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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2011	Feb. 21, 2012	Jun. 30, 2011
Document and Entity Information
Entity Registrant Name	ISIS PHARMACEUTICALS INC
Entity Central Index Key	0000874015
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 761,296,183
Entity Common Stock, Shares Outstanding		100,162,511
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 65,477	$ 70,052
Short-term investments	278,187	402,301
Contracts receivable	6,921	1,242
Inventories	4,139	2,484
Other current assets	5,415	7,058
Total current assets	360,139	483,137
Property, plant and equipment, net	96,615	35,703
Licenses, net	9,036	12,288
Patents, net	16,259	15,821
Deposits and other assets	2,845	3,528
Total assets	484,894	550,477
Current liabilities:
Accounts payable	8,300	6,523
Accrued compensation	9,183	6,831
Accrued liabilities	18,655	12,389
Current portion of long-term obligations	3,390	5,645
Current portion of deferred contract revenue	36,584	74,502
Total current liabilities	76,112	105,890
Long-term deferred contract revenue	17,474	50,413
2 5/8 percent convertible subordinated notes	141,448	132,895
Long-term obligations, less current portion	4,125	5,720
Long-term financing liability for leased facility	69,877	10,147
Investment in Regulus Therapeutics Inc.	4,424	870
Total liabilities	313,460	305,935
Stockholders' equity:
Common stock, $0.001 par value; 200,000,000 shares authorized, 100,042,976 and 99,393,780 shares issued and outstanding at December 31, 2011 and 2010, respectively	100	99
Additional paid-in capital	1,013,592	1,000,181
Accumulated other comprehensive income (loss)	(770)	949
Accumulated deficit	(841,488)	(756,687)
Total stockholders' equity	171,434	244,542
Total liabilities and stockholders' equity	$ 484,894	$ 550,477

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2011	Dec. 31, 2010
CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	100,042,976	99,393,780
Common stock, shares outstanding	100,042,976	99,393,780

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Revenue:
Research and development revenue under collaborative agreements	$ 96,190	$ 102,921	$ 108,131
Licensing and royalty revenue	2,896	5,552	13,469
Total revenue	99,086	108,473	121,600
Expenses:
Research and development	157,397	145,160	134,623
General and administrative	12,789	11,669	14,515
Total operating expenses	170,186	156,829	149,138
Loss from operations	(71,100)	(48,356)	(27,538)
Other income (expense):
Equity in net loss of Regulus Therapeutics Inc.	(3,554)	(2,228)
Investment income	2,414	3,370	6,361
Interest expense	(16,732)	(13,232)	(12,672)
Gain (loss) on investments, net	4,182	(713)	2,084
Loss from continuing operations, before income tax expense	(84,790)	(61,159)	(31,765)
Income tax expense	(11)	(92)	(3,191)
Net loss from continuing operations	(84,801)	(61,251)	(34,956)
Discontinued operations:
Loss from discontinued operations			(29)
Gain on sale of Ibis Biosciences, Inc., net of tax			185,657
Net income from discontinued operations, net of tax			185,628
Net income (loss)	(84,801)	(61,251)	150,672
Net loss attributable to noncontrolling interest in Regulus Therapeutics Inc.			4,394
Net income (loss) attributable to Isis Pharmaceuticals, Inc. common stockholders	$ (84,801)	$ (61,251)	$ 155,066
Basic and diluted net income (loss) per share:
Net loss from continuing operations attributable to Isis Pharmaceuticals, Inc. common stockholders, Basic (in dollars per share)	$ (0.85)	$ (0.62)	$ (0.31)
Net income from discontinued operations, Basic (in dollars per share)			1.89
Basic net income (loss) attributable to Isis Pharmaceuticals, Inc. common stockholders (in dollars per share)	(0.85)	(0.62)	1.58
Net loss from continuing operations attributable to Isis Pharmaceuticals, Inc. common stockholders, Diluted (in dollars per share)	(0.85)	(0.62)	(0.31)
Net income from discontinued operations, Diluted (in dollars per share)			1.89
Diluted net income (loss) attributable to Isis Pharmaceuticals, Inc. common stockholders (in dollars per share)	$ (0.85)	$ (0.62)	$ 1.58
Shares used in computing basic net income (loss) per share (in shares)	99,656	99,143	98,109
Shares used in computing diluted net income (loss) per share (in shares)	99,656	99,143	98,109

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common stock	Additional paid in capital	Accumulated other comprehensive income	Accumulated deficit	Regulus	Ibis	Comprehensive income (loss)
Balance at Dec. 31, 2008	$ 147,380	$ 97	$ 960,361	$ 982	$ (851,216)	$ 4,737	$ 32,419
Balance (in shares) at Dec. 31, 2008		97,172
Comprehensive income (loss):
Net income (loss)	150,672				155,066	(4,394)		$ 150,672
Change in unrealized gains (losses), net of $0.8 million of tax expense in 2009	2,819			2,819				2,819
Reclassification adjustment for realized gains (losses) included in net income (loss)	(1,648)			(1,648)				(1,648)
Comprehensive income (loss)	151,843							151,843
Options exercised and employee stock purchase plan issuances	13,156	$ 2	13,154
Options exercised and employee stock purchase plan issuances (in shares)		1,670
Warrants exercised (in shares)		9
Excess tax benefits on share-based compensation	278		278
Share-based compensation expense	11,827		11,827
Sale of Ibis to AMI	(32,419)						$ (32,419)
Alnylam's capital contribution to noncontrolling interest	10,000					10,000
Balance at Dec. 31, 2009	302,065	$ 99	985,620	2,153	(696,150)	10,343
Balance (in shares) at Dec. 31, 2009		98,851
Increase (Decrease) in Stockholders' Equity
Regulus Therapeutics Inc. \| Adoption of accounting standard to deconsolidate	(11,583)		(1,954)		714	$ (10,343)
Comprehensive income (loss):
Net income (loss)	(61,251)				(61,251)			(61,251)
Change in unrealized gains (losses), net of $0.8 million of tax expense in 2009	(1,342)			(1,342)				(1,342)
Reclassification adjustment for realized gains (losses) included in net income (loss)	138			138				138
Comprehensive income (loss)	(62,455)							(62,455)
Options exercised and employee stock purchase plan issuances	4,356		4,356
Options exercised and employee stock purchase plan issuances (in shares)		475
Warrants exercised (in shares)		68
Share-based compensation expense	12,159		12,159
Balance at Dec. 31, 2010	244,542	$ 99	1,000,181	949	(756,687)
Balance (in shares) at Dec. 31, 2010		99,394
Comprehensive income (loss):
Net income (loss)	(84,801)				(84,801)			(84,801)
Change in unrealized gains (losses), net of $0.8 million of tax expense in 2009	(1,719)			(1,719)				(1,719)
Comprehensive income (loss)	(86,520)							$ (86,520)
Options exercised and employee stock purchase plan issuances	3,567	$ 1	3,566
Options exercised and employee stock purchase plan issuances (in shares)		646
Warrants exercised (in shares)		3
Share-based compensation expense	9,845		9,845
Balance at Dec. 31, 2011	$ 171,434	$ 100	$ 1,013,592	$ (770)	$ (841,488)
Balance (in shares) at Dec. 31, 2011		100,043

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) $ in Millions	12 Months Ended
	Dec. 31, 2009 USD ($)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Change in unrealized gains, tax expense	$ 0.8

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Operating activities:
Net income (loss)	$ (84,801)	$ (61,251)	$ 150,672
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	6,594	4,840	3,935
Amortization of patents	1,938	1,961	3,024
Amortization of licenses	3,252	2,376	2,344
Amortization of premium on investments, net	5,410	5,075	2,026
Amortization of debt issuance costs	507	507	507
Amortization of 2 5/8 percent convertible subordinated notes discount	8,553	7,795	7,107
Share-based compensation expense	9,845	12,159	13,385
Equity in net loss of Regulus Therapeutics Inc.	3,554	2,228
Gain from sale of Ibis Biosciences, Inc. to Abbott Molecular Inc.			(185,657)
Gain from the sale of property, plant and equipment		(72)
(Gain) loss on investments, net	(4,182)	713	(2,084)
Non-cash losses related to patents, licensing and property, plant and equipment	1,924	1,512	696
Excess tax benefits on share-based compensation			(278)
Changes in operating assets and liabilities:
Contracts receivable	(5,679)	10,479	(6,778)
Inventories	(1,655)	284	(17)
Other current and long-term assets	914	(943)	(955)
Accounts payable	875	1,325	(3,652)
Accrued compensation	2,352	394	(4,371)
Income taxes payable		(7,178)	(10,013)
Deferred rent	382
Accrued liabilities	6,273	1,013	4,318
Deferred contract revenue	(70,857)	(46,810)	(82,650)
Net cash used in operating activities	(114,801)	(63,593)	(108,441)
Investing activities:
Purchases of short-term investments	(371,108)	(530,137)	(776,381)
Proceeds from the sale of short-term investments	488,918	577,533	578,886
Purchases of property, plant and equipment	(7,331)	(13,237)	(13,414)
Proceeds from the sale of property, plant and equipment		185
Proceeds from land sold to BioMed		10,147
Reduction of cash due to deconsolidation of Regulus Therapeutics Inc. upon adoption of a new accounting standard		(16,228)
Acquisition of licenses and other assets, net	(3,667)	(4,319)	(2,880)
Purchases of strategic investments, net of proceeds received	(359)	(250)	(1,349)
Proceeds from the sale of strategic investments	4,445		2,848
Net cash provided by (used in) investing activities	110,898	23,694	(212,290)
Financing activities:
Proceeds from issuance of equity	3,567	4,356	13,156
Excess tax benefits on share-based compensation			278
Proceeds from equipment financing arrangement	1,625	4,694	6,394
Principal payments on debt and capital lease obligations	(5,864)	(4,354)	(2,827)
Proceeds from sale of Ibis Biosciences, Inc to Abbott Molecular Inc.			175,000
Proceeds from Alnylam's capital contribution to Regulus Therapeutics Inc.			10,000
Net cash (used in) provided by financing activities	(672)	4,696	202,001
Net decrease in cash and cash equivalents	(4,575)	(35,203)	(118,730)
Cash and cash equivalents at beginning of year	70,052	105,255	223,985
Cash and cash equivalents at end of year	65,477	70,052	105,255
Supplemental disclosures of cash flow information:
Interest paid	4,804	4,889	4,883
Income taxes paid, net of refund received	2	7,270	13,205
Supplemental disclosures of non-cash investing and financing activities:
Amounts accrued for capital and patent expenditures	902	922	$ 870
Capital lease obligations		$ 770
Capitalized costs and financing liability associated with leased facility	$ 59,730

Organization and Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Organization and Significant Accounting Policies

Organization and Significant Accounting Policies

1. Organization and Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Isis Pharmaceuticals, Inc. (“we”, “us” or “our”) and our wholly owned subsidiary, Symphony GenIsis, Inc., which is currently inactive. In addition to our wholly owned subsidiary, our consolidated financial statements include our equity investment in Regulus Therapeutics Inc. (formerly Regulus Therapeutics LLC), an entity we identified as a variable interest entity. As a result of adopting a new accounting standard for identifying which enterprise has the power to direct activities of a variable interest entity, we concluded that, beginning in 2010, we were no longer the primary beneficiary of Regulus. As such we have presented our share of Regulus’ operating results on a separate line in our consolidated statement of operations called “Equity in net loss of Regulus Therapeutics Inc.” On our consolidated balance sheet, we have presented our investment in Regulus on a separate line in the non-current liabilities section called “Investment in Regulus Therapeutics Inc.” Prior to the adoption of the new accounting standard in 2010, we were the primary beneficiary of Regulus and as such we consolidated Regulus’ financial results on a line-by-line basis. We have not reclassified amounts in the prior period financial statements to conform to the current year presentation.

As a result of completing the sale of Ibis Biosciences, Inc. to Abbott Molecular Inc., or AMI, in January 2009, we have presented Ibis’ financial position and results of operations separately as discontinued operations in our consolidated financial statements.

Organization and business activity

We incorporated in California on January 10, 1989. In conjunction with our initial public offering, we reorganized as a Delaware corporation in April 1991. We were organized principally to develop human therapeutic drugs using antisense technology.

Basic and diluted net income (loss) per share

We compute basic net income (loss) per share by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. As we incurred a loss from continuing operations for the years ended December 31, 2011, 2010 and 2009, we did not include the following diluted common equivalent shares in the computation of diluted net income (loss) from continuing operations per share because the effect would be anti-dilutive:

· 25/8 percent convertible subordinated notes;

· GlaxoSmithKline convertible promissory notes;

· Dilutive stock options; and

· Warrants issued to Symphony GenIsis Holdings LLC.

In April 2011, Symphony GenIsis Holdings LLC exercised the remaining warrants.

Revenue Recognition

We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue under current accounting rules. In those instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our consolidated balance sheet.

Research and development revenue under collaborative agreements

On January 1, 2011, we adopted an accounting standard, which amended the criteria to identify separate units of accounting for revenue arrangements with multiple deliverables. The new guidance replaces the concept of allocating revenue among deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on estimated selling price. The new standard is applicable on a prospective basis to agreements we enter into or materially modify after January 1, 2011. Our adoption of the standard did not impact our financial position or results of operations as of and for the year ended December 31, 2011 as we did not enter into or materially modify any multiple-element arrangements during that period. However, our adoption of this standard may result in revenue recognition for future agreements that is different from our existing multiple-element arrangements.

For agreements that we entered into or materially modified prior to the adoption of the revised multiple element guidance, we recognize revenue from each element of the arrangement as long as we can determine a standalone value for the delivered element and fair value for the undelivered elements, we have completed our obligation to deliver or perform on that element and we are reasonably assured of collecting the resulting receivable.

We often enter into collaborations with multiple deliverables under which we receive non-refundable upfront payments. For collaborations where we determine that there is a single unit of accounting because our research and development efforts are directly tied to the upfront payment, we recognize revenue related to upfront payments ratably over our estimated period of performance relating to the term of the contractual arrangements. Occasionally, we must estimate our period of performance when the agreements we entered into do not clearly define such information. Our collaborative agreements typically include a research and/or development project plan that includes the activities the agreement requires each party to perform during the collaboration and the party responsible for performing them. We estimate the period of time over which we will complete the activities for which we are responsible and use that period of time as our period of performance for purposes of revenue recognition and amortize revenue over such period. If our collaborators ask us to continue performing work in a collaboration beyond the initial period of performance, we extend our amortization period to correspond to the new extended period of performance. The revenue we recognize could be materially different if different estimates prevail. We have made estimates of our continuing obligations on several agreements. Adjustments to performance periods and related adjustments to revenue amortization periods have had a material impact on our revenue on only one occasion. When Alnylam Pharmaceuticals, Inc. terminated the companies’ single-stranded RNAi, or ssRNAi, research program in November 2010, we recognized as revenue $4.9 million, which was the remaining deferred revenue from the upfront fee that we were amortizing into revenue over the research term.

As part of our strategic alliance with Genzyme, a Sanofi company, in February 2008 Genzyme made a $150 million equity investment in us by purchasing five million shares of our common stock at $30 per share. The price Genzyme paid for our common stock represented a significant premium over the fair value of our stock. We accounted for this premium as deferred revenue and are amortizing it along with the $175 million licensing fee that we received in June 2008 ratably into revenue until June 2012, which represents the end of our performance obligation based on the current research and development plan.

Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraph.

Prior to the first stage in the life-cycle of our drugs, we perform a significant amount of work using our proprietary antisense technology to design chemical compounds which interact with specific genes that are good targets for drug discovery. From these research efforts, we hope to identify a development candidate. The designation of a development candidate is the first stage in the life-cycle of our drugs. A development candidate is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to warrant further study in humans. During the first step of the development stage, we or our partners study our drugs in IND-enabling studies, which are animal studies intended to support an Investigational New Drug, or IND, application and/or the foreign equivalent. An approved IND allows us or our partners to study our development candidate in humans. If the regulatory agency approves the IND, we or our partners initiate Phase 1 clinical trials in which we typically enroll a small number of healthy volunteers to ensure the development candidate is safe for use in patients. If we or our partners determine that a development candidate is safe based on the Phase 1 data, we or our partners initiate Phase 2 studies that are generally larger scale studies in patients with the primary intent of determining the efficacy of the development candidate. The final step in the development stage is Phase 3 studies to gather the necessary safety and efficacy data to request marketing approval from the Food and Drug Administration, or FDA and/or foreign equivalents. The Phase 3 studies typically involve large numbers of patients and can take up to several years to complete. If the data gathered during the trials demonstrates acceptable safety and efficacy results, we or our partner will submit an application to the FDA and/or its foreign equivalents for marketing approval. This stage of the drug’s life-cycle is the regulatory stage. If a drug achieves marketing approval, it moves into the commercialization stage, during which our partner will market and sell the drug to patients. Although our partner will ultimately be responsible for marketing and selling the drug, our efforts to discover and develop a drug that is safe, effective and reliable contributes significantly to our partner’s ability to successfully sell the drug. The FDA and its foreign equivalents have the authority to impose significant restrictions on an approved drug through the product label and on advertising, promotional and distribution activities. Therefore, our efforts designing and executing the necessary animal and human studies are critical to obtaining claims in the product label from the regulatory agencies that would allow our partner to successfully commercialize our drug. Further, the patent protection afforded our drugs as a result of our initial patent applications and related prosecution activities in the United States and foreign jurisdictions are critical to our partner’s ability to sell our drugs without competition from generic drugs. The potential sales volume of an approved drug is dependent on several factors including the size of the patient population, market penetration of the drug, and the price charged for the drug.

Generally, the milestone events contained in our partnership agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The process of successfully discovering a new development candidate, having it approved and ultimately sold for a profit is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug progresses through the stages of its life-cycle, the value of the drug generally increases.

Development milestones in our partnerships may include the following types of events:

· Designation of a development candidate. Following the designation of a development candidate, IND-enabling animal studies for a new development candidate generally take 12 to 18 months to complete;

· Initiation of a Phase 1 clinical trial. Generally, Phase 1 clinical trials take one to two years to complete;

· Initiation or completion of a Phase 2 clinical trial. Generally, Phase 2 clinical trials take one to three years to complete;

· Initiation or completion of a Phase 3 clinical trial. Generally, Phase 3 clinical trials take two to four years to complete.

Regulatory milestones in our partnerships may include the following types of events:

· Filing of regulatory applications for marketing approval such as a New Drug Application, or NDA, in the United States or a Marketing Authorization Application, or MAA, in Europe. Generally, it takes six to twelve months to prepare and submit regulatory filings.

· Marketing approval in a major market, such as the United States, Europe or Japan. Generally it takes one to two years after an application is submitted to obtain approval from the applicable regulatory agency.

Commercialization milestones in our partnerships may include the following types of events:

· First commercial sale in a particular market, such as in the United States or Europe.

· Product sales in excess of a pre-specified threshold, such as annual sales exceeding $1 billion. The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product.

We assess whether a substantive milestone exists at the inception of our agreements. When a substantive milestone is achieved, we recognize revenue related to the milestone payment. For our existing licensing and collaboration agreements in which we are involved in the discovery and/or development of the related drug or provide the partner with ongoing access to new technologies we discover, we have determined that all future development, regulatory and commercialization milestones are substantive. For example, for our strategic alliance with GlaxoSmithKline, or GSK, we are using our antisense drug discovery platform to seek out and develop new drugs against targets for rare and serious diseases. Alternatively, we provide on-going access to our technology to Alnylam to develop and commercialize RNA interference, or RNAi, therapeutics. We consider milestones for both of these collaborations to be substantive. For those agreements that do not meet the following criteria, we do not consider the future milestones to be substantive. In evaluating if a milestone is substantive we consider whether:

· Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement;

· The achievement of the milestone involves substantive effort and can only be achieved based in whole or part on our performance or the occurrence of a specific outcome resulting from our performance;

· The amount of the milestone payment appears reasonable either in relation to the effort expended or to the enhancement of the value of the delivered items;

· There is no future performance required to earn the milestone; and

· The consideration is reasonable relative to all deliverables and payment terms in the arrangement.

If any of these conditions are not met, we will defer recognition of the milestone payment and recognize it as revenue over the estimated period of performance, if any. In 2011, OncoGenex Pharmaceuticals Inc. initiated a Phase 2 trial of OGX-427 in men with metastatic prostate cancer. Also in 2011, we initiated a Phase 1 clinical study on ISIS-TTRRX, the first drug selected as part of our collaboration with GSK and we selected ISIS-AATRX as the second development candidate as part of our that collaboration. We consider milestones related to progression of a drug through the development stage of its life cycle to be substantive milestones because the level of effort and inherent risk associated with these events is high. Therefore, we recognized the entire $750,000 milestone payment from OncoGenex and two $5 million milestone payments from GSK in 2011. Further information about our collaborative arrangements can be found in Note 8, Collaborative Arrangements and Licensing Agreements.

Licensing and royalty revenue

We often enter into agreements to license our proprietary patent rights on an exclusive or non-exclusive basis in exchange for license fees and/or royalties. We generally recognize as revenue immediately those licensing fees and royalties for which we have no significant future performance obligations and are reasonably assured of collecting the resulting receivable.

Research and development expenses

We expense research and development costs as we incur them. Included in research and development expenses are costs associated with our collaboration agreements. For the years ended December 31, 2011, 2010 and 2009, research and development costs of approximately $26.3 million, $44.6 million, and $57.1 million, respectively, were related to collaborative research and development arrangements.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments and receivables. We place our cash equivalents and certain of our short-term investments with reputable financial institutions. We primarily invest our excess cash in commercial paper and debt instruments of the U.S. Treasury and financial institutions, corporations, and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Moody’s, Standard & Poor’s or Fitch, respectively. We and our audit committee establish guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity.

Cash, cash equivalents and short-term investments

We consider all liquid investments with maturities of 90 days or less when we purchase them to be cash equivalents. Our short-term investments have initial maturities of greater than 90 days from date of purchase. We classify our short-term investments as “available-for-sale” and carry them at fair market value based upon prices for identical or similar items on the last day of the fiscal period. We record unrealized gains and losses as a separate component of stockholders’ equity and include net realized gains and losses in gain (loss) on investments. We use the specific identification method to determine the cost of securities sold.

We have equity investments in privately- and publicly-held biotechnology companies that we have received as part of a technology license or collaboration agreement. We hold ownership interests of less than 20 percent in each of the respective companies except Regulus, our jointly owned subsidiary. In determining if and when a decrease in market value below our cost in our equity positions is temporary or other-than-temporary, we examine historical trends in the stock price, the financial condition of the company, near term prospects of the company and our current need for cash. We record unrealized gains and losses related to temporary declines in the publicly-held companies as a separate component of stockholders’ equity and account for securities in the privately-held companies, except for Regulus, under the cost method of accounting because we own less than 20 percent and do not have significant influence in their operations. Most of the cost method investments we hold are in early stage biotechnology companies and realization of our equity position in those companies is uncertain. In those circumstances we record a full valuation allowance. When we determine that a decline in value in either a public or private investment is other-than-temporary, we recognize an impairment loss in the period in which the other-than-temporary decline occurs.

Inventory valuation

We capitalize the costs of raw materials that we purchase for use in producing our drugs because until we use these raw materials they have alternative future uses. We include in inventory raw material costs for drugs that we manufacture for our partners under contractual terms and that we use primarily in our clinical development activities and drug products. We can use each of our raw materials in multiple products and, as a result, each raw material has future economic value independent of the development status of any single drug. For example, if one of our drugs failed, we could use the raw materials allocated for that drug to manufacture our other drugs. We expense these costs when we deliver the drugs to our partners, or as we provide these drugs for our own clinical trials. We reflect our inventory on the balance sheet at the lower of cost or market value under the first-in, first-out method. We review inventory periodically and reduce the carrying value of items we consider to be slow moving or obsolete to their estimated net realizable value. We consider several factors in estimating the net realizable value, including shelf life of raw materials, alternative uses for our drugs and clinical trial materials and historical write-offs. We did not record any inventory write-offs for the years ended December 31, 2011, 2010 and 2009. Total inventory, which consisted of raw materials, was $4.1 million and $2.5 million as of December 31, 2011 and 2010, respectively.

Property, plant and equipment

We carry our property, plant and equipment at cost, which consists of the following (in thousands):

	December 31,
	2011			2010
Equipment and computer software	$	42,422		$	38,685
Building and building systems	48,431			—
Land improvements	2,822			—
Leasehold improvements	34,839			25,147
Furniture and fixtures	5,323			2,550
	133,837			66,382
Less accumulated depreciation	(47,420		)	(40,826		)
	86,417			25,556
Land	10,198			10,147

	$	96,615		$	35,703

We depreciate our property, plant and equipment on the straight-line method over estimated useful lives as follows:

Computer software and hardware		3 years
Manufacturing Equipment		10 years
Other Equipment		5-7 years
Furniture and fixtures		5-10 years
Building		40 years
Building systems and improvements		10-25 years
Land improvements		20 years

We depreciate our leasehold improvements using the shorter of the estimated useful life or remaining lease term.

Licenses

We obtain licenses from third parties and capitalize the costs related to exclusive licenses. We amortize capitalized licenses over their estimated useful life or term of the agreement, which for current licenses is between approximately three years and 15 years. The cost of our licenses at December 31, 2011 and 2010 was $36.2 million. Accumulated amortization related to licenses was $27.2 million and $23.9 million at December 31, 2011 and 2010, respectively. Based on existing licenses, estimated amortization expense related to licenses is $2.4 million and $2.0 million for the years ending December 31, 2012 and 2013, respectively, $1.9 million for each of the years ending December 31, 2014 and 2015, and $0.8 million for the year ended December 31, 2016.

Patents

We capitalize costs consisting principally of outside legal costs and filing fees related to obtaining patents. We review our capitalized patent costs regularly to ensure that they include costs for patents and patent applications that have future value. We evaluate patents and patent applications that we are not actively pursuing and write off any associated costs. We amortize patent costs over their estimated useful lives of 10 years, beginning with the date the United States Patent and Trademark Office, or foreign equivalent, issues the patent. The weighted average remaining amortizable life of issued patents was 2.6 years and 2.5 years at December 31, 2011 and 2010, respectively. In 2011, 2010 and 2009, we recorded a non-cash charge of $1.9 million, $1.5 million and $696,000, respectively, which we included in research and development expenses, related to the write-down of our patent costs to their estimated net realizable values.

The cost of our patents at December 31, 2011 and 2010 was $29.9 million and $33.3 million, respectively. Accumulated amortization related to patents was $13.7 million and $17.5 million at December 31, 2011 and 2010, respectively. Based on existing patents, estimated amortization expense related to patents is as follows:

Years Ending December 31,	Amortization
	(in millions)

2012	$	1.5
2013	$	1.0
2014	$	0.8
2015	$	0.6
2016	$	0.6

Fair value of financial instruments

We have estimated the fair value of our financial instruments. The amounts reported for cash, accounts receivable, accounts payable and accrued expenses approximate the fair value because of their short maturities. We report our investment securities at their estimated fair value based on quoted market prices for identical or similar instruments.

Long-lived assets

We evaluate long-lived assets, which include property, plant and equipment, patent costs, and licenses acquired from third parties, for impairment on at least a quarterly basis and whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of such assets. We recorded a charge of $1.9 million, $1.5 million and $696,000 for the years ended December 31, 2011, 2010 and 2009, respectively, related to the write-down of intangible assets.

Equity method of accounting

On January 1, 2010, we adopted an accounting standard, which replaced the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity. The new approach focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the variable interest entity’s economic performance and (1) the obligation to absorb losses of the variable interest entity or (2) the right to receive benefits from the variable interest entity. As a result of adopting this new accounting standard, we were required to change the way we account for our variable interest in Regulus. Since we and Alnylam Pharmaceuticals, Inc. share equally the ability to impact Regulus’ economic performance, we are no longer the primary beneficiary of Regulus. We adopted the new standard on a prospective basis, therefore beginning in the first quarter of 2010, we deconsolidated Regulus from our consolidated financial statements and began to account for our ownership interest in Regulus using the equity method of accounting. We no longer include Regulus’ revenue and operating expenses in our operating results. Instead we include our share of Regulus’ operating results on a separate line in our consolidated statement of operations called “Equity in net loss of Regulus Therapeutics Inc.” On our consolidated balance sheet, we present our investment in Regulus on a separate line in the non-current liabilities section called “Investment in Regulus Therapeutics Inc.” We have not reclassified amounts in the prior period financial statements to conform to the current period presentation.

Under the equity method of accounting, we are required to suspend recognizing losses if the carrying amount of our investment in Regulus exceeds the amount of funding we are required to provide to Regulus. Since we and Alnylam are guarantors of both of the convertible notes that Regulus issued to GSK we will continue to recognize losses in excess of our net investment in Regulus up to the principal plus accrued interest we guaranteed, which at December 31, 2011 was $5.5 million.

Use of estimates

The preparation of consolidated 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Consolidation of variable interest entities

We identify entities as variable interest entities either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. We perform ongoing qualitative assessments of our variable interest entities to determine whether we have a controlling financial interest in the variable interest entity and therefore are the primary beneficiary. As of December 31, 2011 and 2010, we had collaborative arrangements with six and eight entities, respectively, that we considered to be variable interest entities. We are not the primary beneficiary for any of these entities as we do not have both the power to direct the activities that most significantly impact the economic performance of our variable interest entities and the obligation to absorb losses or the right to receive benefits from our variable interest entities that could potentially be significant to the variable interest entities. For 2009, our consolidated financial statements included one variable interest entity, Regulus, for which we were the primary beneficiary. As a result of adopting the new accounting standard related to our investment in Regulus in 2010, we deconsolidated Regulus because we were no longer the primary beneficiary of Regulus. See Note 2, Investment in Regulus Therapeutics Inc., for additional details.

Stock-based compensation

We estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We recognize the value of the portion of the award that we ultimately expect to vest as expense over the requisite service period as stock-based compensation expense in our consolidated statements of operations. We recognize compensation expense for all stock-based payment awards using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), an entity recognizes compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period. We reduce stock-based compensation expense for estimated forfeitures at the time of grant and revise in subsequent periods if actual forfeitures differ from those estimates.

We utilize the Black-Scholes model as our method of valuing stock-based awards we granted. On the grant date, we use our stock price and assumptions regarding a number of highly complex and subjective variables to determine the estimated fair value of stock-based payment awards. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of our employee stock options. Although we determine the estimated fair value of employee stock options using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

We account for stock options we grant to non-employees, which consist of options we grant to consultants, by estimating their fair value. We remeasure the fair value at each reporting period until the stock option vests. We recognize the expense over the period of time we require the non-employee to perform services.

See Note 6, Stockholders’ Equity, for additional information regarding our share-based compensation plans.

Comprehensive income (loss)

We display comprehensive income (loss) and its components as part of our full set of consolidated financial statements. Comprehensive income (loss) is comprised of net income (loss) and certain changes in stockholders’ equity that we exclude from net income (loss). We include unrealized holding gains and losses, net of taxes, and reclassification adjustment for realized gains and losses on our available-for-sale securities, which we report separately in stockholders’ equity, in accumulated other comprehensive income (loss). We include comprehensive income (loss) for the years ended December 31, 2011, 2010 and 2009 in our consolidated statements of stockholders’ equity.

Convertible debt

We account for our 25/8 percent convertible notes by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate when we recognize interest expense in subsequent periods. As a result, we assigned a value to the debt component of our 25/8 percent convertible notes equal to the estimated fair value of a similar debt instrument without the conversion feature, which resulted in us recording the debt at a discount. We are amortizing this debt discount over the life of the debt as additional non-cash interest expense utilizing the effective interest method. For additional information, see Note 5, Long-Term Obligations and Commitments.

Segment information

Prior to 2011, we reported our results in two separate segments: Drug Discovery and Development and Regulus. Beginning in the first quarter of 2011, we no longer consider Regulus as an operating segment because our chief decision making officer no longer reviews Regulus’ operating results for purposes of making resource allocations. Therefore we only provide financial information and results for our Drug Discovery and Development operations.

Fair Value Measurements

We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and equity securities in publicly-held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The majority of our securities have been classified as Level 2. To estimate the fair value of securities classified as Level 2, we utilize the services of a fixed income pricing provider that uses an industry standard valuation model, which is based on a market approach. We validate the fair value of securities from our pricing provider by understanding the pricing model they used and comparing their assessment of the fair value of our Level 2 investments to the fair value from the custodians of our Level 2 investments. Our pricing provider and custodians use similar techniques to derive fair value for Level 2 securities. At December 31, 2011, we had no securities that we classified as Level 3.

We measure the following major security types at fair value on a recurring basis. We break down the inputs used to measure fair value for these assets at December 31, 2011 and 2010 as follows (in thousands):

	At December 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	58,892	$	55,893	$	2,999	$	—
Corporate debt securities (2)	166,922		—		166,922		—
Debt securities issued by U.S. government agencies (2)	80,440		—		80,440		—
Debt securities issued by the U.S. Treasury (2)	2,356		2,356		—		—
Debt securities issued by states of the United States and political subdivisions of the states (2)	28,469		—		28,469		—
Equity securities (3)	1,282		1,282		—		—
Total	$	338,361	$	59,531	$	278,830	$	—

	At December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	68,618	$	50,379	$	18,239	$	—
Corporate debt securities (2)	244,228		—		244,228		—
Debt securities issued by U.S. government agencies (2)	127,041		—		127,041		—
Debt securities issued by the U.S. Treasury (2)	24,040		24,040		—		—
Debt securities issued by states of the United States and political subdivisions of the states (2)	6,992		—		6,992		—
Equity securities (3)	2,011		2,011		—		—
Total	$	472,930	$	76,430	$	396,500	$	—

(1) Included in cash and cash equivalents on our consolidated balance sheet.

(2) Included in short-term investments on our consolidated balance sheet.

(3) Included in other current assets on our consolidated balance sheet.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. We record a valuation allowance to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that we will not recognize some or all of the deferred tax assets.

In our financial statements, we recognize the impact of an uncertain income tax position on our income tax returns at the largest amount that the relevant taxing authority is more-likely-than-not to sustain upon audit. If we feel that the likelihood of sustaining an uncertain income tax position is less than 50 percent, we do not recognize it.

Impact of recently issued accounting standards

In May 2011, the FASB amended its authoritative guidance on the measurement and disclosure for fair value measurements. The amendment clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is effective for our fiscal year beginning January 1, 2012. We do not expect the adoption of this guidance to have a material impact on our financial statements.

In June 2011, the FASB amended its authoritative guidance on the presentation of comprehensive income. Under the amendment, companies have the option to present the components of net income and other comprehensive income either in a single continuous statement of comprehensive income or in separate but consecutive statements. This amendment eliminates the currently available option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment does not change the items that companies must report in other comprehensive income or when companies must reclassify an item of other comprehensive income to net income. In December 2011, the FASB issued an update that defers the presentation requirement for other comprehensive income reclasifications on the face of the financial statements. The guidance is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is effective for our fiscal year beginning January 1, 2012. As this guidance relates to presentation only, the adoption of this guidance will not have any other effect on our financial statements.

Investment in Regulus Therapeutics Inc.

12 Months Ended

Dec. 31, 2011

Investment in Regulus Therapeutics Inc.

Investment in Regulus Therapeutics Inc.

2. Investment in Regulus Therapeutics Inc.

In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-targeting therapeutics. Regulus combines our and Alnylam’s technologies, know-how, and intellectual property relating to microRNA-based therapeutics.

We and Alnylam each granted Regulus exclusive licenses to our respective intellectual property for microRNA therapeutic applications, as well as certain early fundamental patents in the microRNA field. Alnylam made an initial investment of $10 million in Regulus to balance both companies’ ownership. In October 2010, Sanofi invested $10 million in Regulus. From this investment Sanofi acquired less than 10 percent ownership of Regulus, leaving us with approximately 46 percent ownership. Alnylam owns the remaining equity. Regulus operates as an independent company with a separate board of directors, scientific advisory board and management team. We and Alnylam retain rights to develop and commercialize on pre-negotiated terms microRNA therapeutic products that Regulus decides not to develop either by itself or with a partner.

Regulus Collaborations

Regulus’ Collaboration with Sanofi

In June 2010, Regulus established a collaboration with Sanofi to discover, develop, and commercialize microRNA therapeutics, initially focused on fibrosis. The alliance represents the largest microRNA partnership formed to date, valued at potentially over $750 million. The alliance includes a $25 million upfront fee, a $10 million equity investment in Regulus that Sanofi made in October 2010 and annual research support for three years with the option to extend two additional years. In addition, Regulus is eligible to receive royalties on microRNA therapeutic products that Sanofi commercializes. Sanofi also received an option for a broader technology alliance that provides Regulus certain rights to participate in development and commercialization of resulting products. If exercised, this three-year option is worth up to an additional $50 million to Regulus. We and Alnylam are each eligible to receive 7.5 percent of the upfront payment and all potential milestone payments, in addition to royalties on product sales. As a result, in July 2010 we received from Regulus a payment of $1.9 million representing 7.5 percent of the $25 million upfront fee.

Regulus’ Collaboration with GSK

In April 2008, Regulus entered into a strategic alliance with GSK to discover, develop and commercialize novel microRNA-targeting therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease, and in February 2010, Regulus and GSK expanded this alliance to include microRNA therapeutics targeting microRNA 122, or miR-122, for the treatment of hepatitis C virus infection, or HCV. The alliance utilizes Regulus’ expertise and intellectual property position in the discovery and development of microRNA-targeting therapeutics and provides GSK with an option to license drug candidates directed at four different microRNA targets, including miR-122 for HCV. Regulus received $28 million in upfront payments from GSK, including $18 million in option fees and two $5 million convertible promissory notes. The notes plus interest will convert into Regulus common stock in the future if Regulus achieves a minimum level of financing with institutional investors. In addition, we and Alnylam are guarantors of the notes issued to GSK, and if the notes do not convert or if Regulus does not repay the notes by February 2013, we, Alnylam and Regulus may elect to repay the notes plus interest with shares of each company’s common stock or cash. In 2009, Regulus earned revenue of $3.0 million related to its collaboration with GSK, which we included in our 2009 consolidated revenue as Regulus was a consolidated subsidiary in 2009.

Equity method of accounting

On January 1, 2010, as a result of adopting the new accounting standard for identifying which enterprise has the power to direct activities of a variable interest entity, we prospectively changed the way we account for our variable interest in Regulus. Since we and Alnylam share the ability to impact Regulus’ economic performance, we are no longer the primary beneficiary of Regulus. Beginning in 2010, we deconsolidated Regulus from our consolidated financial statements and began to account for our ownership interest in Regulus using the equity method of accounting.

In October 2010, Sanofi invested $10 million in Regulus. From this investment Sanofi acquired less than 10 percent ownership of Regulus, leaving us with approximately 46 percent ownership. Under the equity method of accounting, when Regulus issued shares to Sanofi we recorded a gain of $4.7 million and adjusted the carrying value of our investment in Regulus to reflect the increased valuation of Regulus and our new ownership percentage.

Under the equity method of accounting, we will suspend recognizing losses if the carrying amount of our investment in Regulus exceeds the amount of funding we provided to Regulus. Since we and Alnylam are guarantors of both of the convertible notes that Regulus issued to GSK, we will continue to recognize losses in excess of our net investment in Regulus up to the principal plus accrued interest we guaranteed, which was $5.5 million at December 31, 2011. At December 31, 2011, the total carrying value of our investment in Regulus is a liability of $4.4 million.

Summarized financial information for Regulus is as follows (in thousands):

	Year Ended December 31,
	2011			2010			2009
Net revenues	$	13,789		$	8,601		$	3,013
Operating expenses	20,926			24,099			11,789
Loss from operations	(7,137		)	(15,498		)	(8,776		)
Other income (expense)	(259		)	(91		)	13
Income tax benefit (expense)	(206		)	30			(141		)
Net loss	$	(7,602	)	$	(15,559	)	$	(8,904	)

	December 31,
	2011		2010
Current assets	$	38,666	$	55,175
Non-current assets	4,215		4,528
Total assets	42,881		59,703

Current liabilities	12,850		14,729
Non-current liabilities	28,834		36,978
Total liabilities	41,684		51,707

Net assets	$	1,197	$	7,996

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References + Details

Discontinued Operations

12 Months Ended

Dec. 31, 2011

Discontinued Operations

Discontinued Operations

3. Discontinued Operations

In January 2009, AMI completed its acquisition of Ibis for a total purchase price of $215 million. Since we sold Ibis to AMI and Ibis met the criteria for a component of an entity, we reflect Ibis as a discontinued operation. Accordingly, we have presented the operating results of Ibis in our consolidated statements of operations as discontinued operations. Net income from discontinued operations for the year ended December 31, 2009 primarily consisted of the $202.5 million gain related to the sale of Ibis to AMI less $16.8 million of income tax expense.

The components of discontinued operations for the year ended December 31, 2009 is as follows (in thousands):

Revenue	$	—
Total operating expenses	35
Loss from operations	(35		)
Loss attributed to noncontrolling interest in Ibis Biosciences, Inc.	6
Loss from discontinued operations	(29		)
Gain on sale of Ibis Biosciences, Inc., net of tax	185,657
Net income from discontinued operations, net of tax	$	185,628

We do not have any assets and liabilities from discontinued operations in our accompanying consolidated balance sheets at December 31, 2011 and 2010. We have not separately classified cash flows from discontinued operations in our consolidated statement of cash flows.

- Definition

The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 144
-Paragraph 43-48
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 360
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230

Reference 3: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 360
-SubTopic 10
-Section 45
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6390789&loc=d3e2443-110228

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760

+ Details

Investments

12 Months Ended

Dec. 31, 2011

Investments

Investments

4. Investments

As of December 31, 2011, we have primarily invested our excess cash in commercial paper and debt instruments of the U.S. Treasury and financial institutions, corporations, and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Moody’s, Standard & Poor’s (S&P) or Fitch, respectively. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. We periodically review and modify these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity.

The following table summarizes the contract maturity of the available-for-sale securities we held as of December 31, 2011:

One year or less	65	%
After one year but within two years	29	%
After two years but within three years	6	%
Total	100	%

In April 2011, S&P affirmed the ‘AAA/A-1+’ rating on the sovereign credit rating of the United States. At the same time, however, S&P lowered the outlook of the long-term rating to ‘Negative’ from ‘Stable.’ In July 2011, Moody’s placed the AAA bond rating for the United States on review for a possible downgrade. The actions taken by S&P and Moody’s pertain primarily to the long-term challenges associated with the United States’ budget deficits and rising indebtedness. As illustrated above, we primarily invest our excess cash in short-term instruments with 94 percent of our available-for-sale securities having a maturity of less than two years. Therefore, the action taken by S&P and Moody’s did not impact the carrying value of our available-for-sale securities at December 31, 2011.

At December 31, 2011, we had an ownership interest of less than 20 percent in each of three private companies and two public companies with which we conduct business. The companies are Santaris Pharma A/S (formerly Pantheco A/S), Achaogen Inc., and Atlantic Pharmaceuticals Limited, which are privately-held and Antisense Therapeutics Limited, or ATL, and iCo Therapeutics Inc., which are publicly-traded. We account for securities in the privately-held companies under the cost method of accounting and we classify the securities in the publicly-traded companies as available-for-sale. During 2011, we recognized a $4.2 million net gain on investments primarily consisting of a $4.4 million gain we recorded in the fourth quarter of 2011 from our ownership interest in Excaliard when they were acquired by Pfizer Inc. See further discussion about our investments in these satellite companies in Note 8, Collaborative Arrangements and Licensing Agreements.

The following is a summary of our investments (in thousands):

								Other-Than-
								Temporary
	Amortized		Unrealized					Impairment			Estimated
December 31, 2011	Cost		Gains		Losses			Loss			Fair Value
Short-term investments:
Corporate debt securities	$	109,842	$	13	$	(255	)	$	—		$	109,600
Debt securities issued by U.S. government agencies	53,723		35		(5		)	—			53,753
Debt securities issued by the U.S. Treasury	2,353		3		—			—			2,356
Debt securities issued by states of the United States and political subdivisions of the states	16,141		4		(3		)	—			16,142
Total securities with a maturity of one year or less	182,059		55		(263		)	—			181,851
Corporate debt securities	57,632		21		(331		)	—			57,322
Debt securities issued by U.S. government agencies	26,754		—		(67		)	—			26,687
Debt securities issued by states of the United States and political subdivisions of the states	12,331		19		(23		)	—			12,327
Total securities with a maturity of more than one year	96,717		40		(421		)	—			96,336
Subtotal	$	278,776	$	95	$	(684	)	$	—		$	278,187
Equity securities:
Current portion (included in Other current assets)	$	1,538	$	624	$	—		$	(880	)	$	1,282
Long-term portion (included in Deposits and other assets)	625		—		—			—			625
Subtotal	$	2,163	$	624	$	—		$	(880	)	$	1,907
	$	280,939	$	719	$	(684	)	$	(880	)	$	280,094

								Other-Than-
								Temporary
	Amortized		Unrealized					Impairment			Estimated
December 31, 2010	Cost		Gains		Losses			Loss			Fair Value
Short-term investments:
Corporate debt securities	$	196,010	$	294	$	(41	)	$	—		$	196,263
Debt securities issued by U.S. government agencies	119,890		53		(34		)	—			119,909
Debt securities issued by the U.S. Treasury	24,030		10		—			—			24,040
Debt securities issued by states of the United States and political subdivisions of the states	6,989		3		—			—			6,992
Total securities with a maturity of one year or less	346,919		360		(75		)	—			347,204
Corporate debt securities	47,842		167		(44		)	—			47,965
Debt securities issued by U.S. government agencies	7,139		4		(11		)	—			7,132
Total securities with a maturity of more than one year	54,981		171		(55		)	—			55,097
Subtotal	$	401,900	$	531	$	(130	)	$	—		$	402,301
Equity securities:
Current portion (included in Other current assets)	$	1,538	$	1,353	$	—		$	(880	)	$	2,011
Long-term portion (included in Deposits and other assets)	625		—		—			—			625
Subtotal	$	2,163	$	1,353	$	—		$	(880	)	$	2,636
	$	404,063	$	1,884	$	(130	)	$	(880	)	$	404,937

Investments we consider to be temporarily impaired at December 31, 2011 are as follows (in thousands):

		Less than 12 months of temporary impairment
	Number of Investments	Estimated Fair Value		Unrealized Losses
Corporate debt securities	59	$	118,695	$	(586	)
Debt securities issued by U.S. government agencies	10	33,685		(72		)
Debt securities issued by states of the United States and political subdivisions of the states	5	9,685		(26		)
Total temporarily impaired securities	74	$	162,065	$	(684	)

We believe that the decline in value of these securities is temporary and primarily related to the change in market interest rates since purchase. We believe it is more likely than not that we will be able to hold these securities to maturity. Therefore we anticipate full recovery of their amortized cost basis at maturity.

Long-Term Obligations and Commitments

12 Months Ended

Dec. 31, 2011

Long-Term Obligations and Commitments

Long-Term Obligations and Commitments

5. Long-Term Obligations and Commitments

Long-term obligations consisted of the following (in thousands):

	December 31,
	2011			2010
25/8 percent convertible subordinated notes	$	141,448		$	132,895
Long-term financing liability for leased facility	69,877			10,147
Equipment financing arrangement	5,325			9,440
Leases and other obligations	2,190			1,925
Total	$	218,840		$	154,407
Less: current portion	(3,390		)	(5,645		)

Total Long-Term Obligations	$	215,450		$	148,762

Convertible Subordinated Notes

In January 2007, we completed a $162.5 million convertible debt offering, which raised proceeds of approximately $157.1 million, net of $5.4 million in issuance costs. We included the issuance costs in our balance sheet and are amortizing these costs to interest expense over the life of the debt. The $162.5 million convertible subordinated notes mature in 2027 and bear interest at 25/8 percent, which is payable in cash semi-annually. The 25/8 percent notes are convertible, at the option of the note holders, into approximately 11.1 million shares of our common stock at a conversion price of $14.63 per share. At December 31, 2011 and 2010, the principal and accrued interest payable on the notes was $162.5 million and $1.6 million, respectively. The fair value based on quoted market prices was $151.1 million and $162.3 million, at December 31, 2011 and 2010, respectively. We did not include the effect of the conversion of the note into our common stock in the computation of diluted net loss from continuing operations per share because the effect would have been anti-dilutive.

We will be able to redeem the 25/8 percent notes at a redemption price equal to 100.75 percent of the principal amount between February 15, 2012 and February 14, 2013; 100.375 percent of the principal amount between February 15, 2013 and February 14, 2014; and 100 percent of the principal amount thereafter. Holders of the 25/8 percent notes may also require us to repurchase these notes on February 15, 2014, February 15, 2017 and February 15, 2022, and upon the occurrence of certain defined conditions, at 100 percent of the principal amount of the 25/8 percent notes being repurchased plus unpaid interest.

We account for the 25/8 percent notes using an accounting standard which requires us to assign a value to our convertible debt equal to the estimated fair value of a similar debt instrument without the conversion feature that results in us recording our convertible debt at a discount. We are amortizing the resulting debt discount over the expected life of the debt as additional non-cash interest expense. Using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model, we determined that our nonconvertible debt borrowing rate for the 25/8 percent notes was 9.3 percent. Interest expense for the year ended December 31, 2011, 2010 and 2009 included $8.6 million, $7.8 million and $7.1 million, respectively, of non-cash interest expense related to the amortization of the debt discount.

Equipment Financing Arrangement

In October 2008, we entered into a loan agreement related to an equipment financing and in September 2009, we amended the loan agreement to increase the aggregate maximum amount of principal we could draw under the agreement. Under the amended loan agreement, we could borrow up to $18.4 million in principal to finance the purchase of equipment until July 2011. Each draw down under the loan agreement has a term of three years, with principal and interest payable monthly. We calculated interest on amounts we borrowed under the loan agreement based upon the three year interest rate swap at the time we made each draw down plus four percent. We are using the equipment purchased under the loan agreement as collateral. In 2011, we drew down an additional $1.6 million in principal under the loan agreement. As of December 31, 2011, we had drawn down $18.3 million in principal under this loan agreement at a weighted average interest rate of 6.19 percent. The carrying balance under this loan agreement at December 31, 2011 and 2010 was $5.3 million and $9.4 million, respectively.

Capital Lease

In 2010, we entered into a lease agreement associated with the purchase of certain office equipment. Since the lease contains a bargain purchase option, we classified it as a capital lease. At December 31, 2011 and 2010 we had approximately $656,000 and $773,000, respectively, outstanding under the lease. The lease bears interest at a rate of 5.14 percent and has a term of five years. We include the office equipment related to this capital lease in our property, plant and equipment. At December 31, 2011 and 2010, this equipment had a net book value of $585,000 and $705,000, respectively, which included $228,000 and $65,000, respectively, of accumulated depreciation.

Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2011 are as follows (in thousands):

2012	$	7,938
2013	6,325
2014	163,087
2015	230
2016	60
Thereafter	1,140
Subtotal	$	178,780
Less: current portion	(3,390		)
Less: fixed and determinable interest	(9,941		)
Less: debt discount	(21,051		)
Deferred rent	1,175
Total	$	145,573

Operating Leases

We lease certain office equipment as well as office and laboratory space under non-cancelable operating leases with terms through December 2031. We are located in three buildings in Carlsbad, California, including a 176,000 square foot leased facility that is accounted for as a financing obligation discussed below. We currently occupy approximately 231,000 square feet of laboratory and office space, including a 28,704 square foot facility, which houses our manufacturing suites for our drug development business built to meet Good Manufacturing Practices, and a 25,792 square foot building adjacent to our manufacturing facility which we use for laboratory and office space and to support our manufacturing activities. The lease for our 28,704 square foot manufacturing facility expires in 2031 and has four five-year options to extend. Under the lease agreement we have the option to purchase the facility at the end of each year from 2016 through 2020, and at the end of 2026 and 2031. The lease for the 25,792 square foot facility has an initial term ending in June 2021 with an option to extend the lease for up to two five-year periods.

Annual future minimum payments under operating leases as of December 31, 2011 are as follows (in thousands):

	Operating Leases
2012	$	1,406
2013	1,423
2014	1,389
2015	1,332
2016	1,380
Thereafter	21,979
Total minimum payments	$	28,909

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $4.6 million, $4.3 million and $4.6 million, respectively. In connection with certain of our leases, we recognize rent expense on a straight line basis over the lease term resulting in a deferred rent balance of $1.2 million and $793,000 at December 31, 2011 and 2010, respectively.

New Facility Lease Obligation

The leases on our former primary research and development facilities expired at the end of 2011. Rather than invest in costly renovations to these facilities, we chose to consolidate the majority of our operations in a new 176,000 square foot leased facility that BioMed Realty, L.P. constructed. To make our move to the new facility as efficient as possible, we requested access to the new facility prior to the completion of construction. To gain early access, we agreed to modify our lease with BioMed to accept additional responsibility. As a result, we recorded the costs for the facility as a fixed asset and we also recorded a corresponding liability. In July 2011, we took possession of the new facility. Therefore beginning in the third quarter of 2011, we began depreciating the cost of the facility over its economic useful life. At December 31, 2011, the facility and associated parcel of land had a net book value of $71.5 million, which included $945,000 of accumulated depreciation. Our rent payments began on January 1, 2012 and will decrease the liability over the term of the lease.

In conjunction with the lease agreement with BioMed, we purchased a parcel of land for $10.1 million and subsequently sold it to BioMed. Since we have the option to purchase the facility, including the land, we have continuing involvement in the land, which requires us to account for the purchase and sale of the land as a financing transaction. As such, our property, plant and equipment at December 31, 2011 and 2010 included the value of the land. Additionally, we have recorded a corresponding amount in our non-current liabilities as a long-term financing obligation. Since land is not a depreciable asset, the value of the land and financing obligation we recorded will not change until we exercise our purchase option or the lease terminates.

The lease on this new facility expires in 2031 and has four five-year options to extend. Under the lease agreement we have the option to purchase the facility and land at the end of each year from 2016 through 2020, and at the end of 2026 and 2031.

Annual future rent payments for the new facility as of December 31, 2011 are as follows (in thousands):

	New Facility Lease
2012	$	5,829
2013	5,829
2014	6,179
2015	6,179
2016	6,551
Thereafter	119,000
Total minimum payments	$	149,567

Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

Stockholders' Equity

6. Stockholders’ Equity

Preferred Stock

We are authorized to issue up to 15,000,000 shares of “blank check” Preferred Stock. As of December 31, 2011, there were no shares of our Series A Convertible Exchangeable five percent Preferred Stock or Series B Convertible Exchangeable five percent Preferred Stock outstanding. We have designated Series C Junior Participating Preferred Stock but have no issued or outstanding shares as of December 31, 2011.

In December 2010, our Preferred Share Purchase Rights Plan expired.

Common Stock

At December 31, 2011 and 2010, we had 200,000,000 shares of common stock authorized, of which 100,042,976 and 99,393,780 were issued and outstanding, respectively. As of December 31, 2011, total common shares reserved for future issuance were approximately 21,833,053.

We issued 646,000 and 475,000 shares of common stock for stock option exercises and the Employee Stock Purchase Plan (“ESPP”) purchases for the years ending December 31, 2011 and 2010, respectively. We received net proceeds from these transactions of $3.6 million and $4.4 million in 2011 and 2010, respectively.

Stock Option Plans

1989 Stock Option Plan

In June 1989, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that, as amended, provides for the issuance of non-qualified and incentive stock options for the purchase of up to 20,000,000 shares of common stock to our employees, directors, and consultants. The plan expires in January 2014. The 1989 Plan does not allow us to grant stock bonuses or restricted stock awards and prohibits us from repricing any options outstanding under the plan unless our stockholders approve the repricing. Options vest over a four-year period, with 25 percent exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter. Options we granted after May 26, 2004 have a term of seven years while options we granted before May 26, 2004 have a term of ten years. At December 31, 2011, a total of 7,520,400 options were outstanding, of which options to purchase 4,442,537 shares were exercisable, and 3,277,145 shares were available for future grant under the 1989 plan.

2000 Broad Based Equity Incentive Plan

In January 2000, we adopted the 2000 Broad-Based Equity Incentive Plan (the “2000 Plan”), which, as amended, provided for the issuance of non-qualified stock options for the purchase of up to 5,990,000 shares of common stock to our employees, directors, and consultants. Typically options expire seven or ten years from the date of grant. Options granted under this plan generally vest over a four-year period, with 25 percent exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter. At December 31, 2011, a total of 2,556,537 options were outstanding, of which 2,258,342 shares were exercisable, and no shares were available for future grant under the 2000 Plan. The 2000 Plan expired on January 5, 2010, so we may no longer grant new options under the 2000 Plan.

Change of Control Under 1989 Plan and 2000 Plan

With respect to both the 1989 Plan and 2000 Plan, in the event of:

· a sale, lease or other disposition of all or substantially all of our assets;

· a merger or consolidation in which we are not the surviving corporation; or

· reverse merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise,

then any surviving corporation or acquiring corporation will assume any stock awards outstanding under the 2000 Plan and the 1989 Plan or will substitute similar stock awards (including an award to acquire the same consideration paid to the shareholders in the transaction for those outstanding under the 2000 Plan and the 1989 Plan). In the event any surviving corporation or acquiring corporation refuses to assume such stock awards or to substitute similar stock awards for those outstanding under the 2000 Plan and the 1989 Plan, then with respect to stock awards held by participants whose continuous service has not terminated, such stock awards automatically vest in full and the stock awards will terminate if not exercised (if applicable) at or prior to such event.

2011 Equity Incentive Plan

In March 2011, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that provides for the issuance of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and performance cash awards. The plan provides for the purchase of up to 2,000,000 shares of common stock for issuance to our employees, directors, and consultants. The plan expires in June 2021. The 2011 Plan does not allow us to reduce the exercise price of any outstanding stock options or stock appreciation rights or cancel any outstanding stock options or stock appreciation rights that have an exercise price or strike price greater than the current fair market value of the common stock in exchange for cash or other stock awards unless our stockholders approve such action. Currently we anticipate awarding only options and restricted stock units awards to our employees, directors and consultants. Under the 2011 Plan, stock options cannot vest in a period of less than two years and restricted stock unit awards cannot vest in a period of less than three years. In January 2012, we granted restricted stock unit awards to our employees under the 2011 Plan which vest annually over a four year period. At December 31, 2011, no options or restricted stock units awards were outstanding or exercisable, and 2,000,000 shares were available for future grant under the 2011 Plan.

Under the 2011 Plan, we may issue a stock award with additional acceleration of vesting and exercisability upon or after a change in control. In the absence of such provisions, no such acceleration will occur. The stock options and restricted stock unit awards we issue to our chief executive officer and chief operating officer will accelerate upon a change of control, as defined in the 2011 Plan.

Corporate Transactions and Change in Control under 2011 Plan

In the event of certain significant corporate transactions, our Board of Directors has the discretion to take one or more of the following actions with respect to outstanding stock awards under the 2011 Plan:

· arrange for assumption, continuation, or substitution of a stock award by a surviving or acquiring entity (or its parent company);

· arrange for the assignment of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award to the surviving or acquiring corporation (or its parent company);

· accelerate the vesting and exercisability of a stock award followed by the termination of the stock award;

· arrange for the lapse of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award;

· cancel or arrange for the cancellation of a stock award, to the extent not vested or not exercised prior to the effective date of the corporate transaction, in exchange for cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and

· arrange for the surrender of a stock award in exchange for a payment equal to the excess of (a) the value of the property the holder of the stock award would have received upon the exercise of the stock award, over (b) any exercise price payable by such holder in connection with such exercise.

2002 Non-Employee Directors’ Stock Option Plan

In September 2001, our Board of Directors adopted, and the stockholders subsequently approved, an amendment and restatement of the 1992 Non-Employee Directors’ Stock Option Plan, which provides for the issuance of non-qualified stock options to our non-employee directors. The name of the resulting plan is the 2002 Non-Employee Directors’ Stock Option Plan (the “2002 Plan”). The 2002 Plan provides for the issuance of stock options to our non-employee directors for the purchase of up to 1,000,000 shares of our common stock. Options under this plan expire ten years from the date of grant. Options granted become exercisable in four equal annual installments beginning one year after the date of grant. At December 31, 2011, a total of 645,000 options were outstanding, 457,500 of the shares issued were exercisable and 199,500 shares were available for future grant under the 2002 Plan.

Employee Stock Purchase Plan

In June 2009, our Board of Directors adopted, and the stockholders subsequently approved, the amendment and restatement of the 2000 ESPP and we reserved an additional 150,000 shares of common stock for issuance thereunder. In each of the subsequent years, we reserved an additional 150,000 shares of common stock for the ESPP resulting in a total of 2,124,596 million shares authorized in the plan as of December 31, 2011. The ESPP permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10 percent of each employee’s compensation) at the lower of 85 percent of fair market value at the beginning of the purchase period or the end of each six-month purchase period. Under the amended and restated ESPP, employees must hold the stock they purchase for a minimum of six months from the date of purchase beginning with the offering ending in January 1, 2010. During 2011, employees purchased and we issued to employees 98,218 shares under the ESPP at prices ranging from $7.79 to $7.91 per share. At December 31, 2011, 191,088 shares were available for purchase under the ESPP.

Stock Option Activity and Stock-Based Compensation Expense

The following table summarizes the stock option activity for the year ended December 31, 2011 (in thousands, except per share and contractual life data):

	Number of Shares		Weighted Average Exercise Price Per Share		Average Remaining Contractual Term	Aggregate Intrinsic Value
					(Years)
Outstanding at December 31, 2010	9,811		$	11.54
Granted	2,029		$	9.92
Exercised	(479	)	$	5.84
Cancelled/forfeited/expired	(639	)	$	13.18

Outstanding at December 31, 2011	10,722		$	11.39	3.81	$	2,259

Exercisable at December 31, 2011	7,158		$	11.57	2.90	$	2,245

The weighted-average estimated fair values of options granted were $4.85, $5.53 and $7.27 for the years ended December 31, 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 were $686,000, $905,000 and $9.2 million, respectively, which we determined as of the date of exercise. The amounts of cash received from the exercise of stock options were $2.8 million, $3.3 million and $11.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. For the year ended December 31, 2011, the weighted-average fair value of options exercised was $7.27. As of December 31, 2011, total unrecognized compensation cost related to non-vested stock-based compensation plans was $7.6 million. We will adjust the total unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize this cost over a weighted average period of 1.3 years.

Stock-based Valuation and Compensation Expense Information

The following table summarizes stock-based compensation expense related to employee and non-employee stock options and the ESPP for the year ended December 31, 2011, 2010 and 2009 (in thousands), which was allocated as follows:

	Year Ended December 31,
	2011		2010		2009
Research and development	$	8,527	$	10,148	$	10,977
General and administrative	1,318		2,011		2,408
Non-cash compensation expense related to stock options included in continuing operations	9,845		12,159		13,385
Non-cash compensation (benefit) expense related to stock options included in discontinued operations	—		—		(1,558		)
Total	$	9,845	$	12,159	$	11,827

Determining Fair Value

Valuation. We utilize the Black-Scholes model as our method of valuing stock-based awards we have granted. We recognize the value of the portion of the award that we ultimately expect to vest as expense over the requisite service period as stock-based compensation expense in our consolidated statements of operations. We recognize compensation expense for all stock-based payment awards using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), an entity recognizes compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period.

We estimated the fair value of each stock option grant and the ESPP purchase rights on the date of grant using the Black-Scholes model with the following weighted-average assumptions (annualized percentages), which vary based on type of plan, for the years ended December 31, 2011, 2010 and 2009:

Employee Stock Options:

	December 31,
	2011		2010		2009
Risk-free interest rate	2.3	%	2.7	%	1.9	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	52.4	%	55.5	%	56.8	%
Expected life	5.3 years		5.1 years		4.9 years

Board of Director Stock Options:

	December 31,
	2011		2010		2009
Risk-free interest rate	2.9	%	2.7	%	3.4	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	52.8	%	57.7	%	61.5	%
Expected life	7.8 years		7.8 years		7.7 years

ESPP:

	December 31,
	2011		2010		2009
Risk-free interest rate	0.1	%	0.2	%	0.3	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	34.9	%	47.8	%	56.5	%
Expected life	6 months		6 months		6 months

Risk-Free Interest Rate. We base the risk-free interest rate assumption on observed interest rates appropriate for the term of our stock option plans or ESPP.

Dividend Yield. We base the dividend yield assumption on our history and expectation of dividend payouts. We have not paid dividends in the past and do not expect to in the future.

Volatility. We use an average of the historical stock price volatility of our stock for the Black-Scholes model. We computed the historical stock volatility based on the expected term of the awards.

Expected Life. The expected term of stock options we have granted represents the period of time that we expect them to be outstanding. For the 2002 Plan, we estimated the expected term of options we have granted based on historical exercise patterns. For the 1989 Plan and 2000 Plan, we estimated the expected term of options granted subsequent to January 1, 2008, based on historical exercise patterns. The expected term for stock options we have granted prior to January 1, 2008 was a derived output of the simplified method.

Forfeitures. We reduce stock-based compensation expense for estimated forfeitures. We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate forfeitures based on historical experience. Our historical forfeiture estimates have not been materially different from our actual forfeitures.

Warrants

In April 2006, we granted the members of Symphony GenIsis Holdings LLC warrants to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share. In April 2011, Symphony GenIsis Holdings LLC exercised the remaining warrants.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644

Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 11
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+ Details

Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

7. Income Taxes

We have net deferred tax assets relating primarily to net operating loss carryforwards, or NOL’s, and research and development tax credit carryfowards. Subject to certain limitations, we may use these deferred tax assets to offset taxable income in future periods. Since we have a history of losses and the likelihood of future profitability is not assured, we have provided a full valuation allowance for the deferred tax assets in our balance sheet as of December 31, 2011. If we determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income or additional paid in capital, as appropriate, in that same period.

Primarily as a result of the significant upfront funding that we received from our strategic alliance with Genzyme in 2008 and the gain we recognized on the sale of Ibis to AMI in January 2009, we had a substantial amount of taxable income in 2009. To reduce our tax liability, we offset a portion of the taxable income with our 2009 loss from continuing operations. We also used some of our NOL’s to reduce our federal income taxes in 2009. The tax law changes that were enacted with the 2008/2009 California Budget suspended our ability to use NOL’s to offset our California tax expense for 2009. However, we offset our California income tax liability to the fullest extent allowed under the tax regulations with our research and development tax credit carryforwards, which California tax regulations limit to 50 percent of our California liability. After using all of our allowable losses and tax credits to reduce our tax liability, our 2009 tax expense was $20.0 million.

We were required to allocate our 2009 tax expense between discontinued operations and continuing operations in our consolidated statement of operations. Accordingly, we recorded tax expense of $3.2 million in continuing operations and $16.8 million in discontinued operations in 2009.

We are subject to taxation in the United States and various state jurisdictions. Our tax years for 1993 and forward are subject to examination by the U.S. tax authorities and our tax years for 1989 and forward are subject to examination by the California tax authorities due to the carryforward of unutilized net operating losses and research and development credits. Our tax years for 2001, 2002, 2006 and 2007 are currently being audited by California’s Franchise Tax Board. We do not expect that the results of these examinations will have a material effect on our financial condition or results of operations.

The provision for taxes on earnings from continuing operations, were as follows (in thousands):

	Year Ended December 31,
	2011		2010
Current:

Federal	$	—	$	(73	)
State	11		165
	11		92
Deferred:

Federal	—		—
State	—		—
Foreign	—		—
	—		—

Income Tax Expense	$	11	$	92

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory U.S. tax rate is as follows (in thousands):

	Year Ended December 31,
	2011					2010					2009

Pre tax income	$	(84,790	)			$	(61,251	)			$	(31,765	)

Statutory rate	(29,677		)	35.0	%	(21,438		)	35.0	%	(11,118		)	35.0	%
State income tax net of federal benefit	(4,870		)	5.7	%	(3,518		)	5.7	%	(1,825		)	5.7	%
Net change in federal valuation allowance	41,136			(48.5	)%	26,869			(43.9	)%	12,275			(38.6	)%
Tax credits	(4,202		)	5.0	%	(3,175		)	5.2	%	3,401			(10.7	)%
Expired NOL’s	—			—		—			—		(879		)	2.8	%
Noncontrolling interest	1,448			(1.7	)%	908			(1.5	)%	3,562			(11.2	)%
Deferred tax true-up	(4,236		)	5.0	%	—			—		—			—
Other	412			(0.5	)%	446			(0.7	)%	(2,225		)	7.0	%
Effective rate	$	11		(0.1	)%	$	92		(0.2	)%	3,191			(10.0	)%

Significant components of our deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follows (in thousands):

	Year Ended December 31,
	2011			2010
Deferred Tax Assets:
Net operating loss carryovers	$	195,399		$	148,688
R&D credits	44,970			38,989
Capitalized R&D	23,212			26,932
Deferred revenue	20,541			38,409
Accrued restructuring	10,888			10,888
Other	25,606			19,396
Total deferred tax assets	$	320,616		$	283,302

Deferred Tax Liabilities:
Convertible debt	$	(9,426	)	$	(12,275	)
Intangible and capital assets	(3,702		)	(5,156		)
Net deferred tax asset	$	307,488		$	265,871
Valuation allowance	(307,488		)	(265,871		)

Net deferreds	$	—		$	—

The deferred tax assets and liabilities shown above do not include certain deferred tax assets at December 31, 2011 and 2010 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Those deferred tax assets include non-qualified stock options and incentive stock options we issued. We will increase stockholders’ equity by approximately $10.3 million if and when we ultimately realize such deferred tax assets. We use tax return ordering for purposes of determining when excess tax benefits have been realized.

At December 31, 2011, we had federal and California tax net operating loss carryforwards of approximately $510.6 million and $428.1 million, respectively. The Federal and California tax loss carryforwards will expire at various dates starting in 2014, unless we use them before then. We also have federal and California research and development tax credit carryforwards of approximately $41.1 million and $16.0 million, respectively and federal Orphan Drug credits of $1.8 million. The Federal research and development tax credit carryforwards began expiring in 2004 and will continue to expire unless we use them before then. The California research and development tax credit carryforwards are available indefinitely. The difference between the tax loss carryforwards for federal and California purposes is attributable to the capitalization of research and development expenses for California tax purposes and the shorter carryforward periods related to the state loss carryforwards.

We analyze filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of being sustained.

The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled.

Reconciliation of unrecognized tax benefits (in thousands):

Unrecognized tax benefits balance at January 1, 2011	$	8,968
Decrease for prior period tax positions	(97		)
Increase for current period tax positions	963
Unrecognized tax benefits balance at December 31, 2011	$	9,834

The balance of unrecognized tax benefits at December 31, 2011 of $9.8 million are tax benefits that, if we recognize them, would not impact our effective tax rates as long as they remain subject to a full valuation allowance. The net effect on the deferred tax assets and corresponding decrease in the valuation allowance at December 31, 2011 resulting from unrecognized tax benefits is $742,000. We have not recognized any accrued interest and penalties related to unrecognized tax benefits during the year ended December 31, 2011 due to our NOL and research credit carryforwards. We do not foresee any material changes to unrecognized tax benefits within the next twelve months. We recognize interest and/or penalties related to income tax matters in income tax expense.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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Reference 2: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Collaborative Arrangements and Licensing Agreements

12 Months Ended

Dec. 31, 2011

Collaborative Arrangements and Licensing Agreements

Collaborative Arrangements and Licensing Agreements

8. Collaborative Arrangements and Licensing Agreements

Traditional Pharmaceutical Alliances and Licensing

Biogen Idec

In January 2012, we entered into a global collaboration agreement with Biogen Idec to develop and commercialize ISIS-SMNRx for the treatment of spinal muscular atrophy, or SMA. Because SMA is a severe and rare disease, we may have a relatively rapid path to market.

Under the terms of the agreement, we received an upfront payment of $29 million and are eligible to receive up to $45 million in substantive milestone payments associated with the clinical development of ISIS-SMNRx prior to licensing. We are responsible for global development of ISIS-SMNRx through the completion of Phase 2/3 registrational clinical trials. Biogen Idec has the option to license ISIS-SMNRx until completion of the first successful Phase 2/3 trial. If Biogen Idec exercises its option, it will pay us a license fee and will assume global development, regulatory and commercialization responsibilities. We may also receive up to $150 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. We will earn the next milestone payment of $18 million if we initiate the first Phase 2/3 study for ISIS-SMNRx. In addition, we will receive up to double-digit royalties on sales of ISIS-SMNRx if Biogen Idec successfully develops and commercializes ISIS-SMNRx after option exercise.

Bristol-Myers Squibb

In May 2007, we entered into a collaboration agreement with Bristol-Myers Squibb to discover, develop and commercialize novel antisense drugs targeting proprotein convertase subtilisin/kexin type 9, or PCSK9. As part of the collaboration, Bristol-Myers Squibb selected the first development candidate, BMS-PCSK9Rx, to move into development. In addition to the $15 million upfront fee, we earned $8 million in milestone payments related to the development of BMS-PCSK9Rx. The collaboration ended in December 2011, and we regained the rights to discover and develop antisense drugs to target PCSK9.

During 2011, 2010 and 2009, we earned revenue of $2.4 million, $12.2 million and $9.1 million, respectively, from Bristol-Myers Squibb, which represented 2 percent, 11 percent and 8 percent, respectively, of our total revenue for those years. Our balance sheet at December 31, 2011 included deferred revenue of $126,000 related to our relationship with Bristol-Myers Squibb.

Eli Lilly and Company

In August 2001, we formed a broad strategic relationship with Eli Lilly and Company, which included a joint research collaboration. As part of the collaboration, Eli Lilly and Company licensed LY2181308, an antisense inhibitor of survivin, and LY2275796, an antisense inhibitor of eIF-4E, or eukaryotic initiation factor-4E. Eli Lilly and Company is responsible for the development of LY2181308.

As of December 31, 2011, we had earned $4.1 million in license fees and milestone payments related to the continued development of LY2181308. We may receive additional substantive milestone payments aggregating up to $25 million, including up to $5 million for the achievement of development milestones, up to $8 million for the achievement of regulatory milestones and up to $12 million for the achievement of commercialization milestones. In addition, we will receive royalties on future product sales of the drug. We will earn the next milestone payment of $5 million if Eli Lilly and Company initiates a Phase 3 study of LY2181308.

In December 2009, we reacquired LY2275796, which we renamed ISIS-EIF4ERx, and we are continuing to develop the drug. Eli Lilly and Company has the right to reacquire ISIS-EIF4ERx on predefined terms prior to the initiation of Phase 3 development. However, if we publicly disclose the results from a Phase 2 clinical study of ISIS-EIF4ERx:

· Eli Lilly and Company may license ISIS-EIF4ERx on the predefined terms;

· Eli Lilly and Company may tell us it is not interested in licensing ISIS-EIF4ERx, in which case we may license ISIS-EIF4ERx to another partner; or

· Eli Lilly and Company may offer to license ISIS-EIF4ERx on terms that are lower than the predefined terms, in which case we may license ISIS-EIF4ERx to another partner so long as the licensing terms we reach with the new partner are better than terms offered by Eli Lilly and Company and we have not publicly disclosed any results from a new clinical study of ISIS-EIF4ERx prior to reaching the agreement with the new partner.

During 2009, we earned revenue from our relationship with Eli Lilly and Company totaling $75,000. During 2011 and 2010, we did not earn any revenue from our relationship with Eli Lilly and Company.

Genzyme Corporation, a Sanofi company

In January 2008, we entered into a strategic alliance with Genzyme focused on the licensing and co-development of KYNAMRO and a research relationship. The license and co-development agreement provides Genzyme with exclusive worldwide rights for all therapeutic purposes to our patents and know-how related to KYNAMRO, including the key product related patents, and their foreign equivalents pending or granted in various countries outside the United States, including in the European Union via the European Patent Convention, Japan, Canada, Australia, South Africa and India. In addition, we agreed that we would not develop or commercialize another oligonucleotide-based compound designed to modulate apolipoprotein B-100 by binding to the messenger RNA, or mRNA, encoding apolipoprotein B-100, throughout the world.

The transaction, which closed in June 2008, included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock, and a share of worldwide profits on KYNAMRO and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales. We may also receive over $1.5 billion in substantive milestone payments if Genzyme achieves pre-specified events, including up to $750 million for the achievement of regulatory milestones and up to $825 million for the achievement of commercialization milestones. The next milestone payment we could earn under our agreement with Genzyme is $25 million when the FDA accepts the NDA for KYNAMRO.

Under this alliance, Genzyme is responsible for the continued development and commercialization of KYNAMRO. We agreed to supply the active pharmaceutical ingredient for KYNAMRO for the Phase 3 clinical trials and initial commercial launch. Genzyme is responsible for manufacturing the finished drug product for KYNAMRO, including the initial commercial launch supply, and, if approved, Genzyme will be responsible for the long term supply of KYNAMRO drug substance and finished drug product. As part of the agreement, we contributed the first $125 million in funding for the development costs of KYNAMRO and now we and Genzyme share development costs equally. In addition, as part of our alliance, Genzyme has a first right of negotiation for ISIS-SOD1Rx.

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

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

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

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

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

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

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

The price Genzyme paid for our common stock represented a significant premium over the fair value of our common stock. We are amortizing this $100 million premium along with the $175 million licensing fee that we received in the second quarter of 2008 ratably into revenue until June 2012, which represents the end of our performance obligation based on the current research and development plan. During 2011, 2010 and 2009, we earned revenue of $72.3 million, $66.9 million and $66.4 million, respectively, primarily related to the upfront payments we received from Genzyme, which represented 73 percent, 62 percent and 55 percent, respectively, of our total revenue for those years. Our balance sheets at December 31, 2011 and 2010 included deferred revenue of $27.7 million and $94.1 million, respectively, related to our relationship with Genzyme.

GlaxoSmithKline

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

As of December 31, 2011, we have received $53 million from GSK, including the $35 million upfront payment, $15 million in development milestone payments and the $3 million payment we received in May 2011 when GSK expanded the collaboration by initiating a sixth program.

We are also eligible to receive on average up to $20 million in milestone payments per program up to Phase 2 proof-of-concept. GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and will be responsible for all further development and commercialization. If GSK successfully develops all six programs for one or more indications and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of more than $1.4 billion, including up to $358.5 million for the achievement of development milestones, up to $581.5 million for the achievement of regulatory milestones and up to $495 million for the achievement of commercialization milestones. We will earn the next milestone payment of $2 million if we demonstrate in-vivo efficacy for the next drug discovery target. In addition, we will receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance.

During 2011 and 2010, we earned revenue of $17.7 million and $10.3 million, respectively, from our relationship with GSK, which represented 18 percent and nine percent, respectively, of our total revenue for those years. Our balance sheets at December 31, 2011 and 2010 included deferred revenue of $25.3 million and $29.8 million, respectively, related to the upfront and expansion payments.

Ortho-McNeil-Janssen Pharmaceuticals, Inc., formerly Ortho-McNeil, Inc.

In September 2007, we entered into a collaboration with Ortho-McNeil-Janssen Pharmaceuticals, or OMJP, to discover, develop and commercialize antisense drugs to treat metabolic diseases, including type 2 diabetes. As part of the collaboration, we granted OMJP worldwide development and commercialization rights to two of our diabetes programs, our glucagon receptor, or GCGR, and glucocorticoid receptor, or GCCR, programs. The collaboration ended and we regained the rights to drugs from both of these programs. We are developing more potent inhibitors for our GCGR and GCCR programs, which we identified as part of our collaboration with OMJP.

During 2009 we earned revenue of $18.4 million under this collaboration, which represented 15 percent of our total revenue for that year. During 2011 and 2010, we did not earn any revenue from our relationship with OMJP.

Satellite Company Collaborations

Achaogen, Inc.

In 2006, we exclusively outlicensed to Achaogen, Inc. specific know-how, patents and patent applications relating to aminoglycosides. In exchange, Achaogen agreed to certain payment obligations related to aminoglycosides Achaogen developed. Aminoglycosides are a class of small molecule antibiotics that inhibit bacterial protein synthesis and that physicians use to treat serious bacterial infections. Achaogen is developing plazomicin, an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen. Plazomicin has displayed broad-spectrum activity in animals against multi-drug resistant gram-negative bacteria that cause systemic infections, including E. coli. The compound has also demonstrated activity against methicillin-resistant staphylococcus aureus, or MRSA.

In connection with the license, Achaogen issued to us $1.5 million of Achaogen Series A Preferred Stock. Since early 2009, we have received $3 million from Achaogen, $500,000 which was in Achaogen securities, as Achaogen has advanced plazomicin in development. In addition, assuming Achaogen successfully develops and commercializes the first two drugs under our agreement, we may receive payments totaling up to $46.3 million for the achievement of key clinical, regulatory and sales events. We will also receive royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development of plazomicin. During 2010 and 2009, we earned $2 million and $500,000, respectively, in revenue from our relationship with Achaogen, which does not include any revenue from the equity we received from Achaogen. During 2011, we did not earn any revenue from our relationship with Achaogen. At December 31, 2011 and 2010, we owned less than 10 percent of Achaogen’s equity.

Alnylam Pharmaceuticals, Inc.

In March 2004, we entered into a strategic alliance with Alnylam to develop and commercialize RNA interference, or RNAi, therapeutics. Under the terms of the agreement, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees for Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. For each drug Alnylam develops under this alliance, we may receive up to $3.4 million in substantive milestone payments, including up to $1.1 million for the achievement of development milestones and $2.3 million for regulatory milestones. In December 2010, we earned a $375,000 milestone payment from Alnylam for the initiation of a Phase 1 study in their transthyretin, or TTR, program. We will earn the next milestone payment of $750,000 if Alnylam initiates a Phase 3 study for TTR. We retained rights to a limited number of double-stranded RNAi therapeutic targets and all rights to single-stranded RNAi, or ssRNAi, therapeutics. We also made a $10 million equity investment in Alnylam at the time of the agreement. During 2007, 2006 and 2005, we sold our holdings of Alnylam stock resulting in aggregate net cash proceeds of $12.2 million and a net gain on investments of $6.2 million. At December 31, 2011, we did not own any shares of Alnylam.

In turn, Alnylam nonexclusively licensed to us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize ssRNAi therapeutics and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of therapeutic targets on a nonexclusive basis. If we develop or commercialize an RNAi-based drug using Alnylam’s technology, we will pay Alnylam milestone payments and royalties. For each drug, the potential milestone payments to Alnylam total $3.4 million, which we will pay if we achieve specified development and regulatory events. As of December 31, 2011, we did not have an RNAi-based drug in clinical development. Our Alnylam alliance provides us with an opportunity to realize substantial value from our pioneering work in antisense mechanisms and oligonucleotide chemistry and is an example of our strategy to participate in all areas of RNA-targeting drug discovery.

In April 2009, we and Alnylam amended our strategic collaboration and license agreement to form a new collaboration focused on the development of ssRNAi technology. Under the terms of the amended collaboration and license agreement, Alnylam paid us an upfront license fee of $11 million plus $2.6 million of research and development funding in 2009 and 2010. In November 2010, Alnylam terminated the ssRNAi research program and we recognized $4.9 million of revenue from the upfront fee that we were amortizing into revenue over the research term. As a result, any licenses to ssRNAi products we granted to Alnylam under the agreement, and any of Alnylam’s obligations to pay milestone payments, royalties or sublicense payments to us for ssRNAi products under the agreement, terminated. We continue to advance the development of ssRNAi technology and during the course of the collaboration, we made improvements in the activity of ssRNAi compounds, including increased efficacy and potency and enhanced distribution.

As of December 31, 2011, we had earned a total of $37.1 million from Alnylam resulting from sublicenses of our technology for the development of RNAi therapeutics that Alnylam has granted to pharmaceutical partners.

During 2011, 2010 and 2009, we earned revenue from our relationship with Alnylam totaling $375,000, $10.3 million and $5.0 million, respectively, representing less than one percent, nine percent and four percent, respectively, of our total revenue for those years.

Antisense Therapeutics Limited

In December 2001, we licensed ATL1102 to ATL, an Australian company publicly traded on the Australian Stock Exchange and in February 2008, ATL licensed ATL1102 to Teva Pharmaceutical Industries Ltd. From early 2008 until early 2010, when Teva terminated the licensing agreement for ATL1102, we earned $3.4 million as Teva advanced the development of ATL1102. In March 2010, Teva terminated the licensing agreement for ATL1102 and returned rights to the drug to ATL.

In addition to ATL1102, ATL is currently developing ATL1103 for growth and sight disorders. ATL1103 is a product of our joint antisense drug discovery and development collaboration. Over the last two years, ATL has raised nearly $3 million that it is using to advance ATL1103. ATL pays us for access to our antisense expertise and for research and manufacturing services we may provide to ATL. In October 2009, we agreed to manufacture ATL1103 drug product for ATL in return for 18.5 million shares of ATL’s common stock. Additionally, ATL will pay royalties to us on sales of ATL1102 and ATL1103. We may also receive a portion of the fees ATL receives if it licenses ATL1102 or ATL1103.

At December 31, 2011 and 2010, we owned less than 10 percent of ATL’s equity. During 2011, 2010 and 2009, we earned revenue of $210,000, $35,000, and $401,000, respectively, from our relationship with ATL. Our balance sheet at December 31, 2010 included deferred revenue of $210,000 related to our relationship with ATL.

Atlantic Pharmaceuticals Limited, formerly Atlantic Healthcare (UK) Limited

In March 2007, we licensed alicaforsen to Atlantic Pharmaceuticals, a UK-based specialty pharmaceutical company founded in 2006, which is developing alicaforsen for the treatment of ulcerative colitis, or UC, and other inflammatory diseases. Atlantic Pharmaceuticals is initially developing alicaforsen for pouchitis, a UC indication, followed by UC and other inflammatory diseases. In exchange for the exclusive, worldwide license to alicaforsen, we received a $2 million upfront payment from Atlantic Pharmaceuticals in the form of equity. In September 2010, we participated in Atlantic Pharmaceuticals’ financing by agreeing to sell to Atlantic Pharmaceuticals alicaforsen drug substance in return for shares of Atlantic Pharmaceuticals’ common stock. At December 31, 2011 and 2010, we owned approximately 12 percent of Atlantic Pharmaceuticals’ equity. Because realization of the upfront equity payment is uncertain, we recorded a full valuation allowance.

Under the agreement, we could receive substantive milestone payments totaling up to $1.4 million for the achievement of regulatory milestones for multiple indications. We will earn the next milestone payment of $600,000 if Atlantic Pharmaceuticals submits an NDA for alicaforsen with the FDA. We will also receive royalties on product sales of alicaforsen. Atlantic Pharmaceuticals is solely responsible for the continued development of alicaforsen. In 2010, Atlantic Pharmaceuticals announced that in response to requests received from healthcare professionals, it was to supply alicaforsen under international Named Patient Supply regulations for patients with inflammatory bowel disease, or IBD. Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen. During 2011, 2010 and 2009, we did not earn any revenue from our relationship with Atlantic Pharmaceuticals.

AVI BioPharma, Inc., formerly Ercole Biotech, Inc.

In May 2003, we and Ercole entered an agreement in which each party cross-licensed its respective intellectual property related to alternative RNA splicing. As part of the agreement, we granted Ercole an additional license to some of our chemistry patents. Assuming Ercole successfully develops and commercializes a drug incorporating the splicing technology or chemistry we licensed to Ercole, we may receive payments totaling up to $21 million for the achievement of key clinical, regulatory and sales events. We will also receive royalties on sales of these drugs. Ercole is solely responsible for the continued development of its drugs.

Similarly, if we successfully develop and commercialize a drug incorporating the splicing technology Ercole licensed to us, we will pay Ercole up to $21 million for the achievement of key clinical, regulatory and sales events and will also pay royalties to Ercole on sales of these drugs. We currently do not have a drug incorporating Ercole’s technology in clinical development.

In March 2008, AVI BioPharma, Inc. acquired Ercole’s rights and obligations under the collaboration agreement. As a result of our collaboration agreement with Ercole, as part of the acquisition, we received a warrant to purchase 238,228 shares of AVI’s common stock at an exercise price of $0.1679 per share, and a warrant to purchase 207,757 shares of AVI’s common stock at an exercise price of $3.61 per share. During 2011, 2010 and 2009, we did not earn any revenue from our relationship with Ercole.

Excaliard Pharmaceuticals, Inc., a wholly owned subsidiary of Pfizer Inc.

In November 2007, we entered into a collaboration with Excaliard to discover and develop antisense drugs for the local treatment of fibrotic diseases, including scarring. We granted Excaliard an exclusive worldwide license for the development and commercialization of certain antisense drugs. Excaliard made an upfront payment to us in the form of equity and paid us $1 million in cash for the licensing of an antisense oligonucleotide drug targeting expression of connective tissue growth factor, or CTGF, that is activated during skin scarring following the wound healing process.

In 2010 and 2011, we participated in Excaliard’s financings at nominal amounts to maintain our ownership percentage. In December 2011, Pfizer Inc. acquired Excaliard. We received $4.4 million and we are eligible to receive up to an additional $9.6 million from the sale of our equity ownership in Excaliard to Pfizer Inc. In addition, we will continue to be eligible for milestone and royalty payments under our licensing agreement for EXC 001. Assuming Excaliard successfully develops and commercializes drugs it licenses from us, we may receive substantive milestone payments totaling up to $47.7 million for the achievement of key development and regulatory milestones, including up to $7.7 million for the achievement of development milestones and up to $40 million for the achievement of regulatory milestones. We will earn the next milestone payment of $1.5 million upon initiation of a Phase 3 study for EXC 001. We will also receive royalties on antisense drugs that Excaliard develops and commercializes. We may also receive a portion of the fees Excaliard receives if it licenses drugs from our collaboration.

At December 31, 2011, we owned no equity in Excaliard, and we have no remaining performance obligations. During 2011 we did not earn any revenue from our relationship with Excaliard. During 2010 and 2009, we earned revenue of $3,000 and $290,000, respectively, from our relationship with Excaliard.

iCo Therapeutics Inc.

In August 2005, we granted a license to iCo for the development and commercialization of iCo-007. iCo is developing iCo-007 for the treatment of various eye diseases caused by the formation and leakage of new blood vessels such as diabetic macular edema and diabetic retinopathy. iCo paid us a $500,000 upfront fee and may pay us substantive milestone payments totaling up to $48.4 million for the achievement of development and regulatory milestones for multiple indications, including up to $7.9 million for the achievement of development milestones and up to $40.5 million for the achievement of regulatory milestones. We will receive the next milestone payment of $4 million if iCo initiates a Phase 3 study for iCo-007. In addition, we will receive royalties on any product sales of this drug. Under the terms of the agreement, iCo is solely responsible for the development and commercialization of the drug. In September 2007, iCo initiated Phase 1 clinical trials for iCo-007 and we earned a milestone payment of $1.25 million in the form of 936,875 shares of iCo’s common stock.

Over the course of our relationship, iCo has paid us in a combination of cash, common stock and convertible notes. In February 2009, iCo completed a CAD $1.3 million financing to fund the completion of its Phase 1 clinical study of iCo-007. We participated in the financing at a nominal amount to maintain our ownership percentage. In January 2010, we exercised the warrants we held to purchase 1.1 million shares of iCo’s common stock and as a result our ownership in iCo at December 31, 2011 and 2010 was approximately 12 percent. During 2011, 2010 and 2009 we earned revenue of $7,000, $7,000 and $14,000, respectively, from our relationship with iCo.

OncoGenex Technologies Inc., a subsidiary of OncoGenex Pharmaceuticals Inc.

In November 2001, we established a drug development collaboration with OncoGenex, a biotechnology company committed to the development of cancer therapeutics for patients with drug resistant and metastatic cancers, to co-develop and commercialize OGX-011, an anti-cancer antisense drug that targets clusterin. In July 2008, we and OncoGenex amended the co-development agreement pursuant to which OncoGenex became solely responsible for the costs, development and commercialization of OGX-011. In exchange, OncoGenex agreed to pay us royalties on sales of OGX-011 and to share consideration it receives from licensing OGX-011 to a third party, except for consideration OncoGenex receives for the fair market value of equity and reimbursement of research and development expenses.

Under the amended agreement, we assigned to OncoGenex our rights in the patents claiming the composition and therapeutic methods of using OGX-011 and granted OncoGenex a worldwide, nonexclusive license to our know-how and patents covering our core antisense technology and manufacturing technology solely for use with OGX-011. The key product-related patent that we assigned to OncoGenex was U.S. Patent number 6,900,187 having an expiration date of at least 2020; and the key core antisense technology patents we licensed OncoGenex are U.S. Patent number 7,919,472 having an expiration date of 2026 and its foreign equivalents pending in Australia, Canada, the European Patent Convention and Japan. In addition, we agreed that so long as OncoGenex or its commercialization partner is using commercially reasonable efforts to develop and commercialize OGX-011, we will not research, develop or commercialize an antisense compound designed to modulate clusterin. The amended agreement will continue until OncoGenex or its commercialization partner is no longer developing or commercializing OGX-011 or until we terminate the agreement for OncoGenex’s uncured failure to make a payment required under the agreement.

In December 2009, OncoGenex granted Teva the exclusive worldwide right and license to develop and commercialize any products containing OGX-011 and related compounds, with OncoGenex having an option to co-promote OGX-011 in the United States and Canada, for which we received $10 million of the upfront payment OncoGenex received from Teva. We are also eligible to receive 30 percent of up to $370 million in payments OncoGenex may receive from Teva in addition to royalties on sales of OGX-011 ranging between 3.88 percent and seven percent. Under the agreement, this royalty is due on a country- by-country basis until the later of ten years following the first commercial sale of OGX-011 in the relevant country, and the expiration of the last patent we assigned or licensed to OncoGenex that covers the making, using or selling of OGX-011 in such country.

To facilitate the execution and performance of OncoGenex’s agreement with Teva, we and OncoGenex amended our license agreement primarily to give Teva the ability to cure any future potential breach by OncoGenex under our agreement. As part of this amendment, OncoGenex agreed that if OncoGenex is the subject of a change of control with a third party, where the surviving entity immediately following such change of control has the right to develop and sell OGX-011, then a payment of $20 million will be due and payable to us 21 days following the first commercial sale of the product in the United States. Any non-royalty payments OncoGenex previously paid to us are creditable towards the $20 million payment, so as a result of the $10 million payment we received from OncoGenex related to its license to Teva, the remaining amount owing in the event of a change of control as discussed above is a maximum of $10 million.

In August 2003, we and OncoGenex entered into a separate collaboration and license agreement for the development of a second-generation antisense anti-cancer drug, OGX-225. OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. OncoGenex issued to us $750,000 of OncoGenex securities as payment for an upfront fee. In addition, OncoGenex will pay us substantive milestone payments totaling up to $3.5 million for the achievement of development and regulatory milestones, including up to $1.5 million for the achievement of development milestones and up to $2 million for the achievement of regulatory milestones. In addition, we will receive royalties on future product sales of the drug. As of December 31, 2011, OncoGenex had not achieved any milestone events related to OGX-225. We will earn the next milestone payment of $500,000 if OncoGenex initiates a Phase 2 study for OGX-225.

In January 2005, we entered into a further agreement with OncoGenex to allow for the development of an additional second-generation antisense anti-cancer drug. Under the terms of the agreement, OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. In April 2005, OncoGenex selected OGX-427 to develop under the collaboration. OncoGenex will pay us substantive milestone payments totaling up to $5.8 million for the achievement of key development and regulatory milestones, including up to $1.3 million for the achievement of development milestones and up to $4.5 million for the achievement of regulatory milestones. In addition, we will receive royalties on future product sales of the drug. In January 2011, we earned a $750,000 milestone payment related to OncoGenex’s Phase 2 trial in men with metastatic prostate cancer. We will earn the next milestone payment of $1.3 million if OncoGenex initiates a Phase 3 study for OGX-427.

During 2009, we sold the OncoGenex common stock we owned resulting in net cash proceeds of $2.8 million. We no longer own any shares of OncoGenex. During 2011 and 2009, we earned $750,000 and $11.4 million, respectively, in revenue from our relationship with OncoGenex. During 2010, we did not earn any revenue from our relationship with OncoGenex. Our balance sheet at December 31, 2010 included deferred revenue of $750,000 related to our relationship with OncoGenex.

Xenon Pharmaceuticals Inc.

In November 2010, we established a collaboration with Xenon to discover and develop antisense drugs as novel treatments for the common disease anemia of inflammation, or AI. AI is the second most common form of anemia worldwide and physicians associate a wide variety of conditions including infection, cancer and chronic inflammation with AI. We received an upfront payment in the form of a convertible promissory note from Xenon to discover and develop antisense drugs to the targets hemojuvelin and hepcidin. In addition to license and option fees, we are eligible to receive development and commercial milestone payments and royalties on sales of drugs licensed to Xenon under the collaboration and a portion of sublicense revenue. If Xenon identifies a development candidate, Xenon may take an exclusive license for the development and worldwide commercialization for that development candidate.

Under our collaboration agreement with Xenon we may receive up to $300 million in substantive milestone payments for multiple indications upon the achievement of pre-specified events, including up to $30 million for the achievement of development milestones, up to $150 million for the achievement of regulatory milestones and up to $120 million for the achievement of commercialization milestones. We will earn the next milestone payment of $2 million if Xenon selects a development candidate. During 2011, we earned revenue of $80,000 and during 2010 we did not earn any revenue from our relationship with Xenon.

External Project Funding

CHDI Foundation, Inc.

In August 2011, we renewed our collaboration with CHDI, which we initially entered into in November 2007, to provide us with funding for the discovery and development of an antisense drug for the treatment of Huntington’s disease. CHDI’s funding builds upon an earlier successful collaboration between us and CHDI, in which CHDI funded proof-of-concept studies that demonstrated the feasibility of using antisense drugs to treat Huntington’s disease. Under the terms of the new collaboration, we will receive funding from CHDI to identify and conduct IND-enabling studies on an antisense drug targeting the huntingtin gene. If we grant a license to a third party to commercialize our Huntington’s disease program, we and CHDI will evenly split the proceeds from the license until CHDI has recouped its funding together with a return determined at a predefined interest rate. Thereafter, we will keep the full amount of any additional proceeds. In addition, CHDI reimbursed us for approximately $1.6 million of research-related expenses we incurred after the earlier collaboration ended in 2010, which we are amortizing over the period of our performance obligation. During 2011 and 2009, we earned revenue of $2.4 million and $1.7 million, respectively, from our relationship with CHDI. In 2010, we did not earn any revenue from our relationship with CHDI. Our balance sheet at December 31, 2011 included deferred revenue of $568,000 related to our relationship with CHDI.

ALS Association; The Ludwig Institute; Center for Neurological Studies; Muscular Dystrophy Association

In October 2005, we entered into a collaboration agreement with the Ludwig Institute, the Center for Neurological Studies and researchers from these institutions to discover and develop antisense drugs in the areas of amyotrophic lateral sclerosis, or ALS, and other neurodegenerative diseases. Under this agreement, we agreed to pay the Ludwig Institute and Center for Neurological Studies modest milestone payments and royalties on any antisense drugs resulting from the collaboration. The researchers from the Ludwig Institute and Center for Neurological Studies, through funding from the ALS Association and the Muscular Dystrophy Association, conducted IND-enabling preclinical studies of ISIS-SOD1RX. The ALS Association and the Muscular Dystrophy Association also provided funding to offset the costs of the Phase 1 study of ISIS-SOD1RX. Except for the funding the ALS Association and the Muscular Dystrophy Association provided, we control and are responsible for funding the continued development of ISIS-SOD1RX.

Intellectual Property Sale and Licensing Agreements

Out-Licensing Arrangements; Royalty Sharing Agreements; Sales of IP

Abbott Molecular Inc.

In January 2009, we sold our former subsidiary, Ibis Biosciences, to AMI pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below.

Under the stock purchase agreement, AMI will pay us earn out payments equal to a percentage of Ibis’ revenue related to sales of Ibis systems, including instruments, assay kits and successor products, from the date of the acquisition closing through December 31, 2025. The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion. AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events. During 2011, 2010 and 2009 we did not earn any revenue from our relationship with AMI.

Eyetech Pharmaceuticals, Inc.

In December 2001, we licensed to Eyetech certain of our patents necessary for Eyetech to develop, make and commercialize Macugen, a non-antisense drug for use in the treatment of ophthalmic diseases, that Eyetech is developing and commercializing with Pfizer Inc. Eyetech paid us a $2 million upfront fee and agreed to pay us for the achievement of pre-specified events and royalty payments in exchange for non-exclusive, worldwide rights to the intellectual property licensed from us. During 2004, we earned $4 million in payments, and our license with Eyetech may also generate additional payments aggregating up to $2.8 million for the achievement of specified regulatory events with respect to the use of Macugen for each additional therapeutic indication. Prior to 2010, we had assigned our rights to receive royalties for Macugen to Drug Royalty Trust 3. During 2009, because of our agreement with Drug Royalty Trust 3, we did not earn any revenue from our relationship with Eyetech. In 2011 and 2010, we earned $790,000 and $567,000, respectively, of revenue related to royalties for Macugen under our license to Eyetech.

Roche Molecular Systems

In October 2000, we licensed some of our novel chemistry patents to Roche Molecular Systems, a business unit of Roche Diagnostics, for use in the production of Roche Molecular Systems’ diagnostic products. The royalty-bearing license grants Roche Molecular Systems non-exclusive worldwide access to some of our proprietary chemistries in exchange for initial and ongoing payments from Roche Molecular Systems to us. In April 2011, we expanded our relationship with Roche Molecular Systems by granting Roche Molecular Systems a non-exclusive license to additional technology for research and diagnostic uses. During 2011, 2010 and 2009, we earned revenue of $828,000, $1.8 million and $1.3 million, respectively, from our relationship with Roche Molecular Systems. Our balance sheet at December 31, 2011 included deferred revenue of $300,000 related to our agreements with Roche Molecular Systems.

In-Licensing Arrangements

Idera Pharmaceuticals, Inc., formerly Hybridon, Inc.

We have an agreement with Idera under which we acquired an exclusive license to all of Idera’s antisense chemistry and delivery technology related to our second generation antisense drugs and to double-stranded siRNA therapeutics. Idera retained the right to practice its licensed antisense patent technologies and to sublicense their technologies to collaborators under certain circumstances. In addition, Idera received a non-exclusive license to our suite of ribonuclease H, or RNase H, patents. During 2011, 2010 and 2009 we earned revenue of $10,000, $20,000 and $10,000, respectively, from our relationship with Idera.

Integrated DNA Technologies, Inc.

In March 1999, we further solidified our intellectual property leadership position in antisense technology by licensing certain antisense patents from Integrated DNA Technologies, Inc., or IDT, a leading supplier of antisense inhibitors for research. The patents we licensed from IDT are useful in functional genomics and in making our second-generation chemistry. We expect these patents will expire in February 2013. Under the license, we paid IDT $4.9 million in license fees in 2001 and we will pay royalties on sales of any drugs utilizing the technology we licensed from IDT until the patents expire.

University of Massachusetts

We have a license agreement with the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to ISIS-SMNRx. If we successfully develop and commercialize a drug incorporating the technology we licensed from the University of Massachusetts, we will pay milestone payments to the University of Massachusetts totaling up to $500,000 for the achievement of key clinical and regulatory milestones. In addition, we will pay the University of Massachusetts a portion of any sublicense revenue we receive from sublicensing its technology, and a royalty on sales of ISIS-SMNRx in the United States if our product incorporates the technology we licensed from the University of Massachusetts.

Verva Pharmaceuticals Ltd.

We have a license agreement with Verva under which we acquired an exclusive license to Verva’s antisense patent rights related to ISIS-FGFR4Rx. If we successfully develop and commercialize a drug incorporating the technology Verva licensed to us, we will pay milestone payments to Verva totaling up to $6.1 million for the achievement of key patent, clinical, and regulatory milestones. If we convert our license from an exclusive license to a nonexclusive license we could significantly reduce the milestone payments due to Verva. In addition, we will also pay royalties to Verva on sales of ISIS-FGFR4Rx if our product incorporates the technology we licensed from Verva.

Cold Spring Harbor Laboratory

We have a collaboration and license agreement with the Cold Spring Harbor Laboratory under which we acquired an exclusive license to the Cold Spring Harbor Laboratory’s patent rights related to ISIS-SMNRx. If we successfully develop and commercialize a drug incorporating the technology we licensed from the Cold Spring Harbor Laboratory, we will pay milestone payments to the Cold Spring Harbor Laboratory totaling up to $800,000 for the achievement of key clinical and regulatory milestones. In addition, we will pay the Cold Spring Harbor Laboratory a portion of any sublicense revenue we receive from sublicensing the Cold Spring Harbor Laboratory’s technology, and a royalty on sales of ISIS-SMNRx if our product incorporates the technology we licensed from the Cold Spring Harbor Laboratory.

Segment Information and Concentration of Business Risk

12 Months Ended

Dec. 31, 2011

Segment Information and Concentration of Business Risk

Segment Information and Concentration of Business Risk

9. Segment Information and Concentration of Business Risk

Segment Information

Prior to 2011, we reported our results in two separate segments: Drug Discovery and Development and Regulus. Beginning in 2011, we no longer consider Regulus as an operating segment because our chief decision making officer no longer reviews Regulus’ operating results for purposes of making resource allocations. Therefore we now only operate in, and will provide financial information and results for, our Drug Discovery and Development operations.

Our Drug Discovery and Development operations generate revenue from collaborations with corporate partners and from licensing proprietary patent rights. Revenue from collaborations with corporate partners may consist of upfront payments, funding for research and development activities, milestone payments and royalties or profit sharing payments. Our proprietary technology to discover and characterize novel antisense inhibitors has enabled our scientists to modify the properties of our antisense drugs for optimal use with particular targets and thus, to produce a broad proprietary portfolio of drugs applicable to many disease targets.

Concentrations of Business Risk

We have historically funded our operations from collaborations with corporate partners and a relatively small number of partners have accounted for a significant percentage of our revenue. Revenue from significant partners, which is defined as 10 percent or more of our total revenue, was as follows:

	2011		2010		2009
Partner A	73	%	62	%	55	%
Partner B	2	%	11	%	8	%
Partner C	0	%	0	%	15	%
Partner D	18	%	9	%	2	%

Contract receivables from one significant partner comprised approximately 85 percent of our contract receivables at December 31, 2011. Contract receivables from two significant partners comprised approximately 30 percent and 15 percent of our contract receivables at December 31, 2010. Included in our contract receivables at December 31, 2010 was $544,000, representing 44 percent of our contract receivables, due from Regulus.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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+ Details

Employee Post Employment Benefits

12 Months Ended

Dec. 31, 2011

Employee Post Employment Benefits

Employee Post Employment Benefits

10. Employee Post Employment Benefits

We have an employee 401(k) salary deferral plan, covering all employees. Employees may make contributions by withholding a percentage of their salary up to the IRS annual limit ($16,500 and $22,000 in 2011 for employees under 50 years old and over 50 years old, respectively). We made approximately $487,000, $449,000 and $450,000 in matching contributions for the years ended December 31, 2011, 2010 and 2009, respectively.

- Definition

The entire disclosure for pension and other postretirement benefits.

+ References

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+ Details

Legal Proceedings

12 Months Ended

Dec. 31, 2011

Legal Proceedings

Legal Proceedings

11. Legal Proceedings

In September 2011, we filed a patent infringement lawsuit against Santaris Pharma A/S and Santaris Pharma A/S Corp. in the United States District Court of the Southern District of California. Our infringement lawsuit alleges that Santaris’ activities providing antisense drugs and antisense drug discovery services to several pharmaceutical companies infringes U.S. Patent No. 6,326,199, entitled “Gapped 2’ Modified Oligonucleotides” and U.S. Patent No. 6,066,500, entitled “Antisense Modulation of Beta Catenin Expression.” In the lawsuit we are seeking monetary damages and an injunction enjoining Santaris from conducting or participating in the infringing activities. In December 2011, Santaris filed an answer to our complaint, denying our allegations, and seeking a declaration from the court that Santaris has not, and does not, infringe the patents we asserted against Santaris in the suit. In January 2012, Santaris filed a motion for summary judgment asking the court to decide as a matter of law that Santaris’ activities do not infringe the patents we assert in the suit.

In January 2012, Alnylam Pharmaceuticals, Inc. filed a patent infringement lawsuit against Tekmira Pharmaceuticals Corporation in the U.S. District Court of the District of Massachusetts. Alnylam’s lawsuit alleges Tekmira has infringed a number of issued patents related to siRNA and LNP technologies, including: U.S. Patent No. 7,695,902; U.S. Patent No. 6,858,225; U.S. Patent No. 6,815,432; U.S. Patent No. 6,534,484; U.S. Patent No. 6,586,410; and, U.S. Patent No. 6,858,224. Under Alnylam’s contractual right to enforce Isis’ patent U.S. Patent No. 7,695,902, Alnylam joined us to the suit as a co-plaintiff.

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

12. Quarterly Financial Data (Unaudited)

The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for the years ended December 31, 2011 and 2010 are as follows (in thousands, except per share data).

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2011 Quarters
Revenue	$	21,147		$	24,823		$	20,713		$	32,403
Operating expenses	37,255			38,883			43,029			51,019
Loss from operations	(16,108		)	(14,060		)	(22,316		)	(18,616		)
Net loss attributable to Isis Pharmaceuticals, Inc. common stockholders	$	(19,994	)	$	(17,889	)	$	(26,882	)	$	(20,036	)
Basic and diluted net loss attributable to Isis Pharmaceuticals, Inc. common stockholders(1)	$	(0.20	)	$	(0.18	)	$	(0.27	)	$	(0.20	)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2010 Quarters
Revenue	$	29,926		$	23,503		$	28,624		$	26,420
Operating expenses	34,806			42,175			37,571			42,277
Loss from operations	(4,880		)	(18,672		)	(8,947		)	(15,857		)
Net loss attributable to Isis Pharmaceuticals, Inc. common stockholders	$	(9,658	)	$	(25,154	)	$	(12,454	)	$	(13,985	)
Basic and diluted net loss attributable to Isis Pharmaceuticals, Inc. common stockholders(1)	$	(0.10	)	$	(0.25	)	$	(0.13	)	$	(0.14	)

(1) We computed net loss per share independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share will not necessarily equal the total for the year.

- Definition

The entire disclosure for the quarterly financial data in the annual financial statements. The disclosure may include a tabular presentation of financial information for each fiscal quarter for the current and previous year, including revenues, gross profit, income or loss before extraordinary items and earnings per share data. It also includes an indication if the information in the note is unaudited, comments on the aggregate effect of year-end adjustments, and an explanation of matters or transactions that affect comparability or are pertinent to an understanding of the information furnished.

+ References + Details

Organization and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2011

Organization and Significant Accounting Policies

Basis of presentation, organization and business activity

Basis of Presentation

Basic and diluted net income (loss) per share

Basic and diluted net income (loss) per share

· 25/8 percent convertible subordinated notes;

· GlaxoSmithKline convertible promissory notes;

· Dilutive stock options; and

· Warrants issued to Symphony GenIsis Holdings LLC.

In April 2011, Symphony GenIsis Holdings LLC exercised the remaining warrants.

Revenue Recognition

Revenue Recognition

Research and development revenue under collaborative agreements