UMass License;

            (iii) UMass' right to intervene and take over the sole defense of a
            declaratory judgment action pursuant to Section 9.6 of the UMass
            Agreement;

            (iv) Methylgene's right pursuant to Section 5.1(b) of the Methylgene
            License Agreement to initiate infringement actions related to
            certain patents and patent applications as it may in its discretion
            deem necessary or desirable;

            (v) OriGenix's right pursuant to Section 5.1(v) of the OriGenix
            License Agreement to initiate infringement actions related to
            certain patents and patent applications as it may in its discretion
            deem necessary or desirable; and

            (vi) EpiGensesis' right pursuant to Section 6.6 of the EpiGenesis
            License Agreement to initiate infringement actions related to
            certain patents and patent applications and to consent to any
            settlement of infringement litigation that would materially diminish
            the rights of EpiGenesis in certain patents and patent applications.

Items (i) through (vi) of this Section 6.2(b) are collectively referred to as
the "Other Enforcement Rights".

                  (c) ENFORCEMENT BY OTHER PARTY. If the Party having the first
      right to enforce the Hybridon Antisense Patent Rights pursuant to Section
      5.2(b) above fails to file an action to abate an infringement of the
      Hybridon Antisense Patent Rights, within six (6) months after a written
      request from the other Party to do so, or if such Party fails to
      diligently prosecute or discontinues the prosecution of any such action,
      the other Party at its sole expense may, in its discretion, undertake such
      action as it determines appropriate (other than the grant of a license to
      the allegedly infringing third party) to enforce such Hybridon Antisense

                                     - 26 -


      Patent Rights. Such other Party shall keep the Party that had the first
      right to enforce the Hybridon Antisense Patent Rights reasonably informed
      on a quarterly basis, in person or by telephone, prior to and during any
      such enforcement. In such case, the Party that had the first right to
      enforce the Hybridon Antisense Patent Rights shall assist such other
      Party, upon such other Party's request and at such other Party's sole
      expense, in taking any action to enforce the Hybridon Antisense Patent
      Rights and shall join in any such action if deemed by a
      court of competent jurisdiction to be a necessary party. Neither Party
      shall incur liability to the other Party as a consequence of such
      litigation or any unfavorable decision resulting therefrom, including any
      decision holding any of the Hybridon Antisense Patent Rights invalid, not
      infringed or unenforceable. Notwithstanding the foregoing, if Isis is the
      Party enforcing the Hybridon Antisense Patent Rights under this Section
      6.2(c) and such Hybridon Antisense Patent Rights are included in the
      claims that are the subject matter of the UMass Agreement or are licensed
      by Hybridon under the Third Party License Agreements, Isis' rights to
      enforce such Hybridon Antisense Patent Rights shall be limited to the
      rights of Hybridon to enforce such Hybridon Antisense Patent Rights, and
      subject to and limited by the rights of the other parties to the UMass
      Agreement and the Third Party License Agreements, as set forth in the
      UMass Agreement or the Third Party License Agreements, as applicable,
      including the Other Enforcement Rights.

                  (d) RECOVERIES. All monies recovered upon the final judgment
or settlement of any action involving the enforcement of Hybridon Antisense
Patent Rights as contemplated by this Section 6.2 shall be allocated in the
following order of priority: (i) first to reimburse the costs and expenses
(including reasonable attorney fees and costs) incurred by the Parties in
prosecuting such action, and (ii) any remaining portion of the recovery shall be
divided between the Parties in proportion to the respective total losses,
determined by aggregating both past and prospective losses, each Party would
have been reasonably likely to have suffered had such infringement continued
unabated. Notwithstanding the foregoing, if the Hybridon Antisense Patent Rights
that were the subject of the action are included in the claims that are the
subject matter of the UMass Agreement or are licensed by Hybridon under the
Third Party License Agreements, the provisions of this Section 6.2(d) shall only
apply to such monies recovered upon the final judgment or settlement of such
action as remain following payment of monies to third parties as required under
the UMass Agreement and the Third Party License Agreements.

                                   ARTICLE VII
                                 CONFIDENTIALITY

      Section 7.1 CONFIDENTIAL INFORMATION. Each Party agrees that all
Confidential Information of a Party that is disclosed by a Party to the other

                                     - 27 -


Party (a) shall be maintained in confidence by the receiving Party and shall not
be used by the receiving Party for any purpose other than as permitted under
this Agreement, and (b) shall not be disclosed by the receiving Party to any
third party who is not a Subsidiary of the receiving Party, or a consultant or
an advisor to the receiving Party or a Subsidiary of the receiving Party,
without the prior written consent of the disclosing Party; provided, however,
that Confidential Information may only be disclosed by the receiving Party to
Subsidiaries or consultants or advisors to the receiving Party or its
Subsidiaries if such Subsidiaries, consultants or advisors, as the case may be,
have agreed in writing to be bound by the obligations of the
receiving Party under this Section 7.1. Notwithstanding the foregoing, the
receiving Party shall be entitled to use and disclose Confidential Information
that:

                  (a) was known or used by the receiving Party or its
      Subsidiaries prior to its date of disclosure to the receiving Party as
      demonstrated by legally admissible evidence available to the receiving
      Party or its Subsidiaries; or

                  (b) either before or after the date of the disclosure to the
      receiving Party is lawfully disclosed to the receiving Party or its
      Subsidiaries by sources other than the disclosing Party rightfully in
      possession of the Confidential Information and not bound by
      confidentiality obligations to the disclosing Party or its Subsidiaries;
      or

                  (c) either before or after the date of the disclosure to the
      receiving Party is or becomes published or otherwise is or becomes part of
      the public domain through no breach hereof on the part of the receiving
      Party or its Subsidiaries; or

                  (d) is independently developed by or for the receiving Party
      or its Subsidiaries without reference to or reliance upon the Confidential
      Information as demonstrated by competent written records; or

                  (e) is reasonably necessary to conduct clinical trials or for
      regulatory approval of products or for the filing, prosecution and
      maintenance of patents and patent applications, PROVIDED THAT the
      receiving Party provides prior written notice of such disclosure to the
      disclosing Party and takes reasonable and lawful actions to avoid and/or
      minimize the degree of such disclosure; or

                  (f) is required to be disclosed by the receiving Party to
      comply with applicable laws, to defend or prosecute litigation or to
      comply with governmental regulations, PROVIDED THAT the receiving Party
      provides prior written notice of such disclosure to the disclosing Party

                                     - 28 -


      and takes reasonable and lawful actions to avoid and/or minimize the
      degree of such disclosure.

                                  ARTICLE VIII
                               DISPUTE RESOLUTION

Section 8.1 Except as set forth in Section 6.1(a)(ii), each Party must submit
any dispute under this Agreement or the Master Agreement to arbitration by
notifying the other Party, in writing, of such dispute. Within 30 days after
receipt of such notice, the Parties shall designate in writing one arbitrator to
resolve the dispute; PROVIDED, that if the Parties cannot agree on an arbitrator
within such 30 days period, the arbitrator shall be selected by the office of
the American
Arbitration Association in the city where arbitration will take place. The
arbitrator shall not be an employee, consultant, officer, director or
stockholder of any Party or its Affiliates. If neither the Parties nor the
applicable office of the American Arbitration Association is able to identify an
individual to serve as the arbitrator, the American Arbitration Association
shall select an arbitrator from the CPC Panel of Distinguished Neutrals of the
CPR Institute for Dispute Resolution.

      Section 8.2 Within 30 days after the designation of the arbitrator, the
arbitrator and the Parties shall meet, at which time the Parties shall be
required to set forth in writing all disputed issues and a proposed ruling on
the merits of each such issue.

      Section 8.3 The arbitrator shall set a date for a hearing, which shall be
no later than 45 days after the submission of written proposals to discuss each
of the issues identified by the Parties. Each Party shall have the right to be
represented by counsel. Except as provided herein, the arbitration shall be
governed by the Commercial Arbitration Rules of the American Arbitration
Association; PROVIDED, HOWEVER, that the Federal Rules of Evidence shall apply
with regard to the admissibility of evidence and the arbitration shall be
conducted by a single arbitrator.

      Section 8.4 The arbitrator shall use his or her best efforts to rule on
each disputed issue within 30 days after the completion of the hearings. The
determination of the arbitrator as to the resolution of any dispute shall be
final and binding and conclusive upon all parties hereto. All determinations of
the arbitrator shall be in writing and shall be delivered to the Parties. The
determinations of the arbitrator may be entered in any court of competent
jurisdiction.

      Section 8.5 The attorneys' fees of the Parties in any arbitration, the
fees of the arbitrator, and the costs and expenses of the arbitration
(collectively, the "Arbitration Costs") shall be borne by the Parties as
determined by the arbitrator.

                                     - 29 -


      Section 8.6 The arbitration shall take place in Boston, Massachusetts if
brought by Isis and in San Diego, California if brought by Hybridon.

      Section 8.7 Nothing in this Article VIII shall prevent either Party from
seeking a preliminary injunction, temporary restraining order or similar relief
in order to prevent or limit and irreparable harm that might occur in the
absence thereof from a court of competent jurisdiction.

                                   ARTICLE IX
                              TERM AND TERMINATION

      Section 9.1 TERM. This Agreement shall commence as of the date hereof and
shall continue until the last of the patents and patent applications included in
the Hybridon Intellectual Property, the Isis Intellectual Property and the
Tullis Patents has expired, subject to earlier termination of this Agreement in
accordance with this Article IX. Notwithstanding the foregoing, the licenses or
sublicenses granted hereunder shall terminate on a country-by-country basis
concurrently with the expiration or termination of the applicable Valid Claim
under the Hybridon Intellectual Property, the Isis Intellectual Property or the
Tullis Patents, as the case may be, in the applicable country.

      Section 9.2 TERMINATION OF LICENSES AND SUBLICENSES FOR BREACH.

                  (a) Except as set forth in Section 9.2(b), (i) if an
      arbitrator has rendered a ruling pursuant to Article VIII that a Party or
      a Subsidiary has materially breached this Agreement or the Master
      Agreement, which ruling specified the remedies imposed on such breaching
      party for such breach, including without limitation a ruling on a dispute
      as to breach of a Party's obligation to issue stock or pay cash in lieu of
      stock as required under the Master Agreement (the "ADVERSE RULING"), and
      (ii) the breaching Party has failed to comply with the terms of the
      Adverse Ruling within the time period specified therein for compliance, or
      if such compliance cannot be fully achieved by such date, the breaching
      Party has failed to commence compliance and to use diligent efforts to
      achieve full compliance as soon thereafter as is reasonably possible, then
      the non-breaching Party shall be entitled to terminate the licenses and
      sublicenses granted to the breaching Party and its Subsidiaries by such
      non-breaching Party under this Agreement (without prejudice to any of the
      other rights of the non-breaching Party under this Agreement or the Master
      Agreement) upon written notice to the breaching Party.

                  (b) (i) If a Party breaches an obligation to issue stock or
      pay cash in lieu of stock as required under the Master Agreement, then the
      non-breaching Party may terminate the licenses and sublicenses granted to
      the breaching Party and its Subsidiaries by such

                                     - 30 -


      non-breaching Party under this Agreement immediately upon written notice
      to the breaching Party if the breaching Party fails to cure such breach
      within ten (10) business days of written notice of such breach from the
      non-breaching Party; provided, however, that if the breaching Party
      believes that a bona fide dispute exists as to the amount of any payment,
      then the breaching Party may, not later than five business days following
      the notice of the breach, (i) provide the non-breaching Party with a
      written notice setting forth the nature of the dispute and the amount in
      dispute, (ii) at the same time, pay to the non-breaching Party the amount
      of the payment which is not in dispute and (iii) promptly submit the
      dispute to binding arbitration pursuant to Article VIII, in which case the
      non-payment of the disputed portion shall not be deemed a breach during
      the pendency of the arbitration.

                                     - 31 -


                      (ii) If the final arbitration order or ruling issued
in the arbitration proceeding resolves the dispute against the breaching Party
and orders the breaching Party to pay all or part of the disputed portion to the
non-breaching Party, then the arbitrator shall include in its award, in addition
to such other remedies as it deems appropriate, the following against the
breaching Party: (A) the Arbitration Costs, (B) [*] and (C) if the arbitrator
finds that a cash payment was due, an amount equal to interest at the rate equal
to the lower of 1.5% per month, compounded monthly, or the highest rate
permitted by law on the amount of cash determined to have been due commencing on
the due date determined by the arbitrator through the date of actual payment.

                  (c) The right of either Party to terminate the licenses and
      sublicenses granted by such Party under this Agreement pursuant to this
      Section 9.2 shall not be affected in any way by its waiver of, or failure
      to take action with respect to any previous default.

                  (d) If the licenses and sublicenses granted by Hybridon to
      Isis and its Subsidiaries under this Agreement are terminated by Hybridon
      pursuant to this Section 9.2, (i) Hybridon shall be entitled to retain the
      licenses granted to it and its Subsidiaries pursuant to Article III,
      subject to the payment obligations of Hybridon specified in the Master
      Agreement and in Article IV, and to continue to receive the stock of Isis
      issuable to it pursuant to Section 2.3 of the Master Agreement, and (ii)
      the provisions of Articles V and VI shall terminate in their entirety. If
      the licenses and sublicenses granted by Isis to Hybridon and its
      Subsidiaries under this Agreement are terminated by Isis pursuant to this
      Section 9.2, Isis shall be entitled to retain the licenses granted to it
      and its Subsidiaries pursuant to Article II, subject to the payment
      obligations of Isis specified in the Master Agreement and in Article IV,
      and to continue to receive the stock of Hybridon issuable to it pursuant
      to Section 2.2 of the Master Agreement.

      Section 9.3 TERMINATION OF SUBLICENSE OF TULLIS PATENTS. Hybridon shall
have the right to terminate the sublicense granted to it and its Subsidiaries
pursuant to Section 3.3 (and the related payment obligations under Section 4.2)
for any reason or no reason at any time upon fifteen (15) days prior written
notice to Isis.

      Section 9.4 SURVIVAL. The expiration or termination of this Agreement for
any reason shall not relieve the Parties of any obligation due and accruing, or
for any liability as to any breach occurring, prior to such expiration or
termination. In addition, the provisions of Section 4.4, Article VII, Article
VIII, Section 9.4, Section 9.5, and Article X shall survive the expiration or
termination of this Agreement.

*Confidential Treatment Requested    - 31 -


      Section 9.5 SUBLICENSE SURVIVAL.

                  (a) Notwithstanding the termination of this Agreement or any
      of the licenses or sublicenses granted hereunder pursuant to this Article
      IX, any sublicenses to Isis Intellectual Property and the Tullis Patents
      granted by Hybridon or its Subsidiaries pursuant to Section 3.2 or 3.3(b)
      hereof prior to such termination shall survive such termination. In such
      event, Isis shall have the right to receive directly from the Sublicensee
      any payments or other consideration otherwise payable to Hybridon or its
      Subsidiaries as the sublicensor under such sublicense, and to otherwise
      exercise all of the rights of Hybridon or its Subsidiaries as the
      sublicensor under such sublicense; provided however that Isis shall not
      assume, and shall not be responsible for, any representations, warranties
      or obligations of Hybridon or its Subsidiaries as the sublicensor to any
      Sublicensees other than the licenses under such sublicenses.

                  (b) Notwithstanding the termination of this Agreement or any
      of the licenses or sublicenses granted hereunder pursuant to this Article
      IX, any sublicenses of Hybridon Intellectual Property granted by Isis or
      its Subsidiaries pursuant to Section 2.2 hereof prior to such termination
      shall survive such termination. In such event, Hybridon shall have the
      right to receive directly from the Sublicensee any payments or other
      consideration otherwise payable to Isis or its Subsidiaries as the
      sublicensor, under such sublicense and to otherwise exercise all of the
      rights of Isis or its Subsidiaries as the sublicensor under such
      sublicense; provided however that Hybridon shall not assume, and shall not
      be responsible for, any representations, warranties or obligations of Isis
      or its Subsidiaries as the sublicensor to any Sublicensees other than the
      licenses under such sublicenses.

      Section 9.6 FAILURE TO MAKE MASTER AGREEMENT DELIVERIES. Notwithstanding
any provision in this Agreement to the contrary, including without limitation
Article VIII, [*] Hybridon shall have the right, at its sole election, effective
immediately upon written notice to Isis, [*]

                                   ARTICLE X
                            MISCELLANEOUS PROVISIONS

      Section 10.1 INDEMNIFICATION. Each Party (the "Indemnifying Party") agrees
to defend the other Party and such other Party's Subsidiaries and their
respective directors, officers, employees and agents (the "Indemnified Parties")
at the Indemnifying Party's cost and expense, and shall indemnify and hold the
Indemnified Parties harmless from and against any losses, costs, damages, fees
or expenses arising out of any third party claim relating to (i) any breach by
the Indemnifying Party of any of its representations, warranties or obligations

*Confidential Treatment Requested    - 32 -


pursuant to this Agreement, (ii) provided that the third party is not an
Affiliate of the Indemnified Parties, infringement of such third party's patents
resulting from the exercise by the Indemnifying Party or a Subsidiary or a
Sublicensee of the

*Confidential Treatment Requested    - 33 -


rights granted by the Indemnified Parties to the Indemnifying Party hereunder or
(iii) product liability resulting from use of a product made, sold or imported
by or for the Indemnifying Party or by or for a Subsidiary or a Sublicensee
under the rights granted by the Indemnified Parties hereunder. In the event of
any claim against the Indemnified Parties by any third party for which
indemnification may be sought pursuant to this Agreement, the Indemnified
Parties shall promptly notify the Indemnifying Party in writing of the claim;
provided that the failure to promptly notify the Indemnifying Party of such
claim shall not result in the loss of rights of indemnification hereunder except
to the extent that the Indemnifying Party was materially prejudiced by such
failure. The Indemnifying Party shall assume, at its sole expense, the defense
of the claim and its settlement. The Indemnified Parties shall cooperate with
the Indemnifying Party and may, at their option and expense, be represented in
any such action or proceeding. The Indemnifying Party shall not be liable for
any litigation costs or expenses incurred by the Indemnified Parties. In
addition, the Indemnifying Party shall not be responsible for the
indemnification of any Indemnified Party arising from any negligent or wrongful
acts by such Indemnified Party, or as the result of any settlement or compromise
by the Indemnified Parties without the Indemnifying Party's prior written
consent. The Indemnifying Party may not settle or compromise any matter without
the consent of the Indemnified Parties unless such settlement or compromise
imposes no obligations on the Indemnified Parties and does not restrict the
rights of the Indemnified Parties.

      Section 10.2 GOVERNING LAW. This Agreement shall be construed and the
respective rights of the Parties determined according to the laws of the State
of Delaware (without regard to the conflict of law rules of any jurisdiction),
except matters of the intellectual property law, which shall be determined in
accordance with the national intellectual property laws relevant of the
intellectual property in question.

      Section 10.3 ASSIGNMENT. Neither Hybridon nor Isis may assign this
Agreement in whole or in part without the consent of the other Party, except if
such assignment occurs in connection with the sale or transfer of all or
substantially all of the business or assets of the assigning Party to which the
subject matters of this Agreement pertains.

      Section 10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with
the Master Agreement, constitutes the entire agreement between the Parties with
respect to the subject matter hereof, and supersedes all previous arrangements
with respect to the subject matter hereof, whether written or oral. Any
amendment or modification to this Agreement shall be made in writing signed by
both Parties.

      Section 10.5 NOTICES.

                                     - 33 -


      Notices to Hybridon shall be addressed to:
               Hybridon, Inc.
               345 Vassar Street
               Cambridge, Massachusetts 02139
               Attention: Chief Executive Officer

      with a copy to:

               Holland and Knight, LLP
               10 St. James Avenue
               Boston, Massachusetts 02116
               Attention: James Pollock, Esq.

               And

               Hale and Dorr LLP
               60 State Street
               Boston, MA  02109
               Attention: David E. Redlick, Esq.

                                     - 34 -


      Notices to Isis shall be addressed to:

               Isis Pharmaceuticals, Inc.
               2292 Faraday Avenue
               Carlsbad, California 92008
               Attention:  Chief Executive Officer
               Copy to: Executive Vice President


      Any Party may change its address by giving notice to the other Party in
the manner herein provided. Any notice required or provided for by the terms of
this Agreement shall be in writing and shall be (a) delivered personally, (b)
sent by registered or certified mail, return receipt requested, postage prepaid,
(c) sent via a reputable overnight courier service, or (d) sent by facsimile
transmission with an original to be followed the same day via a reputable
overnight courier service, in each case properly addressed in accordance with
the paragraph above. The effective date of notice shall be the actual date of
receipt by the Party receiving the same.

      Section 10.6 FORCE MAJEURE. No failure or omission by a Party in the
performance of any of its obligations of this Agreement shall be deemed a breach
of this Agreement or create any liability if the same shall arise from any cause
or causes beyond the control of such Party, including, but not limited to, the
following: acts of God; acts or omissions of any government; any rules,
regulations or orders issued by any governmental authority or by any officer,
department, agency or instrumentality thereof; fire; storm; flood; earthquake;
accident; war; rebellion; insurrection; riot; and invasion and provided that
such failure or omission resulting from one of the above causes is cured as soon
as is practicable after the occurrence of one or more of the above-mentioned
causes.

      Section 10.7 DISCLOSURE OF PROVISIONS OF AGREEMENT.

                  (a) Each Party agrees to hold as confidential the terms of
      this Agreement, except that (i) Hybridon may furnish a copy of this
      Agreement to UMass, Isis may furnish a copy of this Agreement to MBI
      (other than Exhibits containing information relating to patent
      applications of Hybridon) and each Party shall have the right to disclose
      the terms of this Agreement (other than the information on the Exhibits
      hereto relating to patent applications of Isis or Hybridon) to potential
      investors and other third parties in connection with financing activities
      and to potential collaborators, provided that any such third party has
      entered into a written obligation with the disclosing Party to treat such
      information and materials as confidential and to not use the information
      and materials for any purposes other than the evaluation of the potential

                                     - 35 -


      investment or collaboration and that the disclosing Party shall enforce
      against the third party recipient of such information and materials, for
      and on behalf of the other Party, such written obligation, and (ii) each
      Party may furnish a copy of this Agreement or disclose the terms of this
      Agreement if such is required to be disclosed by the receiving Party to
      comply with applicable laws, to defend or prosecute litigation or to
      comply with governmental regulations, PROVIDED THAT the receiving Party
      provides prior written notice of such disclosure to the disclosing Party
      and takes reasonable and lawful actions to avoid and/or minimize the
      degree of such disclosure. At the request of the other Party, the
      disclosing Party shall use commercially reasonable efforts to enforce such
      obligations against such third parties.

                  (b) Notwithstanding Section 10.7(a) to the contrary, either
      Party may include this Agreement, in any report, statement or other
      document filed by such Party with the United States Securities and
      Exchange Commission (the "SEC"). In such event, the disclosing Party shall
      use reasonable efforts to obtain, to the extent permitted by law,
      confidential treatment from the SEC of any trade secrets and commercial or
      financial information of a privileged or confidential nature, including
      without limitation all information on the Exhibits hereto relating to
      patent applications of Isis or Hybridon, and shall notify the other Party
      as to such efforts and all related communications with the SEC; provided
      that notwithstanding the foregoing no Party shall submit a confidentiality
      request or include this Agreement without the prior review and approval of
      the confidentiality request by the other Party, which review and approval
      shall not be unreasonably withheld or delayed.

      Section 10.8 INDEPENDENT CONTRACTORS. It is understood and agreed that the
relationship between the Parties hereunder is that of independent contractors
and that nothing in this Agreement shall be construed as authorization for
either Party to act as agent for the other.

      Section 10.9 NO STRICT CONSTRUCTION. This Agreement has been prepared
jointly and shall not be strictly construed against any Party.

      Section 10.10 HEADINGS. The captions or headings of the Sections or other
subdivisions hereof are inserted only as a matter of convenience or for
reference and shall have no effect on the meaning of the provisions hereof.

      Section 10.11 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the
part of either Party to exercise, and no delay in exercising, any right, power,
remedy or privilege under this Agreement, or provided by statute or at law or in
equity or otherwise, shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege or be construed as a waiver of any breach of
this Agreement or as an acquiescence therein, nor shall any single or partial

                                     - 36 -


exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege. In particular, the Parties hereby agree that termination of the
licenses or sublicenses granted under this Agreement as provided in Article IX
shall not be the exclusive remedy of a Party in the event of a breach of this
Agreement or the Master Agreement by the other Party and that the non-breaching
Party shall be entitled to seek any and all other remedies to which the
non-breaching Party may be entitled at law or in equity.

      Section 10.12 SEVERABILITY. If any provision hereof should be held
invalid, illegal or unenforceable in any respect in any jurisdiction, then, to
the fullest extent permitted by law, (a) all other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally
construed in order to carry out the intentions of the Parties as nearly as may
be possible and (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction.

      Section 10.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
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 one and the same instrument.

      Section 10.14 NO CONSEQUENTIAL DAMAGES. NEITHER PARTY HERETO WILL BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, REGARDLESS OF ANY NOTICE OF
SUCH DAMAGES.

      Section 10.15 PATENT VALIDITY. Notwithstanding anything in this Agreement
to the contrary, neither Party represents and warrants or shall be deemed to
have represented and warranted to the other Party that the Hybridon Intellectual
Property (in the case of Hybridon) and the Isis Intellectual Property and the
Tullis Patents (in the case of Isis) are valid or otherwise enforceable.



                    [Remainder of page intentionally omitted]

                                     - 37 -


         IN WITNESS WHEREOF, the Parties have executed this License Agreement as
of the Effective Date.



                                            ISIS PHARMACEUTICALS, INC.



                                            By: /s/ B. Lynne Parshall
                                                --------------------------------
                                            Name: B. Lynne Parshall
                                                  ------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------




                                            HYBRIDON, INC.



                                            By: /s/ Sudhir Agrawal
                                                --------------------------------
                                            Name: Sudhir Agrawal
                                                  ------------------------------
                                            Title: President and CSO
                                                   -----------------------------
                                                   /s/ Robert Andersen, CFO

                                     - 38 -




                                    EXHIBIT A

                                      [ * ]

*Confidential Treatment Requested



                                   EXHIBIT B1

                                      [ * ]


*Confidential Treatment Requested



                                   EXHIBIT B2

                                      [ * ]


*Confidential Treatment Requested



                                    EXHIBIT C

                                      [ * ]


*Confidential Treatment Requested



                                    EXHIBIT D

                                      [ * ]


*Confidential Treatment Requested



                                    EXHIBIT E

                                       [*]


*Confidential Treatment Requested



                                    EXHIBIT F

                                      [ * ]


*Confidential Treatment Requested



                                    EXHIBIT G

                                      [ * ]


*Confidential Treatment Requested



                                   EXHIBIT H-1


                         THIRD PARTY LICENSE AGREEMENTS

Methylgene

AMENDED AND RESTATED LICENSE AGREEMENT MADE EFFECTIVE AS OF JANUARY 4, 1996, AS
AMENDED AND RESTATED ON SEPTEMBER 21, 2000.

Origenix

LICENSE AGREEMENT DATED AS OF JANUARY 22, 1999 BETWEEN HYBRIDON AND ORIGENIX.

Epigenesis

DEVELOPMENT AND LICENSE AGREEMENT BETWEEN EPIGENESIS PHARMACEUTICALS, INC. AND
HYBRIDON, INC., DATED AS OF AUGUST 9, 2000.

Boston Biosystems, Inc. (BBI)

PNT MONOMER PATENT LICENSE AND OPTION AGREEMENT DATED AS OF SEPTEMBER 20, 2000
BY AND BETWEEN HYBRIDON AND BBI.

OLIGONUCLEOTIDE PURIFICATION PATENT LICENSE AGREEMENT DATED AS OF SEPTEMBER 20,
2000 BY AND BETWEEN HYBRIDON AND BBI.

INTERFERENCE PATENT SUBLICENSE OPTION AGREEMENT DATED AS OF SEPTEMBER 20, 2000
BY AND BETWEEN HYBRIDON AND BBI.






                                   EXHIBIT H-2

                            OTHER LICENSE AGREEMENTS

UMass Agreement

LICENSE AGREEMENT DATED AS OF FEBRUARY 21, 1990 AND RESTATED AS OF SEPTEMBER 8,
1993 BY AND BETWEEN HYBRIDON AND UNIVERSITY OF MASSACHUSETTS MEDICAL CENTER
(FORMERLY THE WORCESTER FOUNDATION FOR BIOMEDICAL RESEARCH, INC.)

IDT Agreement

Non-Exclusive License Agreement dated as of March 12, 1999 between Integrated
DNA Technologies, Inc. and Hybridon



                                    EXHIBIT I

                                      [ * ]


*Confidential Treatment Requested




                                    EXHIBIT J

                                 UMASS AGREEMENT



Incorporated by reference to Exhibit 10.1 to Hybridon's Registration Statement
on Form S-1 (File No. 33-99024)


*Confidential Treatment Requested





                                    EXHIBIT K

                                      [ * ]


*Confidential Treatment Requested




                                    EXHIBIT L

                                      [ * ]


*Confidential Treatment Requested




                                    EXHIBIT M

                                      [ * ]


*Confidential Treatment Requested




                                    EXHIBIT N

                                TULLIS AGREEMENT

Incorporated by reference to Exhibit 10.1 to Isis's Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly
period ended September 30, 1992, on Form 10-Q (File No. 0-19125).


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

                  COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

          This COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
made as of July 9, 2001 (the "Effective Date"), by and between ISIS
PHARMACEUTICALS, INC., a Delaware corporation ("Isis"), having a principal place
of business at Carlsbad Research Center, 2292 Faraday Avenue, Carlsbad,
California 92008 and PE CORPORATION (NY), a New York corporation, through the
CELERA GENOMICS GROUP, ("Celera"), having a principal place of business at 45
West Gude Drive, Rockville, Maryland 20850. Celera and Isis may be referred to
herein individually as a "Party" and collectively as the "Parties".

                                    RECITALS

          WHEREAS, Isis possesses proprietary technology and know-how related to
anti-sense technologies; and

          WHEREAS, Celera possesses proprietary technology and know-how related
to genomics; and

          WHEREAS, Celera and Isis desire collaborate to generate information on
gene function for up to [*] novel targets.

          NOW, THEREFORE, in consideration of the various promises and
undertakings set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:

                                    ARTICLE 1

                                   DEFINITIONS

          1.1   "Affiliate" with respect to either Party, will mean any Person
controlling, controlled by, or under common control with such Party. For the
purposes of this Section 1.1 only, "control" will refer to (a) the possession,
directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, together with (b) the ownership, directly or indirectly, of at least
fifty percent (50%) of the voting securities or other ownership interest of a
Person. Notwithstanding the foregoing, [*]

          1.2   "Agreement NPV" means the net present value of any agreement
calculated pursuant to Section Article 6.3(d) or as determined by the JEC by
unanimous recorded vote.

          1.3   "Antisense Inhibitor" means an Oligonucleotide that is designed
to inhibit protein synthesis at the nucleic acid level by specifically binding
to the sequence of a selected messenger or viral ribonucleic acid by
base-paring.

* Confidential Treatment Requested



          1.4   "Celera Exclusive Collaboration Patents" means all Patent Rights
comprising method of use, method of prevention, treatment or diagnosis of a
disease or condition or other identification of gene function associated with a
Celera Exclusive Target arising out of the collaboration and for which
Collaboration Data is used in the prosecution, maintenance or defense of such
Patent Rights. Celera Exclusive Collaboration Patents specifically includes
Collaboration Patents to the extent they otherwise come under the definition of
Celera Exclusive Collaboration Patents.

          1.5   "Celera Exclusive Targets" means the Celera Gene Targets
selected by Celera pursuant to Section 3.2 (c), or any fragment or allelic
variant of such Celera Gene Target or degenerative sequence of the foregoing
encoding the identical amino acid sequence.

          1.6   "Celera Gene Availability Pool" means the Celera Gene Targets
available for Celera to designate for exclusive use pursuant to Section
3.2(c). Once the Option Period has expired for a specific Celera Gene Target
it will cease to be part of the Celera Gene Availability Pool.

          1.7   "Celera Gene Target" means a Gene selected for High Throughput
Gene Functionalization.

          1.8   "Celera Licensed Patents" means (i) all Patent Rights that
are Controlled by Celera prior to the selection of Celera Gene Target
pursuant to Section 3.1 that claim inventions consisting of any Celera Gene
Target or any fragment of such Celera Gene Target, and/or any nucleic acid
sequence, protein, peptide or other composition of matter encoded thereby,
including, without limitation, inventions claiming method of use or treatment
of a disease or condition by inhibiting such gene or other identification of
gene function, and (ii) all Patent Rights whether or not Controlled by Celera
not arising out of the collaboration where Collaboration Data is used in the
prosecution, maintenance or defense of such Patent Rights. Celera Licensed
Patents will specifically exclude Collaboration Patents, Celera Exclusive
Collaboration Patents, Joint Patents and any Patent Rights that are
Controlled by Celera claiming solely diagnosis of a disease or condition.

          1.9   "Celera Product" means any Gene Therapy Product, Protein
Therapeutic Product, Small Molecule Therapeutic Product or Vaccine Product
discovered by Celera alone or as part of a bona fide drug discovery
collaboration that, but for the licenses granted herein, would infringe a
Celera Exclusive Collaboration Patent.

          1.10  "Collaboration Data" means any and all data created using an
Antisense Inhibitor pursuant to the Research Plan, including without
limitation, in Isis's HGTF system.

          1.11  "Collaboration Patents" means all Patent Rights comprising
method of use, method of prevention, treatment or diagnosis of a disease or
condition or other identification of gene function associated with a Celera
Gene Target arising out of the collaboration and for which Collaboration Data
is included in or used in the prosecution,

                                       2


maintenance or defense of such Patent Rights. Collaboration Patents specifically
excludes Oligonucleotide Patents. Collaboration Patents specifically includes
jointly invented Patent Rights to the extent that they otherwise come under the
definition of Collaboration Patents, and any such jointly invented Patent Rights
will not be Joint Patents.

          1.12  "Common Product" means (i) any and all Licensed Products that
are neither Isis Products nor Celera Products for a Celera Exclusive Target,
and (ii) any and all License Products that are not Isis Products for a Celera
Gene Target that is not a Celera Exclusive Target.

          1.13  "Confidential Information" means a Party's confidential
information, inventions, know-how, data and materials relating to the
Research, or the Celera Gene Targets, Celera Exclusive Targets, Lead Oligos or
Licensed Products, including without limitation research, technical, clinical
development, manufacturing, marketing, financial personnel and other business
information and plans, which, if disclosed in written, graphic or electronic
form, is marked or otherwise designated as "confidential" or "proprietary"
and, if disclosed orally, is summarized and designated as "confidential" or
"proprietary" in a writing provided to the receiving Party not later than
sixty (60) days after such disclosure. All information presented at the JRC,
Intellectual Property Committee or JEC meetings will be rebuttably presumed to
be Confidential Information, regardless of whether it would otherwise qualify
as such pursuant to the preceding sentence.

          1.14  "Control" means, with respect to an item of Information or an
intellectual property right, possession of the ability, whether by ownership
or license, to grant a license or sublicense as provided for herein under such
item or right without violating the terms of any agreement or other
arrangements with any Third Party.

          1.15  "Effective Date" means the effective date of this Agreement as
set forth in the first paragraph above.

          1.16  "Extended Term" has the meaning set forth in Section 5.1(e).

          1.17  "Gene" means a DNA or RNA sequences of human or other origin
that encodes a protein or other molecule.

          1.18  "Gene Therapy Product" means any nucleic acid molecule, other
than an Antisense Inhibitor or Oligonucleotide, that is introduced into human
cells for the treatment or prevention of any disease, condition or risk based
on modifying the expression of the target gene or modifying the genetic code
of the target gene.

          1.19  "High Throughput Gene Functionalization" or "HTGF" means Isis's
High Throughput Screening system and standard phenotypic assays as it may
exist from time-to-time and as more fully described in the Research Plan.

          1.20  "Information" means any data, results, information, know-how,
techniques, methods, development, material, or compositions of matter of any
type or kind.

                                       3


          1.21  "Intellectual Property Committee" has the meaning set forth in
Section 6.2.

          1.22  "Isis Product" means any Oligonucleotide used in the treatment
or prevention of a disease or condition that, but for the licenses granted
herein, would infringe a Collaboration Patent.

          1.23  "Joint Executive Committee" or "JEC" means that committee to be
formed pursuant to Section 6.3.

          1.24  "Joint Patents" means all Patent Rights that claim inventions
that are made by employees or agents of Celera and Isis jointly and name as
inventors one or more employees of Celera and Isis together with one or more
employees or agents of the other Party. Joint Patents will not include any
Collaboration Patents or Oligonucleotide Patents.

          1.25  "Joint Research Committee" or "JRC" means that committee to be
formed pursuant to Section 6.1.

          1.26  "Lead Oligo" means an Antisense Inhibitor to a Celera Gene
Target which decreases expression of such Celera Gene Target by at least [ *].

          1.27  "Lead Oligo Reagent" means a Lead Oligo derived using the
2'-methoxyethyl gapmer with fully phosphorothioate backbone chemistry of the
HTGF system or an alternative for certain limited applications.

          1.28  "Licensed Product" means any composition, material, device,
kit, process or other product or process, the manufacture, use or sale of
which would infringe a Collaboration Patent.

          1.29  "Licensing Revenue" means revenue derived from the licensing of
Collaboration Patents to Third Parties including without limitation, license
fees, maintenance fees, milestones, and royalties but excluding payments for
research and development. If either Party licenses Collaboration Patents to
Third Parties together with other material intellectual property, the
consideration received for such license, will be allocated by such Party in
good faith among the components of the license. If payments are made in
non-cash consideration, such Party will, at its option, either provide the
other Party consideration in kind or in cash (based on a reasonable
determination of value).

          1.30  "Minimum Permitted Value" means a net present value of an
agreement equal to [*].

          1.31  "Oligonucleotide" means any compound containing between [* ]
nucleotides and/or nucleosides, including oligonucleotide analogs which may
include natural or modified heterocycles, sugars and or backbone linkages.

          1.32  "Oligonucleotide Patent" means all Patent Rights arising out of
the collaboration that claims Antisense Inhibitors or Oligonucleotides and/or
their method of use including without limitation the prevention or treatment
of a disease or condition.

*Confidential Treatment Requested     4


Oligonucleotide  Patents will include any jointly  invented  Patent  Rights that
otherwise meets this definition.

          1.33  "Option" has the meaning set forth in Section 3.2(c).

          1.34  "Option Period" has the meaning set forth in Section 3.2(c).

          1.35  "Patent Right" means (i) an issued and existing patent,
including any extensions, supplemental protection certificates, registrations,
confirmations, reissues, reexaminations or renewals thereof, (ii) pending
applications, including any continuation, divisional, or continuation-in-part
application thereof, for any of the foregoing, and (iii) all counterparts to
any of the foregoing issued by or filed in any country or other jurisdiction.

          1.36  "Person" means any natural person, corporation, firm, business
trust, business unit, joint venture, association, organization, company,
limited liability company, partnership or other business entity, or any
government or agency or political subdivision thereof.

          1.37  "Protein Therapeutic Product" means a protein, peptide or
peptidomimetic analogous to a peptide or any derivative of the foregoing that
is used for the treatment or prevention of any disease, condition or risk
thereof.

          1.38  "Research" means the collaborative research program undertaken
by the Parties pursuant to the Research Plan during the Research Term.

          1.39  "Research Plan" means the specific plan for HTGF screening of
Celera Gene Targets, as described in Section 2.1, which will be attached
hereto as Exhibit A.

          1.40  "Research Term" means the period commencing on the Effective
Date and terminating eighteen (18) months thereafter (or such earlier date as
of which this Agreement is terminated hereunder).

          1.41  "Small Molecule Therapeutic Product" means a small organic or
inorganic molecule (less than 800 daltons) used for the treatment or
prevention of any disease, condition or risk thereof, excluding any such
molecule whose primary mode of activity is binding to RNA.

          1.42  "Sublicensee" means a Person other than an Affiliate of Isis or
Celera to which Isis or Celera has granted sublicense rights under the
licenses granted hereunder, which rights include at least the rights to make
and sell Licensed Products.

          1.43  "Third Party" means any Person other than Celera, Isis or
Affiliates of either of them, or any Sublicensee.

          1.44  "Vaccine Product" means a protein, peptide or a nucleic acid
molecule other than an Oligonucleotide, that stimulates an active specific
immune response for the treatment or prevention of a disease or condition.

                                       5


          1.45 "Valid Claim" means a claim of an issued and unexpired patent
which has not been revoked or held unenforceable or invalid by a decision of a
court or governmental agency of competent jurisdiction from which no appeal
can be taken or, after mutual consultation and agreement, an appeal is not
taken within the time allowed for appeal, and which has not been disclaimed,
denied or admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise.

                                   ARTICLE 2

                                    RESEARCH

          2.1  Subject to the terms and conditions herein, the Parties will
each use commercially reasonable diligent efforts to conduct the Research on
a collaborative basis. Subject to Section 2.2(d) and other applicable
provisions, the Parties will conduct the Research as specified in the
Research Plan. The Research Plan attached hereto as Exhibit A describes the
HTGF screening process that will be used to create Antisense Inhibitors to
Celera Gene Targets and screen such Antisense Inhibitors in Isis' phenotypic
assays to provide information useful in gene functionalization and target
validation.

          2.2  Conduct of the Research.

               (a)   The Research will be managed and directed by the JRC, as
provided in 6.1.

               (b)   During the course of the  Research,  each Party will
disclose to the other such  Information as the other Party  reasonably  needs to
conduct its obligations and assigned tasks under the Research Plan.

               (c)   In  order  to  protect  the  Parties'  patent  rights  in
any  inventions  conceived  or reduced to practice  during or as a result of the
Research,  each Party agrees to implement a policy which  requires its employees
to record and maintain all data and information developed during the Research in
such a manner as to enable the  Parties to use such  records  to  establish  the
earliest date of invention and/or diligence to reduction to practice.

               (d)   The  Parties  agree to commit the  quality  and  quantity
of resources required to perform their obligations under the Research Plan.

          2.3  Liability. In connection with the conduct of the Research, each
Party will be responsible for, and hereby assumes, any and all risks of
personal injury or property damage attributable to the negligent acts or
omissions of that Party and its directors, officers, employees and agents.

                                   ARTICLE 3

             SELECTION OF CELERA GENE TARGETS AND CELERA EXCLUSIVE
                                    TARGETS

                                       6


          3.1   Selection of Celera Gene Targets.

                (a)  Celera will select Genes for functionalization studies
under the Research Plan ("Celera Gene Targets") and notify Isis of the identity
of such Celera Gene Target in writing.

                (b)  Genes selected by Celera under Section 3.1(a) will be
included in the HTGF queue unless prior to such selection: (i) such Genes were
prioritized by Isis for the HTGF queue; (ii) Isis had generated Antisense
Inhibitors to such Gene; or (iii) Isis has bona fide pre-existing agreement to
work on such Gene with a Third Party (Subsections (i), (ii) and (iii),
"Rejected Genes"); and provided that Isis notifies Celera of the identity of
any Rejected Gene in writing within ten (10) business days of Celera's
selection of such Gene. Celera may select a replacement Gene for any Rejected
Gene and such Rejected Gene will be treated as if it had never been selected by
Celera. The identity of any Celera Gene Target or Rejected Gene will be the
Confidential Information of Celera.

                (c)  Isis agrees to conduct the Research under the Research Plan
and will provide reports to the JRC on a quarterly basis. These reports will
contain all information necessary to keep the JRC fully informed regarding the
performance of the Research Plan. Notwithstanding the preceding sentence, the
Parties acknowledge that there is no guarantee that a Lead Oligo will be
discovered using the HTS process.

                (d)  Celera knows and understands that it will be the primary
source of Celera Gene Targets under the Research Plan and that Isis will not
conduct any patent due diligence regarding its freedom to synthesize or screen
Antisense Inhibitors to such targets or to provide Antisense Inhibitors to
Celera hereunder. Subject to Sections 10.1 and 10.3, Celera will indemnify and
hold Isis harmless from any liability to Third Parties by reason of the use by
Isis of Celera Gene Targets solely for Isis' work under the Research Plan
during the Research Term. For clarification, Celera will not indemnify Isis,
and Celera will not be liable to Isis for any use of Celera Gene Targets after
Isis is notified to cease use of any Celera Gene Target, any use of Celera Gene
Targets in any Isis database, any use of Celera Gene Targets outside the
Research Plan, or any use of Celera Gene Targets in the development and/or
commercialization of Common Products or Isis Products.

          3.2   Selection of Celera Exclusive Targets.

                (a)  Isis will perform the work described in the Research Plan
and deliver any resulting data to the JRC and the Intellectual Property
Committee in a timely fashion ("Collaboration Data"). Such Collaboration Data
will include the assay and phenotype data as set forth in the Research Plan.

                (b)  Promptly after receiving the Collaboration Data with regard
to a Celera Gene Target, the JRC and the Intellectual Property Committee will
review the Collaboration Data. Upon delivery of the Collaboration Data, such
Celera Gene Target will become part of a pool of Celera Gene Targets available
to Celera for its use in accordance with the terms of this Agreement (the
"Celera Gene Availability Pool"). If Isis informs the JRC that it is unable to
create an optimized Antisense Inhibitor to such

                                       7


Celera Gene Target and, as a result, will not be delivering Collaboration Data
to the JRC for such Celera Gene Target, such Celera Gene Target will not be
included in the Celera Gene Availability Pool.

                (c)  Celera will have the option, on a rolling basis, to
designate up to [* ] Celera Gene Targets from the Celera Gene Availability
Pool, together with the Collaboration Data for such Celera Gene Targets, for
Celera's exclusive use ("Celera Exclusive Targets") for Celera Products
pursuant to Section 4.3(a) (the "Option"). For any given Celera Gene Target,
Celera will exercise such Option, if at all, by giving written notice to Isis
during a period commencing on the date that the JRC determines that no further
work will be done on such Celera Gene Target and Isis delivers the
Collaboration Data as outlined in the Research Plan for such target to the JRC
and ending [* ] (the "Option Period"). Celera may replace any Celera Exclusive
Target with any Celera Gene Target in the Celera Gene Availability Pool
provided (i) the number of Celera Exclusive Targets does not [*] and (ii) the
Option Period for any such Celera Gene Target has not expired. For
clarification, only Celera Gene Targets in the Celera Gene Availability Pool
will be subject to the Option. If Celera does not exercise its Option for any
given Celera Gene Target during the applicable Option Period, or if Celera
notifies Isis in writing that it will not exercise its Option for such Celera
Gene Target, such Celera Gene Target will be deemed excluded from the Celera
Gene Availability Pool. After any such exclusion, such Celera Gene Target will
cease to be a Celera Gene Target, and Celera may not exercise its Option with
regard thereto.

                                   ARTICLE 4

                            LICENSES AND OTHER RIGHTS

          4.1   Licenses to Conduct the Research. Subject to the other
provisions of this Agreement, Celera hereby grants to Isis during the Research
Term a nonexclusive worldwide, paid up right and license, without the right to
sublicense, under the Celera Licensed Patents solely to conduct the Research.

          4.2   Isis Database. Isis will have the right to commercialize the
Collaboration Data in a database format unless such Collaboration Data (i) is
subject to Celera's Option during the Option Period pursuant to Section 3.2, or
(ii) contains or comprises in whole or in part any Collaboration Data for a
Celera Exclusive Target. Notwithstanding the foregoing, Celera may provide
Isis, upon Isis's written request, with written approval to use any
Collaboration Data in a database format, which would be otherwise restricted
from use under the first sentence of this Section. Isis will inform its
subscribers regarding the Collaboration Data added to the Isis Database
pursuant to this Section 4.2 that Collaboration Patents, if any, associated
with such data are subject to the licensing requirements set forth in Section
4.3.

          4.3   Use of the Joint Patents, Collaboration Patents and Other
Data. Both Parties will have the right to practice the Joint Patents and the
Collaboration Patents and use the Collaboration Data and the data provided by
a Party to the other Party pursuant to Section 5.1(c), for internal research
purposes; provided however,

* Confidential Treatment Requested     8


                (a)  Isis hereby grants Celera an exclusive right and license
(including with regard to Isis), with the right to sublicense and without
obligation to Isis, under Isis's rights in the Joint Patents and the Celera
Exclusive Collaboration Patents, to conduct development on, and to make, have
made, import, use, sell and have sold Celera Products;

                (b)  Celera hereby grants Isis an exclusive right and license
(including with regard to Celera), with the right to sublicense and without
obligation to Celera, under Celera's rights in the Joint Patents and the
Collaboration Patents, to conduct development on, and to make, have made,
import, use, sell and have sold Isis Products; and

                (c)  Both Parties will have the right and license, without
obligation of notice or payment to the other Party, to conduct development on,
and to make, import, use, sell and offer for sale Common Products with the
limited right to sublicense solely for development and commercialization.

                (d)  Celera will have the exclusive right and license (including
with regard to Isis), to grant sublicenses to make, import, use, sell and offer
for sale Common Products under the Celera Exclusive Collaboration Patents
(subject to the provisions of Section 7.2 regarding Revenue Sharing). Isis will
have the exclusive right and license (including with regard to Celera), to
grant sublicenses to make, import, use, sell, and offer for sale Common
Products under the Joint Patents and the Collaboration Patents except the
Celera Exclusive Collaboration Patents (subject to the provisions of Section
1.63 regarding Revenue Sharing).

          4.4   License to Celera Licensed Patents. Celera hereby grants Isis a
nonexclusive right and license, without the right to sublicense except in
connection with the sublicense of an Isis Product discovered by Isis alone or
as part of a bona fide drug discovery collaboration, under Celera's rights in
the Celera Licensed Patents, to conduct development on, and to make, have made,
import, use, sell and have sold Isis Products. Notwithstanding the foregoing,
if Isis is unable to generate a Lead Oligo to a Celera Gene Target pursuant to
the Research Plan, any and all Patent Rights that claim such Celera Gene Target
will be excluded from the license set forth in the preceding sentence.

          4.5   Negative Covenants.

                (a)  Isis covenants to Celera that Isis will not research,
develop or commercialize or license any Third Party or an Affiliate to
research, develop or commercialize any Celera Product claimed by Celera
Exclusive Collaboration Patents.

                (b)  Celera covenants to Isis that:

                  (i)   Celera will not research, develop or commercialize, or
license any Third Party or an Affiliate to research, develop or commercialize
any Isis Product claimed by Collaboration Patents; and

                  (ii)  Celera will not enter into any agreement with any Third
Party whose core business includes the provision of Antisense Inhibitors for
gene functionalization during the Research Term.

                                       9


          4.6   Limited Rights. Nothing in this Agreement is intended or will be
interpreted as granting to Isis or any Third Party any right or interest in any
Patent Rights, Information, trade secrets, copyrights, trademarks, trade names
or other intellectual property rights (a) invented, discovered, developed, or
otherwise created by PE Corporation (NY), or its Affiliates, other than by the
Celera Genomics Group, or (b) acquired or licensed by PE Corporation (NY), or
its Affiliates, other than solely for the benefit of the Celera Genomics Group.

                                    ARTICLE 5

                                 OTHER SERVICES

          5.1   Supply of Antisense Inhibitors.

                (a)  Isis will provide Lead Oligo Reagent to each Celera
Exclusive Target and to [* ] Celera Gene Targets that are not Celera Exclusive
Targets claimed by Celera Licensed Patents as provided in Section 4.4, at a
rate of [* ] per order for up to [* ] of a Lead Oligo, for Celera's internal
research and development of Celera Products and/or Common Products as
applicable ("Other Services"). Celera may request and Isis may agree to
negotiate commercially reasonable terms for the provision to Celera of
additional Lead Oligo Reagent to other Celera Gene Targets.

                (b)  Except as otherwise provided under this Agreement, all such
Antisense Inhibitors delivered to Celera will be used only in furtherance of
the Research, will not be used or delivered to or for the benefit of any Third
Party without the prior written consent of Isis, and will not be used in
research or testing involving human subjects. The Antisense Inhibitors supplied
under this Section 5.1 must be used with prudence and appropriate caution in
any experimental work, since not all of their characteristics may be known.

                (c)  THE ANTISENSE INHIBITORS BEING PROVIDED TO CELERA HEREUNDER
ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE
MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS
OF ANY THIRD PARTY.

                (d)  Celera agrees that it will not, nor will it request any
Third Party, to synthesize Antisense Inhibitors to any Celera Gene Target
during the Research Term or for the longer of [ *] thereafter or (ii) such time
as the discovery, manufacture, use or sale of such Antisense Inhibitors would
no longer infringe a Valid Claim of a Patent Right Controlled by Isis.

                (e)  Antisense Inhibitors discovered under the Research Plan are
identified using patented technology.

*Confidential Treatment Requested      10


                     (i)  During the Research Term and for [*] thereafter (the
"Extended Term"), if Celera derives any Information from research not under the
Research Plan using Lead Oligo Reagent provided by Isis to Celera pursuant to
Section 5.1(a), Celera will promptly provide such Information to Isis.
Notwithstanding the obligation to provide such Information, Celera hereby
grants Isis an exclusive right and license (including with regard to Celera),
without the right to sublicense, except in connection with the sublicense of an
Isis Product discovered by Isis alone or as part of a bona fide drug discovery
collaboration, and without obligation to Celera, under Celera's rights in any
Patents Rights in which information derived using such Lead Oligo Reagent
during and after the Extended Term is used in the filing prosecution,
maintenance or defense of such Patent Rights, to conduct development on, and to
make, have made, import, use, sell and have sold Isis Products.

                     (ii)  During the Extended Term, if Isis derives any
Information from research not under the Research Plan on Celera Exclusive
Targets using Antisense Inhibitors identified under the Research Plan, and/or
on Celera Gene Targets that are claimed by Celera Licensed Patent Rights as
provided in Section 4.4, Isis will promptly provide all data derived from such
research to Celera, excluding data derived from any use in humans.
Notwithstanding the obligation to provide such Information, Isis hereby grants
Celera a non-exclusive right and license, without the right to sublicense,
except in connection with the sublicense of a Celera Product discovered by
Celera alone or as part of a bona fide drug discovery collaboration, and
without obligation to Isis, under any Patent Rights claiming all Information
derived from such research during and after the Extended Term, to conduct
development on, and to make, have made, import, use, sell and have sold Celera
Products.

          5.2   Custom Target Validation. Celera will have an option to identify
up to [*] Celera Gene Targets for custom target validation. Custom target
validation may include pharmacology studies of effects of antisense inhibitor
in additional cell-based or animal models. Terms and conditions for custom
target validation will be negotiated in good faith but no less than Isis'
fully-burdened cost plus appropriate milestones and royalties.

                                   ARTICLE 6

                         MANAGEMENT OF THE COLLABORATION

          6.1   Creation and Structure of the Joint Research Committee.

                (a)  Within ten (10) business days of the Effective Date, the
Parties will create a Joint Research Committee of two (2) persons to facilitate
the research collaboration called for herein. The JRC will consist one (1)
representative nominated by each Party. Members of the JRC may be represented
at any meeting by a designee appointed by such member for such meeting. Each
Party will be free to change its representatives on notice to the other or to
send a substitute representative of equal qualification and authority to any
JRC meeting.

*Confidential Treatment Requested      11


                (b)  The JRC will meet as necessary but no less frequently than
every three (3) months during the Research Term. Meetings will be via
teleconference or videoconference. At its first meeting the JRC will determine
such procedures as it will reasonably require to conduct its business.

                (c)  During the Research Term, the JRC will be the primary
vehicle for interaction between the Parties with respect to the Research.
Without limiting the foregoing, the JRC will be responsible for (i) determining
for each Celera Gene Target whether to proceed to conduct Secondary Assays as
described in the Research Plan. (ii) reviewing and commenting upon the patent
filing strategies of the Collaboration Patents, the Celera Exclusive
Collaboration Patents and the Joint Patent Rights as provided in Article 8;
(iii) reviewing and commenting upon publications as contemplated by Section
9.2; and (iv) managing the activities of the Intellectual Property Committee.
The items in Subsections (ii) and (iii) will be delegated to the Intellectual
Property Committee.

                (d)  All decisions of the JRC will be made by the unanimous vote
of the members. If the members of the JRC cannot agree with respect to a
particular issue such issue will be referred to the JEC which will make a
reasonable good faith effort to reach agreement thereon within a ten (10)
business day period after such issue is presented to the JEC in writing.

          6.2   Creation and Structure of the Intellectual Property Committee.

                (a)  At the first meeting of the JRC, the JRC will create an
Intellectual Property Committee. The Intellectual Property Committee will be
managed and directed by the JRC. The Intellectual Property Committee will be
composed of the two (2) JRC members plus two (2) additional members, one from
each of Isis and Celera.

                (b)  The roles of the Intellectual Property Committee will be
(i) to conduct the IP mining described in the Research Plan, (ii) to review and
approve any publications containing Collaboration Data except inclusion of
Collaboration Data in the Isis database as anticipated by this Agreement, and
(iii) to manage the prosecution, defense and maintenance of the Collaboration
Patents and the Joint Patents.

                (c)  The Intellectual Property Committee will meet as needed
either in person, by teleconference or via videoconference. At the first
meeting of the Intellectual Property Committee, the Committee will adopt such
roles and procedures as it may deem necessary or appropriate to conduct their
business.

                (d)  All decisions of the Intellectual Property Committee will
be made by the unanimous vote of the members, if the members of the
Intellectual Property Committee cannot agree with respect to a particular issue
such issue will be referred to the JEC which will make a reasonable good faith
effort to reach agreement thereon within ten (10) business days after such
issue is presented to the JEC in writing.

                (e)  The Intellectual Property Committee will continue in effect
after the termination of this Agreement for so long as Collaboration Patents or
Joint Patents are

                                       12


being prosecuted and maintained, or such shorter time as mutually agreed to by
the Parties in writing.

          6.3   Creation and Structure of the Joint Executive Committee.

                (a)  Within ten (10) business days of the Effective Date, the
Parties will create a Joint Executive Committee of two (2) people, one from
each Party to oversee the research collaboration and commercialization
activities called for herein. The JEC will be composed of one (1)
representative appointed by each of Celera and Isis. Either Party may replace
one (1) its representative at any time upon written notice to the other Party
with a person of equal authority and expertise.

                (b)  The JEC will exist for so long as the JRC or
Intellectual Property Committee is in existence or either Party has the right
to conduct commercialization activities pursuant to Section 4.3(d). The JEC
will meet as requested by the JRC or Intellectual Property Committee. On
matters requiring the approval of the JEC, such approval will be by the
unanimous vote of all JEC members participating in the meeting. In the event
the JEC is unable to reach agreement on all issues, it will be resolved in
accordance with Section 12.11. The JEC will meet within thirty (30) days of
the Effective Date and thereafter as needed or at the request of either Party
to carry out the function set forth in this Section 6.3.

                (c)  The JEC will be the primary vehicle for oversight of the
research collaboration activities. Without limiting the foregoing, the JEC will
be responsible for (i) review and resolution of any material deviation from the
Research Plan; and (ii) review and resolution of any dispute elevated to it by
the JRC or the Intellectual Property Committee.

                (d)  Through the JEC the Parties will keep each other reasonably
informed on an ongoing basis of the substantive terms of any proposed agreement
to grant sublicenses pursuant to Section Article 4.3(d).

                     (i)      [*]

                     (ii)     [*]

                                   ARTICLE 7

                          PAYMENTS AND REVENUE SHARING

           7.1  Research Funding.

                (a)  Celera will pay Isis [*] to conduct the Research under the
Research Plan. Celera will pay Isis [*] of the Effective Date. Notwithstanding
the foregoing, if Isis fails in a material way to conduct the Research
according to the Research Plan Celera may withhold payment of the following [*]
until such material failure is remedied, whereupon such [*] will be paid in
full or in such fraction as the Parties shall reasonably agree. Any

*Confidential Treatment Requested     13


dispute with regard to such  payment  withholding  will be promptly  elevated to
dispute resolution pursuant to Section 12.11(a).

                (b)  Delivery schedule and funding for Other Services described
in Article 5 will be agreed upon and paid in advance in the amounts agreed to
by the Parties.

          7.2   [*].

          7.3   Mode of Payment and Reports. All payments to hereunder will be
made to the receiving Party within sixty (60) days of the end of the quarter in
which the receiving Party receives the payment by deposit of United States
Dollars in the requisite amount to such bank account as the receiving Party may
from time-to-time designate by notice to the paying Party. The paying Party
will provide to the receiving Party with each such payment a report in
sufficient detail to show the basis for such payment.

          7.4   Audits.

                (a)  Upon the written request of the receiving Party and not
more than once in each calendar year, the paying Party will permit an
independent certified public accounting firm of nationally recognized standing
selected by the paying Party, and reasonably acceptable to the receiving Party
at the receiving Party's expense, to have access during normal business hours,
and upon reasonable prior written notice, to such of the records of the paying
Party as may be reasonably necessary to verify the accuracy of the reports
under Section 7.3 for the prior calendar year only. The accounting firm will
disclose to the Parties only whether the reports are correct or incorrect and
the specific details concerning any discrepancies. No other information will be
provided to Celera.

                (b)  If such accounting firm concludes that additional payments
were owed during such period, the paying Party will pay the additional
payments, with interest from the date originally due at the prime rate, as
published in The Wall Street Journal (Eastern U.S. Edition) on the last
business day preceding such date, within thirty (30) days after the date the
receiving Party delivers to the paying Party such accounting firm's written
report. [*]

                (c)  For any sublicense granted by either Party hereunder which
triggers payments to the other Party pursuant to this Article 7, the grantor of
such sublicense will include in each sublicense granted by it pursuant to this
Agreement a provision requiring the Sublicensee to keep and maintain records of
sales made, pursuant to such sublicense and to grant access to such records by
the licensing Party's independent accountant to the same extent required by
such grantor under this Agreement.

                (d)  Celera and Isis will treat all information subject to
review under this Section 7.4 or under any sublicense agreement in accordance
with the confidentiality provisions of Article 9 of this Agreement.

         7.5    Taxes. If any taxes are required to be withheld by the
licensing Party, it will (a) deduct such taxes from the remitting payment,
(b) timely pay the taxes to the proper

*Confidential Treatment Requested      14


taxing authority, and (c) send proof of payment to the receiving Party and
certify its receipt by the taxing authority within sixty (60) days following
such payment.

                                   ARTICLE 8

                             INVENTIONS AND PATENTS

          8.1   Title to Inventions.

                (a)  Any Patent Rights covering inventions by the Parties during
the Collaboration that do not constitute Collaboration Patents will be owned
exclusively by the inventing party, subject to Subsection 8.1(c).

                (b)  Joint Patents will be jointly owned, subject to Subsection
8.1(c).

                (c)  Any inventions constituting Oligonucleotide Patents will be
solely owned and assigned to Isis. Inventions with an antisense component and a
broader compound will be broken into separate patent applications with the
antisense-related inventions filed separately as Oligonucleotide Patents.

                (d)  Any inventions constituting Celera Exclusive Collaboration
Patents will be solely owned and assigned to Celera (subject to the licenses
granted to Isis hereunder).

                (e)  Inventorship will be determined by the applicable laws of
the country or jurisdiction in which the particular Patent Right is sought.

                (f)  In the event that there is a dispute between the Parties as
to ownership under this Section, the Intellectual Property Committee will
establish a procedure to resolve such dispute, which may include engaging a
Third Party patent attorney completely unaffiliated and independent of the
Parties and jointly selected by the Parties, as an expert to resolve such
dispute.

          8.2   Patent Prosecution.

                (a)  The Parties expect that patent applications will be filed
and maintained as required to secure the Collaboration Patent Rights. Celera,
with reasonable and timely input from Isis, will be responsible for filing,
prosecuting and/or maintaining the Celera Exclusive Collaboration Patents
throughout the world. Isis with reasonable and timely input from Celera, will
be responsible for filing, prosecuting and/or maintaining the Collaboration
Patents other than Celera Exclusive Collaboration Patents throughout the world.
Celera and Isis will share equally the costs of filing, prosecuting and/or
maintaining such Patent Rights. Notwithstanding the above, either Party may
decline to pay its share of the costs for filing, prosecuting and/or
maintaining any Collaboration

                                       15


Patent(s) (a "Declining Party"), in which case such Declining Party will
notify the other Party promptly in writing and in good time to enable the
other Party to meet any applicable deadlines, and the other Party will have
the right, but not the obligation, to undertake the responsibility for
filing, prosecuting and/or maintaining such Collaboration Patents at its own
expense, and the Declining Party will reasonably cooperate with and assist
the other Party therein. A Declining Party will maintain its license under
such Collaboration Patent pursuant to Article 4, except that any right to
grant sublicenses therein (other than the sublicensing rights set forth in
Sections 4.3(a) 4.3(b)), and any right to receive Licensing Revenue pursuant to
Section 7.2 under such Collaboration Patents, will terminate as of the date a
Declining Party provides such written notice. Such terminated sublicense
rights shall be granted to the other Party, provided such other Party has
exercised its right of filing, prosecuting and/or maintaining such
Collaboration Patents.

                (b)  The Parties anticipate that there may be Joint Patents that
arise out of the Collaboration (that do not constitute Collaboration Patents or
Oligonucleotide Patents). To the extent that such a Joint Patent represents an
improvement of one Party's technology and not the other, the Party whose
technology is improved will have the sole right and responsibility, at its own
expense, to prosecute and maintain such Joint Patent. To the extent that such a
Joint Patent either represents an improvement to both Party's technology or
does not improve either Party's technology, the Intellectual Property Committee
will determine which of the Parties will be responsible for prosecution,
maintenance, enforcement and defense of such Patent and what procedures will be
put in place for coordination among the Parties including, without limitation,
cost-sharing and input.

                (c)  Isis will be solely responsible, at its own expense, for
prosecution, maintenance, defense and enforcement of any Oligonucleotide
Patents.

          8.3   Enforcement of Patents.

                (a)  If either Party considers that any Collaboration Patent is
being infringed by a Third Party, it will notify the other Party and provide it
with any evidence of such infringement which is reasonably available. Subject
to any limitations in the license agreements between Celera or Isis and Third
Party licensors covering licensed Patent Rights, the JEC will determine the
steps to take to attempt to remove such infringement by commercially
appropriate steps, including filing an infringement suit or taking other
similar action.

                (b)  The Party not enforcing the applicable Patent Rights will
provide reasonable assistance to the other Party, including providing access to
relevant documents and other evidence and making its employees available,
subject to the enforcing Party's reimbursement of any out-of-pocket expenses
incurred by the non-enforcing Party.

                (c)  Any amounts recovered by a Party pursuant to Section
8.3(a) whether by settlement or judgment, will be allocated in the following
order: (i) to reimburse Isis and Celera for their reasonable out-of-pocket
expenses in making such

                                       16


recovery  (which amounts will be allocated pro rats if insufficient to cover the
totality of such  expenses);  and (ii) the  remainder  will be  allocated as the
Parties will reasonably agree based upon damages suffered.

                (d)  Except for Third Party infringement activities covered by
the provisions of Section (j) each Party will retain the sole and exclusive
right to enforce its Patent Rights against all infringers at its sole cost and
expense.

                                    ARTICLE 9

                                 CONFIDENTIALITY

          9.1   Confidentiality Obligations. Each Party agrees that, for the
term of this Agreement and for five (5) years thereafter, such Party will keep,
and will ensure that its officers, directors, employees and agents keep,
completely confidential and will not publish or otherwise disclose and will not
use for any purpose except as permitted hereunder any Confidential Information
furnished to it by the other Party pursuant to this Agreement (including,
without limitation, Know-How of the disclosing Party). The foregoing
obligations will not apply to any information to the extent that it can be
established by such receiving Party that such information:

                (a)  was already known to the receiving Party as evidenced by
its written records, other than under an obligation of confidentiality, at the
time of disclosure;

                (b)  was generally available to the public or was otherwise part
of the public domain at the time of its disclosure to the receiving Party;

                (c)  became generally available to the public or otherwise
becomes part of the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this Agreement;

                (d)  was subsequently lawfully disclosed to the receiving Party
by a Third Party other than in contravention of a confidentiality obligation of
such Third Party to the disclosing Party; or

                (e)  was developed or discovered by employees of the receiving
Party or its Affiliates who had no access to the Confidential Information of
the disclosing Party. Each Party may disclose the other's Confidential
Information to the extent such disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation, advising
investors and the investment community of the results of the Research aid/or
development activities hereunder (subject to reasonable prior written notice
of, and good faith consultation about, such disclosure to the other Party),
complying with applicable governmental regulations, making a permitted
sublicense of its rights hereunder or otherwise in performing its obligations
or exercising its rights hereunder, provided that if a Party is required to
make any such disclosure of the other Party's Confidential Information, it will
give reasonable advance notice to that other Party of such disclosure
requirement, will cooperate with the other Party in its efforts to secure
confidential treatment of such Information prior to its disclosure, and, save
to the extent

                                       17


inappropriate in the case of patent applications, will use all reasonable
efforts to secure confidential treatment of such information prior to its
disclosure (whether through protective orders or confidentiality agreement or
otherwise).

          9.2   Publications.

                (a)  The Collaboration Data will be the Confidential Information
of Isis and Celera. Either Party may publish or present Collaboration Data
subject to the prior review by the Intellectual Property Committee for
patentability and protection of such other Party's Confidential Information.
The Intellectual Property Committee will review any proposed abstracts,
manuscripts or summaries of presentations which contain Collaboration Data. No
publication or presentation containing Collaboration Data may be submitted or
made without approval by the Intellectual Property Committee. The Intellectual
Property Committee may delay any such approval to ensure protection of Patent
Rights. Notwithstanding the foregoing, nothing contained herein will preclude
Isis from including the Collaboration Data in its marketed database in
accordance with the terms of this Agreement or presenting the Collaboration
Data to Isis' potential customers for such database or in connection with
either Parties active drug discovery programs, without approval of the
Intellectual Property Committee.

                (b)  To the extent appropriate and within the Party's control,
in any publication permitted under this Section 9.2, each Party will
acknowledge its collaboration with the other Party under this Agreement

          9.3   Press Releases. Except to the extent required by law or as
otherwise permitted in accordance with this Section 9.3, neither Party will
make any public announcements concerning this Agreement or the terms hereof
without the prior written consent of the other, which will not be unreasonably
withheld or delayed. Notwithstanding the foregoing, the Parties will issue a
joint press release promptly following execution of this Agreement announcing
(i) the execution of this Agreement; (ii) Celera and Isis will jointly identify
novel gene function utilizing Celera's expertise in genomics and Isis'
expertise in antisense technology; (iii) Celera will retain exclusive rights to
a limited number of genes for the research and development of certain
therapeutic products; and (iv) that functional information on [*] of these
genes will be incorporated into Isis' Gene Function Database, and agree that
each Party may desire or be required to issue subsequent press releases
relating to the Agreement or activities thereunder, and the Parties agree to
consult with each other reasonably and in good faith with respect to the text
and timing of such press releases prior to the issuance thereof, provided that
a Party may not unreasonably withhold consent to such releases, and that either
Party may issue such press releases as it determines, based on advice of
counsel, are reasonably necessary to comply with laws or regulations or for
appropriate market disclosure.

                                   ARTICLE 10

                                 INDEMNIFICATION

*Confidential Treatment Requested      18


          10.1  Indemnification by Celera. Celera will indemnify, defend and
hold Isis and its agents, employees, officers and directors (the "Isis
Indemnitees") harmless from and against any and all liability, damage, loss,
cost or expense (including reasonable attorneys' fees) arising out of Third
Party claims or suits related to (a) Celera's performance of its obligations
under this Agreement; or (b) breach by Celera of its representations and
warranties set forth in Section 12.3 or (c) Isis' use of Celera Gene Targets
under the Research Plan pursuant to Section 3.1(d); PROVIDED, HOWEVER, that
Celera's obligations pursuant to this Section 10.1 will not apply to the extent
such claims or suits result from the gross negligence or willful misconduct of
any of the Isis Indemnitees. Notwithstanding the foregoing, Celera will have no
obligation to indemnify the Isis Indemnitees with respect to claims arising out
of breach by Isis of its representations and warranties set forth in Sections
12.3.

          10.2  Indemnification by Isis. Isis will indemnify, defend and hold
Celera and its Affiliates and each of their respective agents, employees,
officers and directors (the "Isis Indemnitees") harmless from and against any
and all liability, damage, loss, cost or expense (including reasonable
attorney's fees) arising out of Third Party claims or suits related to (a)
Isis's performance of its obligations under this Agreement; or (b) breach by
Isis of its representations and warranties set forth in Sections 12.3; provided
however, that Isis's obligations pursuant to this Section 10.2 will not apply
to the extent that such claims or suits result from the gross negligence or
willful misconduct of any of the Celera Indemnitees. Notwithstanding the
foregoing, Celera will have no obligation to indemnify the Celera Indemnitees
with respect to claims arising out of a breach by Celera of its representations
and warranties set forth in Section 12.3.

          10.3  Notification of Claims. Conditions to Indemnification
Obligations. As a condition to a Party's right to receive indemnification under
this Article 10 it will (i) promptly notify the other Party as soon as it
becomes aware of a claim or action for which indemnification may be sought
pursuant hereto, (ii) cooperate with the indemnifying Party in the defense of
such claim or suit, and (iii) permit the indemnifying Party to control the
defense of such claim or suit, including without limitation the right to select
defense counsel. In no event, however, may the indemnifying Party compromise or
settle any claim or suit in a manner which admits fault or negligence on the
part of the indemnified Party without the prior written consent of the
indemnified Party. The indemnifying Party will have no liability under this
Article 10 with respect to claims or suits settled or compromised without its
prior written consent.

                                   ARTICLE 11

                           TERMINATION AND EXPIRATION

          11.1  Term and Termination. This Agreement will commence upon the
Effective Date and, unless earlier terminated as provided herein, will expire
on the expiration of all royalty and other payment obligations herein.

          11.2  Termination upon Material Breach. Failure by a Party to comply
with any of its material obligations contained herein will entitle the Party not
in default to give to

                                       19


the Party in default notice specifying the nature of the default, requiring
it to make good or otherwise cure such default, and stating its intention to
terminate if such default is not cured. If such default is not cured within
ninety (90) days after the receipt of such notice (or, if such default cannot
be cured within such ninety (90) day period, if the Party in default does not
commence and diligently continue actions to cure such default), the Party not
in default will be entitled, without prejudice to any of its other rights
conferred on it by this Agreement, and in addition to any other remedies
available to it by law or in equity, to terminate this Agreement; PROVIDED
HOWEVER, that such right to terminate will be stayed in the event that,
during such ninety (90) day period, the Party alleged to have been in default
will have initiated dispute resolution in accordance with Section 12.11 with
respect to the alleged default, which stay will last so long as the
initiating Party diligently and in good faith cooperates in the prompt
resolution of such dispute resolution proceedings.

          11.3  Consequences of Termination.

                (a)  Upon termination of this Agreement (but not upon expiration
of its term under Section 11.1);

                     (i)  each Party will promptly return all relevant records
and materials in its possession or control containing or comprising the other
Party's Confidential Information and to which the former Party does not retain
rights hereunder (except one copy of which may be retained in a Party's
confidential files in its legal department for archival purposes); and

                     (ii) all licenses granted under Sections 4.1, 4.1(a) and
4.3(d) will terminate; provided however, that all sublicenses previously
granted will survive termination. All licenses granted under Section 4.2 and
4.3 will survive termination.

                (b)  The right of a Party to terminate this Agreement, as herein
above provided, will not be affected in any way by its waiver or failure to
take action with respect to any prior default.

          11.4  Accrued Rights; Surviving Obligations.

                (a)  Termination, relinquishment or expiration of this Agreement
for any reason will be without prejudice to any rights which will have accrued
to the benefit of a Party prior to such termination, or expiration. Such
termination, relinquishment or expiration will not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.

                (b)  Without limiting the foregoing, Sections 2.3, 3.1(d),
4.3(a), 4.3(b), 4.3(c), 4.5, 4.6, 7.3, 7.4, 7.5, 8.1, 8.2, 9.1, 11.3, 11.4
and 11.5 and Articles 10 and 12 of this Agreement will survive the expiration
or termination of this Agreement for any reason.

          11.5  Rights in Bankruptcy. All rights and licenses granted under or
pursuant to this Agreement by Isis or Celera are, and will otherwise be deemed
to be, for purposes of

                                       20


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

                                   ARTICLE 12

                            MISCELLANEOUS PROVISIONS

          12.1  Relationship of the Parties. Nothing in this Agreement is
intended or will be deemed to constitute a partnership, agency or
employer-employee relationship between the Parties. Neither Party will incur
any debts or make any commitments for the other.

          12.2  Assignments. Neither this Agreement nor any interest hereunder
will be assignable, nor any other obligation delegable, by a Party without the
prior written consent of the other Party; provided however, that either Party
may assign this Agreement without consent to any successor in interest by way
of merger or sale of all or substantially all of its assets in a manner such
that the assignor will remain liable and responsible for the performance and
observance of all of the assigning Party's duties and obligations hereunder,
except that no intellectual property of any Third Party acquirer of Celera or
Isis will be included in the licenses granted hereunder. This Agreement will be
binding upon the successors and permitted assigns of the Parties. Any
assignment not in accordance with this Section 12.2 will be void.

          12.3  Representations and Warranties. Each Party represents and
warrants to the other Party that, as of the date of this Agreement:

                (a)  Such Party is duly organized and validly existing under the
laws of the state of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;

                (b)  Such Party has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance its
obligations under this Agreement;

                (c)  This Agreement is a legal and valid obligation of such
Party, binding upon such Party and enforceable against such Party in accordance
with the terms of this Agreement The execution, delivery and performance of
this Agreement by such

                                       21


Party does not conflict with any agreement, instrument or understanding, oral
or written, to which such Party is a party or by which such Party may be bound,
and does not violate any law or regulation of any court, governmental body or
administrative or other agency having authority over such Party. All consents,
approvals and authorizations from all governmental authorities or other Third
Parties required to be obtained by such Party in connection with this Agreement
have been obtained

                (d)  It has the full and exclusive right, power and authority to
enter into this Agreement, to perform the Research and to grant the licenses
granted under Article 4;

                (e)  There are no agreements between such Party and any Third
Parties which would preclude or otherwise limit such Party's ability to conduct
its tasks and obligations under the Research Plan or otherwise fulfill its
obligations under this Agreement;

                (f)  All individuals who will perform any activities on its
behalf in connection with the Research have assigned to it or its Affiliates
the whole of their rights in any intellectual property conceived or reduced to
practice by them as a result of the Research, and no Third Party will have any
rights to any such intellectual property.

          12.4  Disclaimer of Warranties. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.

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

          12.6  Force Majeure. Neither Party will be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, strike, flood, governmental acts or
restrictions or any other reason which is beyond the control of the respective
Party. The Party affected by force majeure will provide the other Party with
full particulars thereof as soon as it becomes aware of the same (including its
best estimate of the likely extent and duration of the interference with its
activities), and will use commercially reasonable efforts to overcome the
difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months, the Parties hereto will consult with respect to an equitable
solution, including the possibility of the mutual termination of this
Agreement.

          12.7  No Trademark Rights. Except as expressly set forth herein, no
right, express or implied, is granted by this Agreement to a Party to use in
any manner the name or any other trade name or trademark of a Party in
connection with the performance of this Agreement.

                                       22


          12.8  Entire Agreement of the Parties; Amendments. This Agreement and
the exhibits hereto constitute and contain the entire understanding and
agreement of the Parties respecting the subject matter hereof and cancel and
supersede any and all prior negotiations, correspondence, understandings and
agreements between the Parties, whether oral or written, regarding such subject
matter. No waiver, modification or amendment of any provision of this Agreement
will be valid or effective unless made in writing and signed by a duly
authorized officer of each Party.

          12.9  Captions. The captions to this Agreement are for convenience
only, and are to be of no force or effect in construing or interpreting any of
the provisions of this Agreement

          12.10 Applicable Law. This Agreement will be governed by and
interpreted in accordance with the laws of the State of Delaware, USA,
applicable to contracts entered into and to be performed wholly within the
State of Delaware, excluding conflict of law principles.

          12.11 Disputes. In the event of any controversy or claim arising out
of, relating to or in connection with any provision of this Agreement or the
rights or obligations of the Parties hereunder, the Parties will try to settle
their differences amicably between themselves as contemplated herein. To the
extent not provided for herein, either Party may initiate such informal dispute
resolution by sending written notice of the dispute to the other Party, and
within ten (10) days after such notice.

                (a)  The Chief Business Officer of Celera and the President of
GeneTrove of Isis will meet for discussion and resolution. If such personnel
are unable to resolve such dispute within thirty (30) days of initiating such
negotiations, the Parties agree to settle any unresolved controversy or claim
arising out of, relating to or in connection with this Agreement (except as to
any issue relating to the ownership of intellectual property of either Party)
in Dallas, Texas by binding arbitration under the American Arbitration
Association in accordance with its Commercial Arbitration Rules as modified by
this Section, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Within fifteen (15) days
after the commencement of arbitration, each Party will select one (1) person to
act as arbitrator, and the two (2) selected by the Parties will select a third
arbitrator within ten (10) days of their appointment. The Parties agree that in
cases in which this Agreement explicitly provides that their disagreement will
be settled by this Section, the arbitration method to be employed will be
"baseball-style arbitration." This means that each Party will submit in writing
to the Panel and the other Party at an appropriate time its final, detailed
proposed resolution of the dispute. The panel will have the right to ask for
and receive (at the same time as the other Party) clarification of a Party's
proposed resolution. In its arbitration award, the panel will be limited to
choosing, without material modification, one of the two proposed resolutions,
together with an award of reasonable attorneys' fees to the prevailing Party.
The arbitrators will have no authority to award punitive damages or any other
damages not measured by the prevailing Party's actual damages, and may not, in
any event, make any ruling, finding or award that does not conform to the terms
and conditions of this Agreement. Neither Party nor the arbitrators may
disclose the existence,

                                       23


content,  or results of any  arbitration  hereunder  without  the prior  written
consent of both Parties.

          12.12 Notices and Deliveries. Any notice, request, delivery, approval
or consent required or permitted to be given under this Agreement will be in
writing and will be deemed to have been sufficiently given if delivered in
person, transmitted by facsimile (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address or facsimile number shown below or such other
address or facsimile number as such Party will have last given by notice to the
other Party.


         If to Isis, addressed to:

                           Isis Pharmaceuticals, Inc.
                           2292 Faraday Drive
                           Carlsbad, California 92008
                           Attn: Richard Brown, B. Lynne Parshall
                           Cc:   GeneTrove President

         If to Celera, addressed to:

                           Celera Genomics
                           45 West Gude Drive
                           Rockville, Maryland
                           Attn: Peter Barrett, Ph.D.
                           Cc:   Group Counsel, Legal Affairs

          12.13 No Consequential Damages. IN NO EVENT WILL EITHER PARTY OR ANY
OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF
CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES.

          12.14 Non-Solicitation. During the Research Term, and for a period of
one (1) year thereafter, neither Party will solicit, induce, encourage or
attempt to induce or encourage any employee of the other Party to terminate his
or her employment with such other Party or to breach any other obligation to
such other Party.

          12.15 Waiver. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance will not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement will be cumulative and none of them will be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.

                                       24


          12.16 Compliance with Law. Nothing in this Agreement will be deemed
to permit a Party to export, re-export or otherwise transfer any Licensed
Product sold under this Agreement without compliance with applicable laws.

          12.17 Severability. When possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement. The Parties will make a good faith effort to
replace the invalid or unenforceable provision with a valid one which in its
economic effect is most consistent with the invalid or unenforceable provision.

          12.18 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, any one of which need not contain the signature of
more than one Party but all such counterparts taken together will constitute
one and the same agreement

          IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which will for all purposes be deemed to be
an original.

ISIS PHARMACEUTICALS, INC.            PE CORPORATION

By:                                   By:
    ----------------------------         ----------------------------
           (signature)                           (signature)

Name:  B. Lynne Parshall              Name:  Peter Barrett, Ph.D.

Title: Executive Vice President       Title: E.V.P. and Chief Business Officer

Date:                                 Date:
     ---------------------------           --------------------------

                                       25


                                    EXHIBIT A
                                  RESEARCH PLAN

This Exhibit A to the Collaborative Research and License Agreement (the
"Agreement") dated as of July 9, 2001 addresses the conduct of the Research.
Capitalized terms will have the meanings set forth in the Agreement.

The generation of functional information on [* ] Celera Target Genes will follow
a multi-step process: prioritization of genes, generation and validation of lead
antisense oligos, and bioassay readout in four therapeutic areas (cancer,
angiogenesis, inflammation, and metabolic disease). After the Collaboration Data
is reviewed by the Joint Research Committee and Intellectual Property Committee
and appropriate patent applications filed, the information will be used to
populate the Gene Trove Gene Function Database, excluding information on [* ]
Celera Exclusive Targets.

Isis will provide reports to the JRC on a quarterly basis or more frequently.
These reports will contain all information necessary to keep the JRC fully
informed regarding the performance of the research plan.

[*]

*Confidential Treatment Requested      26


                                    EXHIBIT B

[* ]




* Confidential Treatment Requested     27