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Document and Entity Information - USD ($)	12 Months Ended
Dec. 31, 2012	Feb. 21, 2013	Jun. 30, 2012
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, 2012
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			$ 1,011,059,448
Entity Common Stock, Shares Outstanding		101,826,748
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 124,482	$ 65,477
Short-term investments	249,964	278,187
Contracts receivable	522	6,921
Inventories	6,121	4,139
Investment in Regulus Therapeutics Inc.	33,622
Other current assets	8,727	5,415
Total current assets	423,438	360,139
Property, plant and equipment, net	91,084	96,615
Licenses, net	6,579	9,036
Patents, net	18,646	16,259
Deposits and other assets	5,939	2,845
Total assets	545,686	484,894
Current liabilities:
Accounts payable	10,239	8,300
Accrued compensation	7,878	9,183
Accrued liabilities	15,401	18,655
Current portion of long-term obligations	4,879	3,390
Current portion of deferred contract revenue	35,925	36,584
Total current liabilities	74,322	76,112
Long-term deferred contract revenue	66,656	17,474
2 3/4 percent convertible senior notes	143,990
2 5/8 percent convertible subordinated notes		141,448
Long-term obligations, less current portion	7,402	4,125
Long-term financing liability for leased facility	70,550	69,877
Investment in Regulus Therapeutics Inc.		4,424
Total liabilities	362,920	313,460
Stockholders' equity:
Common stock, $0.001 par value; 200,000,000 shares authorized, 101,481,134 and 100,042,976 shares issued and outstanding at December 31, 2012 and 2011, respectively	102	100
Additional paid-in capital	1,077,150	1,013,592
Accumulated other comprehensive income (loss)	12,480	(770)
Accumulated deficit	(906,966)	(841,488)
Total stockholders' equity	182,766	171,434
Total liabilities and stockholders' equity	$ 545,686	$ 484,894

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenue:
Research and development revenue under collaborative agreements	$ 99,100	$ 96,190	$ 102,921
Licensing and royalty revenue	2,949	2,896	5,552
Total revenue	102,049	99,086	108,473
Expenses:
Research and development	158,458	157,397	145,160
General and administrative	12,515	12,789	11,669
Total operating expenses	170,973	170,186	156,829
Loss from operations	(68,924)	(71,100)	(48,356)
Other income (expense):
Equity in net loss of Regulus Therapeutics Inc.	(1,406)	(3,554)	(6,879)
Investment income	1,844	2,414	3,370
Interest expense	(21,152)	(16,732)	(13,232)
Gain (loss) on investments, net	1,465	4,182	(713)
Gain on investment in Regulus Therapeutics Inc.	18,356		4,651
Loss on early retirement of debt	(4,770)
Loss before income tax benefit (expense)	(74,587)	(84,790)	(61,159)
Income tax benefit (expense)	9,109	(11)	(92)
Net loss	$ (65,478)	$ (84,801)	$ (61,251)
Basic and diluted net loss per share (in dollars per share)	$ (0.65)	$ (0.85)	$ (0.62)
Shares used in computing basic net loss per share (in shares)	100,576	99,656	99,143
Shares used in computing diluted net loss per share (in shares)	100,576	99,656	99,143

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common stock	Additional paid in capital	Accumulated other comprehensive income (loss)	Accumulated deficit	Noncontrolling interests in Regulus
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
Net loss	(61,251)				(61,251)
Change in unrealized gains (losses)	(1,342)			(1,342)
Reclassification adjustment for realized gains included in net income	138			138
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	0
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
Increase (Decrease) in Stockholders' Equity
Regulus Therapeutics Inc. \| Adoption of accounting standard to deconsolidate	(11,583)		(1,954)		714	$ (10,343)
Net loss	(84,801)				(84,801)
Change in unrealized gains (losses)	(1,719)			(1,719)
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
Increase (Decrease) in Stockholders' Equity
Net loss	(65,478)				(65,478)
Change in unrealized gains (losses)	13,250			13,250
Options exercised and employee stock purchase plan issuances	9,470	$ 2	9,468
Options exercised and employee stock purchase plan issuances (in shares)		1,438
2 5/8 percent convertible subordinated notes redemption, equity portion	(12,041)		(12,041)
2 3/4 percent convertible senior notes, equity portion, net of issuance costs	57,560		57,560
Share-based compensation expense	8,571		8,571
Balance at Dec. 31, 2012	$ 182,766	$ 102	$ 1,077,150	$ 12,480	$ (906,966)
Balance (in shares) at Dec. 31, 2012		101,481

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating activities:
Net loss	$ (65,478)	$ (84,801)	$ (61,251)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	7,074	6,594	4,840
Amortization of patents	1,224	1,938	1,961
Amortization of licenses	2,457	3,252	2,376
Amortization of premium on investments, net	4,193	5,410	5,075
Amortization of debt issuance costs	619	507	507
Amortization of 2 5/8 percent convertible subordinated notes discount	6,169	8,553	7,795
Amortization of 2 3/4 percent convertible subordinated notes discount	2,268
Amortization of long-term financing liability for leased facility	6,503	2,872
Share-based compensation expense	8,571	9,845	12,159
Equity in net loss of Regulus Therapeutics Inc.	1,406	3,554	6,879
Gain on investment in Regulus Therapeutics Inc.	(18,356)		(4,651)
Loss on early retirement of debt	4,770
Gain from the sale of property, plant and equipment			(72)
(Gain) loss on investments, net	(1,465)	(4,182)	713
Non-cash losses related to patents, licensing and property, plant and equipment	825	1,924	1,512
Tax benefit from other unrealized gains on securities	(9,111)
Changes in operating assets and liabilities:
Contracts receivable	6,399	(5,679)	10,479
Inventories	(1,982)	(1,655)	284
Other current and long-term assets	279	914	(943)
Accounts payable	1,292	875	1,325
Accrued compensation	(1,305)	2,352	394
Income taxes payable			(7,178)
Deferred rent	255	382
Accrued liabilities	(3,254)	6,273	1,013
Deferred contract revenue	48,523	(70,857)	(46,810)
Net cash provided by (used in) operating activities	1,876	(111,929)	(63,593)
Investing activities:
Purchases of short-term investments	(217,877)	(371,108)	(530,137)
Proceeds from the sale of short-term investments	242,659	488,918	577,533
Purchases of property, plant and equipment	(1,479)	(10,203)	(13,237)
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	(3,691)	(3,667)	(4,319)
Investment in Regulus Therapeutics Inc.	(3,000)
Purchases of strategic investments	(790)	(359)	(250)
Proceeds from the sale of strategic investments	2,177	4,445
Net cash provided by investing activities	17,999	108,026	23,694
Financing activities:
Proceeds from issuance of equity	9,470	3,567	4,356
Proceeds from issuance of 2 3/4 percent convertible senior notes, net of issuance costs	194,697
Principal and premium payment on redemption of the 2 5/8 percent convertible subordinated notes	(163,718)
Proceeds from equipment financing arrangement	9,100	1,625	4,694
Principal payments on debt and capital lease obligations	(10,419)	(5,864)	(4,354)
Net cash provided by (used in) financing activities	39,130	(672)	4,696
Net increase (decrease) in cash and cash equivalents	59,005	(4,575)	(35,203)
Cash and cash equivalents at beginning of year	65,477	70,052	105,255
Cash and cash equivalents at end of year	124,482	65,477	70,052
Supplemental disclosures of cash flow information:
Interest paid	5,770	4,804	4,889
Income taxes paid, net of refund received	2	2	7,270
Supplemental disclosures of non-cash investing and financing activities:
Amounts accrued for capital and patent expenditures	$ 647	902	922
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, 2012

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. We used the equity method of accounting to account for our investment in Regulus Therapeutics Inc. until November 2012. In October 2012, Regulus completed an initial public offering (IPO). We now own less than 20 percent of Regulus’ common stock and we no longer have significant influence over the operating and financial policies of Regulus. As a result, in the fourth quarter of 2012, we stopped using the equity method of accounting for our equity investment in Regulus and instead we began accounting for our investment at fair value.

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 loss per share

We compute basic net loss per share by dividing the net 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, 2012, 2011 and 2010, we did not include the following diluted common equivalent shares in the computation of diluted net loss from continuing operations per share because the effect would be anti-dilutive:

· 25/8 percent convertible subordinated notes;

· 23¤4 percent convertible senior notes;

· GlaxoSmithKline convertible promissory notes issued by Regulus;

· Dilutive stock options;

· Restricted stock units; and

· Warrants issued to Symphony GenIsis Holdings LLC.

In April 2011, Symphony GenIsis Holdings LLC exercised the remaining warrants. In September 2012, we redeemed all of our 25¤8 percent convertible subordinated notes. Until the completion of Regulus’ IPO in October 2012, we were guarantors of up to $5 million plus accrued interest on the two convertible notes that Regulus issued to GlaxoSmithKline, or GSK.

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. 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

Our collaboration agreements typically contain multiple elements, or deliverables, including technology licenses or options to obtain technology licenses, research and development services, and in certain cases manufacturing services. Our collaborations may provide for various types of payments to us including upfront payments, funding of research and development, milestone payments, licensing fees, profit sharing and royalties on product sales. We evaluate the deliverables in our collaboration agreements to determine whether they meet the criteria to be accounted for as separate units of accounting or whether they should be combined with other deliverables and then accounted for as a single unit of accounting. When the delivered items in an arrangement have “stand-alone value” to our customer, we account for the deliverables as separate units of accounting and we allocate the consideration to each unit of accounting based on the relative selling price of each deliverable. Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the delivered items on a standalone basis. We use the following hierarchy of values to estimate the selling price of each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price, or BESP. The BESP reflects our best estimate of what the selling price would be if we regularly sold the deliverable on a stand-alone basis. We recognize the revenue allocated to each unit of accounting as we deliver the related goods or services. If we determine that we should treat certain deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of performance.

In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense therapeutics against five cancer targets. As part of the collaboration, we received a $25 million upfront payment and are eligible to receive a $6 million payment in the second quarter of 2013 assuming the research program is continuing. We are also eligible to receive milestone payments, license fees for the research program targets and royalties on any product sales of drugs resulting from this collaboration. In exchange, we granted AstraZeneca an exclusive license to develop and commercialize ISIS-STAT3Rx and ISIS-AZ1Rx. We also granted AstraZeneca options to license up to three drugs under a separate research program. We are responsible for completing an ongoing clinical study of ISIS-STAT3Rx and IND-enabling studies for ISIS-AZ1Rx. AstraZeneca will be responsible for all other global development, regulatory and commercialization activities for ISIS-STAT3Rx and ISIS-AZ1Rx. In addition, if AstraZeneca exercises its option for any drugs resulting from the research program, AstraZeneca will assume global development, regulatory and commercialization responsibilities for such drug. Since this agreement has multiple elements, we evaluated the deliverables in this arrangement and determined that certain deliverables, either individually or in combination, have stand-alone value. Below is a list of the four separate units of accounting under our agreement:

· The exclusive license we granted to AstraZeneca to develop and commercialize ISIS-STAT3Rx for the treatment of cancer;

· The development services we will perform for ISIS-STAT3Rx;

· The exclusive license we granted to AstraZeneca to develop and commercialize ISIS-AZ1Rx and the research services we will perform for ISIS-AZ1Rx; and

· The option to license up to three drugs under a research program and the research services we will perform for this program.

We determined that the ISIS-STAT3Rx license had stand-alone value because it is an exclusive license that gives AstraZeneca the right to develop ISIS-STAT3Rx or to sublicense its rights. In addition, ISIS-STAT3Rx is currently in development and it is possible that AstraZeneca or another third party could conduct clinical trials without assistance from us. As a result, we consider the ISIS-STAT3Rx license and the development services for ISIS-STAT3Rx to be separate units of accounting. We recognized the revenue allocated to the ISIS-STAT3Rx license on the date of the agreement because that is when we delivered the license. We will recognize the revenue allocated to the development services for ISIS-STAT3Rx over the period of time we perform services. The ISIS-AZ1Rx license is also an exclusive license. Because of the early stage of research for ISIS-AZ1Rx, we believe that our knowledge and expertise with antisense technology is essential for AstraZeneca or another third party to successfully develop ISIS-AZ1Rx. As a result, we concluded that the ISIS-AZ1Rx license does not have stand-alone value and we combined the ISIS-AZ1Rx license and related research services into one unit of accounting. We will recognize revenue for the combined unit of accounting over the period of time we perform services. We determined that the options under the research program did not have stand-alone value because AstraZeneca cannot develop or commercialize drugs resulting from the research program until AstraZeneca exercises the respective option or options. As a result, we considered the research options and the related research services as a combined unit of accounting. We will recognize revenue for the combined unit of accounting over the period of our performance.

We determined that the allocable arrangement consideration was the $25 million upfront payment because it was the only payment that was fixed and determinable when we entered into the agreement. There was considerable uncertainty at the date of the agreement as to whether we would earn the milestone payments, royalty payments, payments for manufacturing clinical trial materials or payments for finished drug product. As such, we did not include those payments in the allocable consideration.

We allocated the $25 million upfront payment based on the relative BESP of each unit of accounting. We engaged a third party, independent valuation expert to assist us with determining BESP. We estimated the selling price of the licenses granted for ISIS-STAT3Rx and ISIS-AZ1Rx by using the relief from royalty method. Under this method, we estimated the amount of income, net of taxes, for each drug. We then discounted the projected income for each license to present value. The significant inputs we used to determine the projected income of the licenses included:

· Estimated future product sales;

· Estimated royalties on future product sales;

· Contractual milestone payments;

· Expenses we expect to incur;

· Income taxes; and

· An appropriate discount rate.

We estimated the selling price of the research and development services by using our internal estimates of the cost to perform the specific services, marked up to include a reasonable profit margin, and estimates of expected cash outflows to third parties for services and supplies over the expected period that we will perform research and development. The significant inputs we used to determine the selling price of the research and development services included:

· The number of internal hours we will spend performing these services;

· The estimated number and cost of studies we will perform;

· The estimated number and cost of studies that we will contract with third parties to perform; and

· The estimated cost of drug product we will use in the studies.

As a result of the allocation, we recognized $9.3 million of the $25 million upfront payment in December 2012 for the ISIS-STAT3Rx license. We are recognizing the remaining $15.7 million over the estimated period of our performance. Assuming a constant selling price for the other elements in the arrangement, if there was an assumed ten percent increase or decrease in the estimated selling price of the ISIS-STAT3Rx license, we determined that the revenue we would have allocated to the ISIS-STAT3Rx license would change by approximately seven percent, or $600,000, from the amount we recorded.

Typically, we must estimate our period of performance when the agreements we enter 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. 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.

From time to time, we may enter into separate agreements at or near the same time with the same customer. We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement. We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement. Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement.

In January 2012, we entered into a collaboration agreement with Biogen Idec to develop and commercialize ISIS-SMNRx for Spinal Muscular Atrophy, or SMA. As part of the collaboration, we received a $29 million upfront payment and we are responsible for global development of ISIS-SMNRx through completion of Phase 2/3 clinical trials. In June 2012, we entered into a second and separate collaboration agreement with Biogen Idec to develop and commercialize a novel antisense drug targeting DMPK, or dystrophia myotonica-protein kinase. As part of the collaboration, we received a $12 million upfront payment and we are responsible for global development of the drug through the completion of Phase 2 clinical trials. In December 2012, we entered into a third and separate collaboration agreement with Biogen Idec to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders. As part of the collaboration, we received a $30 million upfront payment and we are responsible for the discovery of a lead antisense drug for each of three targets. All three of these collaboration agreements give Biogen Idec the option or options to license one or more drugs resulting from the specific collaboration. If Biogen Idec exercises an option, it will pay us a license fee and will assume future development, regulatory and commercialization responsibilities for the licensed drug. We are also eligible to receive milestone payments associated with the development of the drugs prior to licensing, milestone payments if Biogen Idec achieves pre-specified regulatory milestones, and royalties on any product sales of drugs resulting from these collaborations.

We evaluated the SMA, DMPK, and neurology agreements to determine whether we should account for them as separate agreements or as a single multiple element arrangement. We determined that we should account for the agreements separately because we conducted the negotiations independently of one another, the first two agreements cover two different diseases while the targets for the third agreement are yet to be defined, there are no interrelated or interdependent deliverables, there are no provisions in either agreement that are essential to the other agreement, and the payment terms and fees under each agreement are independent of each other. We also evaluated the deliverables in each of these agreements to determine whether they met the criteria to be accounted for as separate units of accounting or whether they should be combined with other deliverables and accounted for as a single unit of accounting. For all three of these agreements, we determined that the options did not have stand-alone value because Biogen Idec cannot pursue the development or commercialization of the drugs resulting from these collaborations until it exercises the respective option or options. As such, for each agreement we considered the deliverables to be a single unit of accounting and we are recognizing the upfront payment for each of the agreements over the respective research and development term, which is the estimated period of our performance.

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 that 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 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 Pharmaceuticals, Inc. 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 2012, the FDA accepted the NDA for KYNAMRO. 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 that collaboration. We consider milestones related to progression of a drug through the development and regulatory stages 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 $25 million milestone payment from Genzyme for acceptance of the NDA of KYNAMRO in 2012 and the two $5 million milestone payments from GSK in their entirety in 2011. Further information about our collaborative arrangements can be found in Note 7, 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, 2012, 2011 and 2010, research and development costs of approximately $39.0 million, $26.3 million, and $44.6 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, 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.

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 comprehensive loss 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. At December 31, 2012 we held ownership interests of less than 20 percent in each of the respective companies.

We account for our equity investments in publicly-held companies at fair value and record unrealized gains and losses related to temporary increases and decreases in the stock of these publicly-held companies as a separate component of comprehensive loss. We account for equity investments in privately-held companies under the cost method of accounting because we own less than 20 percent and do not have significant influence over 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. 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. If 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 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, 2012, 2011 and 2010. Total inventory, which consisted of raw materials, was $6.1 million and $4.1 million as of December 31, 2012 and 2011, respectively.

Property, plant and equipment

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

	December 31,
	2012			2011
Equipment and computer software	$	44,109		$	42,422
Building and building systems	48,120			48,431
Land improvements	2,849			2,822
Leasehold improvements	34,931			34,839
Furniture and fixtures	5,342			5,323
	135,351			133,837
Less accumulated depreciation	(54,465		)	(47,420		)
	80,886			86,417
Land	10,198			10,198

	$	91,084		$	96,615

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, 2012 and 2011 was $36.2 million. Accumulated amortization related to licenses was $29.6 million and $27.2 million at December 31, 2012 and 2011, respectively. Based on existing licenses, estimated amortization expense related to licenses is as follows:

Years Ending December 31,	Amortization
	(in millions)

2013	$	2.0
2014	$	1.9
2015	$	1.9
2016	$	0.8
2017	$	—

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 useful lives, beginning with the date the United States Patent and Trademark Office, or foreign equivalent, issues the patent. The weighted average remaining amortizable life of our issued patents was 9.9 years at December 31, 2012. In 2012, 2011 and 2010, we recorded non-cash charges of $817,000, $1.9 million and $1.5 million, 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, 2012 and 2011 was $31.4 million and $29.9 million, respectively. Accumulated amortization related to patents was $12.8 million and $13.7 million at December 31, 2012 and 2011, respectively. Based on existing patents, estimated amortization expense related to patents is as follows:

Years Ending December 31,	Amortization
	(in millions)

2013	$	1.0
2014	$	0.9
2015	$	0.9
2016	$	0.8
2017	$	0.7

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 exclusive 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 $825,000, $1.9 million and $1.5 million for the years ended December 31, 2012, 2011 and 2010, respectively, related primarily to the write-down of intangible assets.

Equity method of accounting

We accounted for our ownership interest in Regulus using the equity method of accounting until November 2012. Under the equity method of accounting, we included 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 2011 consolidated balance sheet, we presented our investment in Regulus on a separate line in the non-current liabilities section called “Investment in Regulus Therapeutics Inc.” In October 2012, Regulus completed an IPO. We now own less than 20 percent of Regulus’ common stock and we no longer have significant influence over the operating and financial policies of Regulus. As a result, we stopped using the equity method of accounting for our investment in Regulus and instead we began accounting for our investment at fair value. We also recorded an $18.4 million gain to reflect the change in our ownership percentage as a result of Regulus’ IPO. In 2010, we recorded a $4.7 million gain to reflect the change in our ownership percentage due to the $10 million investment Sanofi made in Regulus.

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, 2012 and 2011, we had collaborative arrangements with six entities 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. As of December 31, 2012, the total carrying value of our investments in variable interest entities was $38.5 million, and was primarily related to our investment in Regulus. Our maximum exposure to loss related to these variable interest entities is limited to the carrying value of our investments.

Stock-based compensation

We measure stock-based compensation expense for equity-classified awards, principally related to stock options, restricted stock units, or RSUs, and stock purchase rights under our Employee Stock Purchase Plan, or ESPP, based on the estimated fair value of the award 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 stock-based compensation expense over the requisite service period in our consolidated statements of operations. 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 option awards and stock purchase rights under the ESPP. 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 recognize compensation expense for option 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.

In 2012, we began granting RSUs to our employees and the Board of Directors. The fair value of RSUs is based on the market price of our common stock on the date of grant. RSUs vest annually over a four year period.

See Note 5, Stockholders’ Equity, for additional information regarding our share-based compensation plans.

Comprehensive loss

Comprehensive loss is comprised of net loss and certain changes in stockholders’ equity that we exclude from net loss including unrealized holding gains and losses, net of taxes, and reclassification adjustments for realized gains and losses on our available-for-sale securities. We display comprehensive loss and its components in our consolidated statements of comprehensive loss.

Convertible debt

In August 2012, we completed a $201.3 million offering of convertible senior notes, which mature in 2019 and bear interest at 2¾ percent. In September 2012, we used a substantial portion of the net proceeds from the issuance of the 2¾ percent notes to redeem our 25/8 percent convertible subordinated notes. Consistent with how we accounted for our 25/8 percent notes, we account for our 2¾ percent notes by separating the liability and equity components of the instrument in a manner that reflects our nonconvertible debt borrowing rate. As a result, we assigned a value to the debt component of our 2¾ percent notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in us recording the debt instrument at a discount. We are amortizing the debt discount over the life of these 2¾ percent notes as additional non-cash interest expense utilizing the effective interest method. For additional information, see Note 4, Long-Term Obligations and Commitments.

Segment information

Prior to 2011, we reported our results in two separate segments: Drug Discovery and Development and Regulus. We stopped considering Regulus as an operating segment because our chief decision making officer stopped reviewing 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.

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 an investment in equity securities in a publicly-held biotechnology company; 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. Our Level 3 investments include investments in the equity securities of two publicly-held biotechnology companies for which we calculated a lack of marketability discount because there are restrictions on when we can trade the securities. 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. The significant inputs for the valuation model include reported trades, broker/dealer quotes, benchmark securities and bids. We validate the fair value of securities from our pricing provider by understanding the pricing model they use and comparing their assessment of the fair value of our Level 2 investments to the fair value provided by the custodians of our Level 2 investments. Our pricing provider and custodians use similar techniques to derive fair value for Level 2 securities. During the years ended December 31, 2012 and 2011 there were no transfers between our Level 1 and Level 2 investments. We use the end of reporting period method for determining transfers between levels.

As of December 31, 2012, we classified the fair value measurements of our investments in the equity securities of Regulus and Sarepta Therapeutics, Inc., or Sarepta, as Level 3. We calculated a lack of marketability discount on the fair value of these investments because there are restrictions on when we can trade the securities. We consider the inputs we used to calculate the lack of marketability discount Level 3 inputs and, as a result, we categorized our investments as Level 3. We determined the lack of marketability discount by using a Black-Scholes model to value a hypothetical put option to approximate the cost of hedging the stock until the restriction ends. As of December 31, 2012, the gross fair value of our investment in Regulus and Sarepta was $44.4 million and $1.0 million, respectively, and the lack of marketability discount was $10.8 million and $296,000, respectively. During the year ended December 31, 2012, our other comprehensive loss included unrealized gains of $18.1 million and $688,000, respectively, related to our investment in Regulus and Sarepta. As of 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, 2012 and 2011 as follows (in thousands):

	At December 31, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	105,496	$	101,496	$	4,000	$	—
Corporate debt securities (2)	193,507		—		193,507		—
Debt securities issued by U.S. government agencies (2)	18,108		—		18,108		—
Debt securities issued by the U.S. Treasury (2)	13,452		13,452		—		—
Debt securities issued by states of the United States and political subdivisions of the states (2)	24,897		—		24,897		—
Investment in Regulus Therapeutics Inc.	33,622		—		—		33,622
Equity securities (3)	4,874		4,146		—		728
Total	$	393,956	$	119,094	$	240,512	$	34,350

	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	$	—

(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 was effective for our fiscal year beginning January 1, 2012. We adopted this amendment on January 1, 2012. The adoption of this new standard did not have a material impact on our consolidated 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 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 reclassifications 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 was effective for our fiscal year beginning January 1, 2012. We adopted this amendment on January 1, 2012. As this guidance relates to presentation only, the adoption of this guidance did not have any other effect on our consolidated financial statements.

Investments

12 Months Ended

Dec. 31, 2012

Investments

Investments

3. Investments

As of December 31, 2012, we have primarily invested our excess cash in debt instruments of the U.S. Treasury, 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, 2012:

One year or less	56	%
After one year but within two years	32	%
After two years but within three years	12	%
Total	100	%

As illustrated above, we primarily invest our excess cash in short-term instruments with 88 percent of our available-for-sale securities having a maturity of less than two years.

At December 31, 2012, we had an ownership interest of less than 20 percent in each of three private companies and four public companies with which we conduct business. The privately-held companies are Santaris Pharma A/S (formerly Pantheco A/S), Achaogen Inc., and Atlantic Pharmaceuticals Limited. The publicly-traded companies are Antisense Therapeutics Limited, or ATL, iCo Therapeutics Inc., Regulus and Sarepta. We account for equity investments in the privately-held companies under the cost method of accounting and we account for equity investments in the publicly-traded companies at fair value and record unrealized gains and losses as a separate component of comprehensive loss and include net realized gains and losses in gain (loss) on investments. In October 2012, Regulus completed an IPO and we now own less than 20 percent of Regulus’ common stock. In the fourth quarter of 2012, we stopped using the equity method to account for our investment in Regulus and instead we began accounting for it at fair value. During 2011, we recognized a $4.2 million net gain on investments primarily consisting of the $4.4 million gain we recognized from our ownership interest in Excaliard Pharmaceuticals Inc. when Pfizer Inc. acquired Excaliard. During 2012, we recognized a $1.5 million net gain on investments primarily consisting of a $1.3 million gain for contingent payments we received from Pfizer, Inc. triggered by its decision to advance EXC 001 into a Phase 2 study. See further discussion about our investments in these satellite companies in Note 7, Collaborative Arrangements and Licensing Agreements.

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

								Other-Than-
								Temporary
	Amortized		Unrealized					Impairment		Estimated
December 31, 2012	Cost		Gains		Losses			Loss		Fair Value
Short-term investments:
Corporate debt securities	$	113,249	$	81	$	(9	)	$	—	$	113,321
Debt securities issued by U.S. government agencies	10,100		2		(66		)	—		10,036
Debt securities issued by the U.S. Treasury	1,000		1		—			—		1,001
Debt securities issued by states of the United States and political subdivisions of the states	16,560		18		(2		)	—		16,576
Total securities with a maturity of one year or less	140,909		102		(77		)	—		140,934
Corporate debt securities	80,166		112		(92		)	—		80,186
Debt securities issued by U.S. government agencies	8,034		38		—			—		8,072
Debt securities issued by the U.S. Treasury	12,424		27		—			—		12,451
Debt securities issued by states of the United States and political subdivisions of the states	8,306		31		(16		)	—		8,321
Total securities with a maturity of more than one year	108,930		208		(108		)	—		109,030
Subtotal	$	249,839	$	310	$	(185	)	$	—	$	249,964

								Other-Than-
								Temporary
	Cost		Unrealized					Impairment			Estimated
December 31, 2012	Basis		Gains		Losses			Loss			Fair Value
Equity securities:
Current portion (Regulus Therapeutics Inc.)	$	15,526	$	18,096	$	—		$	—		$	33,622
Current portion (included in Other current assets)		1,579		4,175		—			(880	)		4,874
Long-term portion (included in Deposits and other assets)	625		—		—			—			625
Subtotal	$	17,730	$	22,271	$	—		$	(880	)	$	39,121
	$	267,569	$	22,581	$	(185	)	$	(880	)	$	289,085

	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

								Other-Than-
								Temporary
	Cost		Unrealized					Impairment			Estimated
December 31, 2011	Basis		Gains		Losses			Loss			Fair Value
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

Investments we consider to be temporarily impaired at December 31, 2012 are as follows (in thousands):

		Less than 12 months of temporary impairment
	Number of Investments	Estimated Fair Value		Unrealized Losses
Corporate debt securities	39	$	57,997	$	(101	)
Debt securities issued by U.S. government agencies	1	5,029		(66		)
Debt securities issued by states of the United States and political subdivisions of the states	4	9,716		(18		)
Total temporarily impaired securities	44	$	72,742	$	(185	)

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, 2012

Long-Term Obligations and Commitments

Long-Term Obligations and Commitments

4. Long-Term Obligations and Commitments

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

	December 31,
	2012			2011
2¾ percent convertible senior notes	$	143,990		$	—
25/8 percent convertible subordinated notes	—			141,448
Long-term financing liability for leased facility	70,550			69,877
Equipment financing arrangement	9,993			5,325
Leases and other obligations	2,288			2,190
Total	$	226,821		$	218,840
Less: current portion	(4,879		)	(3,390		)

Total Long-Term Obligations	$	221,942		$	215,450

Convertible Notes

In August 2012, we completed a $201.3 million convertible debt offering, which raised net proceeds of $194.7 million, after deducting $6.6 million in issuance costs. The $201.3 million convertible senior notes mature in 2019 and bear interest at 2¾ percent, which is payable semi-annually in arrears on April 1 and October 1 of each year. In September 2012, we used a substantial portion of the net proceeds from the issuance of the 2¾ percent notes to redeem the entire $162.5 million in principal of our 25/8 percent notes at a price of $164.0 million including accrued interest. The $162.5 million convertible subordinated notes had a maturity date of 2027 and bore interest at 25/8 percent, which was payable in cash semi-annually. We recognized a $4.8 million loss as a result of the redemption of the 25/8 percent notes. A significant portion of the loss, or $3.6 million, was non-cash and related to the unamortized debt discount and debt issuance costs and the remainder was related to a $1.2 million early redemption premium we paid to the holders of the 25/8 percent notes.

The 2¾ percent notes are convertible at the option of the note holders prior to July 1, 2019 only under certain conditions. On or after July 1, 2019, the notes are initially convertible into approximately 12.1 million shares of common stock at a conversion price of approximately $16.63 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We can redeem the 2¾ percent notes at our option, in whole or in part, on or after October 5, 2016 if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the trading day immediately preceding the date we provide the redemption notice exceeds 130 percent of the applicable conversion price for the 2¾ percent notes on each such day. The redemption price for the 2¾ percent notes will equal 100 percent of the principal amount being redeemed, plus accrued and unpaid interest, plus $90 per each $1,000 principal amount being redeemed. Holders of the 2¾ percent notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indenture governing these notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest.

We did not include the potential effect of the conversion of our convertible notes into our common stock in the computation of diluted net loss per share because the effect would have been anti-dilutive.

We account for our convertible notes using an accounting standard that requires us to assign a value to our convertible debt equal to the estimated fair value of similar debt instruments without the conversion feature, which results in us recording our convertible debt at a discount. We amortize the resulting debt discount as additional non-cash interest expense over the expected life of the debt, or seven years, for both our 2¾ percent notes and 25/8 percent notes. 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 was eight percent and 9.3 percent for the 2¾ percent notes and 25/8 percent notes, respectively. At December 31, 2012 the principal and accrued interest payable on the 2¾ percent notes was $202.6 million and the fair value based on quoted market prices was $198.7 million. Interest expense for the year ended December 31, 2012, 2011 and 2010 included $8.4 million, $8.6 million and $7.8 million, respectively, of non-cash interest expense related to the amortization of the debt discount for our convertible notes.

The following table summarizes information about the equity and liability components of the 2¾ percent and 25/8 percent notes, (in thousands):

	December 31,
	2012			2011
	2¾ percent notes			25/8 percent notes

Principal amount of convertible notes outstanding	$	201,250		$	162,500
Unamortized portion of liability component	(57,260		)	(21,052		)
Long-term debt	$	143,990		$	141,448

Carrying value of equity component	$	59,528		$	54,640

Equipment Financing Arrangement

In October 2008, we entered into a loan agreement related to an equipment financing and in September 2009 and June 2012, we amended the loan agreement to increase the aggregate maximum amount of principal we could draw under the agreement. Each draw down under the loan agreement has a term of three years, with principal and interest payable monthly. Interest on amounts we borrow under the loan agreement is based upon the three year interest rate swap at the time we make each draw down plus 3.5 or four percent, depending on the date of the draw. We are using the equipment purchased under the loan agreement as collateral. In June 2012, we drew down $9.1 million in principal under the loan agreement at an interest rate of 4.12 percent. As of December 31, 2012, our outstanding borrowings under this loan agreement were at a weighted average interest rate of 4.57 percent and we can borrow up to an additional $6.0 million in principal to finance the purchase of equipment until April 2014. The carrying balance under this loan agreement at December 31, 2012 and 2011 was $10.0 million and $5.3 million, respectively.

Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2012 are as follows (in thousands):

2013	$	10,824
2014	9,351
2015	7,648
2016	5,594
2017	5,594
Thereafter	213,400
Subtotal	$	252,411
Less: current portion	(4,879		)
Less: fixed and determinable interest	(40,310		)
Less: debt discount	(57,260		)
Deferred rent	1,430
Total	$	151,392

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 and occupy approximately 231,000 square feet of laboratory and office space. Our facilities include a 176,000 square foot facility that we use for our primary research and development activities, a 28,704 square foot manufacturing facility and a 25,792 square foot building adjacent to our manufacturing facility. Our 28,704 square foot facility houses manufacturing suites for our drug development business built to meet current Good Manufacturing Practices and our 25,792 square foot facility has laboratory and office space that we use to support our manufacturing activities. We account for the lease of our 176,000 square foot facility as a financing obligation as discussed below. 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, 2012 are as follows (in thousands):

	Operating Leases
2013	$	1,423
2014	1,389
2015	1,332
2016	1,380
2017	1,401
Thereafter	20,578
Total minimum payments	$	27,503

Rent expense for the years ended December 31, 2012, 2011 and 2010 was $1.9 million, $4.6 million and $4.3 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 $1.4 million and $1.2 million at December 31, 2012 and 2011, respectively.

Facility Lease Obligation

In March 2010, we entered into a lease agreement with an affiliate of BioMed Realty, L.P. Under the lease, BioMed constructed our primary research and development facility in Carlsbad, California. To gain early access to the facility, 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 our non-current liabilities as a long-term financing obligation. In July 2011, we took possession of the facility. In the third quarter of 2011, we began depreciating the cost of the facility over its economic useful life. At December 31, 2012 and 2011, the facility and associated parcel of land had a net book value of $68.9 million and $71.5 million, respectively, which included $3.2 million and $945,000, respectively, of accumulated depreciation. We will apply our rent payments, which began on January 1, 2012, against 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, 2012 and 2011 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 our primary research and development 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 as of December 31, 2012 for our primary research and development facility are as follows (in thousands):

	Future Rent Payments
2013	$	5,829
2014	6,179
2015	6,179
2016	6,550
2017	6,550
Thereafter	112,451
Total minimum payments	$	143,738

Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity

Stockholders' Equity

5. Stockholders’ Equity

Preferred Stock

We are authorized to issue up to 15,000,000 shares of “blank check” Preferred Stock. As of December 31, 2012, 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, 2012.

Common Stock

At December 31, 2012 and 2011, we had 200,000,000 shares of common stock authorized, of which 101,481,134 and 100,042,976 were issued and outstanding, respectively. As of December 31, 2012, total common shares reserved for future issuance were 23,114,372.

We issued 1,438,000, 646,000 and 475,000 shares of common stock for stock option exercises and the Employee Stock Purchase Plan (“ESPP”) purchases during the years ending December 31, 2012, 2011 and 2010, respectively. We received net proceeds from these transactions of $9.5 million, $3.6 million and $4.4 million in 2012, 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, 2012, a total of 8,105,367 options were outstanding, of which options to purchase 4,972,040 shares were exercisable, and 1,747,698 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, 2012, a total of 2,116,621 options were outstanding, of which 2,077,357 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 our 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. We granted restricted stock unit awards to our employees under the 2011 Plan which vest annually over a four year period. At December 31, 2012, a total of 182,353 options were outstanding, no shares were exercisable, and 1,817,647 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 and restricted stock units 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 purchase of up to 1,200,000 shares of our common stock to our non-employee directors. 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, 2012, a total of 607,500 options were outstanding, 432,500 of the shares issued were exercisable and 367,000 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 2,274,596 million shares authorized in the plan as of December 31, 2012. 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 2012, employees purchased and we issued to employees 124,001 shares under the ESPP at $6.13 per share. At December 31, 2012, 217,087 shares were available for purchase under the ESPP.

Stock Option Activity

The following table summarizes the stock option activity for the year ended December 31, 2012 (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, 2011	10,722		$	11.39
Granted	1,775		$	7.92
Exercised	(1,287	)	$	6.74
Cancelled/forfeited/expired	(387	)	$	13.43

Outstanding at December 31, 2012	10,823		$	11.30	3.65	$	9,194

Exercisable at December 31, 2012	7,482		$	12.27	2.78	$	3,712

The weighted-average estimated fair values of options granted were $3.55, $4.85 and $5.53 for the years ended December 31, 2012, 2011 and 2010, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 were $7.6 million, $686,000 and $905,000, respectively, which we determined as of the date of exercise. The amounts of cash received from the exercise of stock options were $8.7 million, $2.8 million and $3.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. For the year ended December 31, 2012, the weighted-average fair value of options exercised was $12.61. As of December 31, 2012, total unrecognized compensation cost related to non-vested stock-based compensation plans was $5.5 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 1.1 years.

Restricted Stock Unit Activity

The following table summarizes the RSU activity for the year ended December 31, 2012 (in thousands, except per share data):

	Number of Shares		Weighted Average Grant Date Fair Value Per Share

Non-vested at December 31, 2011	—		$	—
Granted	193		$	8.37
Vested	—		$	—
Cancelled/forfeited	(5	)	$	8.42

Non-vested at December 31, 2012	188		$	8.37

The weighted-average grant date fair value of RSUs granted to employees and the Board of Directors for the twelve months ended December 31, 2012 was $8.22 and $12.94 per RSU, respectively. As of December 31, 2012, total unrecognized compensation cost related to RSUs was $1.3 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 3.1 years.

Stock-based Valuation and Compensation Expense Information

The following table summarizes stock-based compensation expense for the year ended December 31, 2012, 2011 and 2010 (in thousands), which was allocated as follows:

	Year Ended December 31,
	2012		2011		2010
Research and development	$	7,246	$	8,527	$	10,148
General and administrative	1,325		1,318		2,011
Total	$	8,571	$	9,845	$	12,159

Determining Fair Value

Valuation. We measure stock-based compensation expense for equity-classified awards, principally related to stock options, RSUs, and stock purchase rights under the ESPP at the grant date, based on the estimated fair value of the award and we recognize the expense over the employee’s requisite service period. We value RSUs based on the market price of our common stock on the date of grant.

We use the Black-Scholes model to estimate the fair value of stock options granted and stock purchase rights under the ESPP. The expected term of stock options granted represents the period of time that we expect them to be outstanding. We estimate the expected term of options granted based on historical exercise patterns. We recognize compensation expense for stock options granted, RSUs, and stock purchase rights under the ESPP 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.

For the years ended December 31, 2012, 2011 and 2010, we used the following weighted-average assumptions in our Black-Scholes calculations:

Employee Stock Options:

	December 31,
	2012		2011		2010
Risk-free interest rate	1.1	%	2.3	%	2.7	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	50.7	%	52.4	%	55.5	%
Expected life	5.1 years		5.3 years		5.1 years

Board of Director Stock Options:

	December 31,
	2012		2011		2010
Risk-free interest rate	1.3	%	2.9	%	2.7	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	51.3	%	52.8	%	57.7	%
Expected life	7.6 years		7.8 years		7.8 years

ESPP:

	December 31,
	2012		2011		2010
Risk-free interest rate	0.1	%	0.1	%	0.2	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	44.5	%	34.9	%	47.8	%
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 FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(d),(e))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 2: 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

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-Name Accounting Standards Codification
-Topic 310
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-Section S99
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-Subparagraph (SAB TOPIC 4.E)
-URI http://asc.fasb.org/extlink&oid=6228006&loc=d3e74512-122707

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
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-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.29-31)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

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-Publisher FASB
-Name Accounting Standards Codification
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-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
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-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6405834&loc=d3e23285-112656

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
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-Name Accounting Standards Codification
-Glossary Preferred Stock
-URI http://asc.fasb.org/extlink&oid=6521494

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-Name Accounting Standards Codification
-Topic 505
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Section B
-Paragraph 7, 11A
-Chapter 1
-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 15: 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 16: http://www.xbrl.org/2003/role/presentationRef
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-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.

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-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph d
-Article 4

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-Name Regulation S-X (SX)
-Number 210
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-Paragraph 29, 30, 31
-Article 5

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-Number Topic 4
-Section C

Reference 22: 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 23: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

+ Details

Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

6. 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, 2012. 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.

Intraperiod tax allocation rules require us to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which we have a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, we must allocate the tax provision to the other categories of earnings. We then record a related tax benefit in continuing operations. During 2012, we recorded unrealized gains on our investments in available-for-sale securities in other comprehensive income net of taxes. As a result, we recorded a $9.1 million tax benefit in continuing operations and a $9.1 million tax expense in other comprehensive income for the year ended December 31, 2012.

We are subject to taxation in the United States and various state jurisdictions. Our tax years for 1994 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 2006 and 2007 are currently being audited by California’s Franchise Tax Board, or FTB. We do not expect that the results of these examinations will have a material effect on our financial condition or results of operations. In 2012, the California FTB completed its audit of our 2001 and 2002 tax years, which did not result in a material adjustment on our financial statements.

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

	Year Ended December 31,
	2012			2011		2010
Current:

Federal	$	—		$	—	$	(73	)
State	2			11		165
Total current	2			11		92
Deferred:

Federal	(7,827		)	—		—
State	(1,284		)	—		—
Foreign	—			—		—
Total deferred	(9,111		)	—		—

Income Tax Expense (Benefit)	$	(9,109	)	$	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,
	2012					2011					2010

Pre tax loss	$	(74,587	)			$	(84,790	)			$	(61,251	)

Statutory rate	(26,105		)	35.0	%	(29,677		)	35.0	%	(21,438		)	35.0	%
State income tax net of federal benefit	(4,284		)	5.7	%	(4,870		)	5.7	%	(3,518		)	5.7	%
Net change in valuation allowance	25,269			(33.9	)%	41,136			(48.5	)%	26,869			(43.9	)%
Gain on Investment in Regulus Therapeutics, Inc.	(6,353		)	8.5	%	—			—		—			—
Tax credits	806			(1.1	)%	(4,202		)	5.0	%	(3,175		)	5.2	%
Noncontrolling interest	—			—		1,448			(1.7	)%	908			(1.5	)%
Deferred tax true-up	839			(1.1	)%	(4,236		)	5.0		—			—
Other	719			(0.9	)%	412			(0.5	)%	446			(0.7	)%
Effective rate	$	(9,109	)	12.2	%	$	11		(0.0	)%	$	92		(0.2	)%

Significant components of our deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	Year Ended December 31,
	2012			2011
Deferred Tax Assets:
Net operating loss carryovers	$	244,539		$	195,399
R&D credits	46,928			44,970
Capitalized R&D	22,223			23,212
Deferred revenue	7,285			20,541
Accrued restructuring	3,605			10,888
Other	18,931			25,606
Total deferred tax assets	$	343,511		$	320,616

Deferred Tax Liabilities:
Convertible debt	$	(23,322	)	$	(9,426	)
Intangible and capital assets	(6,784		)	(3,702		)
Net deferred tax asset	$	313,405		$	307,488
Valuation allowance	(313,405		)	(307,488		)

Net deferreds	$	—		$	—

The deferred tax assets and liabilities shown above do not include certain deferred tax assets at December 31, 2012 and 2011 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 $10.6 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, 2012, we had federal and California tax net operating loss carryforwards of approximately $636.9 million and $561.2 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 $44.2 million and $18.4 million, respectively. The Federal research and development tax credit carryforwards began expiring in 2004 and will continue to expire unless we use them prior to expiration. 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):

	Year Ended December 31,
	2012			2011			2010
Beginning balance of unrecognized tax benefits	$	9,834		$	8,968		$	—
Decrease for prior period tax positions	(174		)	(97		)	—
Increase for prior period tax positions	791			—			8,231
Increase for current period tax positions	421			963			737
Ending balance of unrecognized tax benefits	$	10,872		$	9,834		$	8,968

The balance of unrecognized tax benefits at December 31, 2012 of $10.9 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. At December 31, 2012, there was no effect on the deferred tax assets and corresponding valuation allowance resulting from unrecognized tax benefits. We have not recognized any accrued interest and penalties related to unrecognized tax benefits during the year ended December 31, 2012 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.

The American Taxpayer Relief Act of 2012, which reinstated the United States federal research and development tax credit retroactively from January 1, 2012 through December 31, 2013, was not enacted into law until the first quarter of 2013. Therefore, the expected tax benefit resulting from such reinstatement for 2012 will not be reflected in the Company’s estimated annual effective tax rate until 2013.

- 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

+ Details

Collaborative Arrangements and Licensing Agreements	12 Months Ended
Collaborative Arrangements and Licensing Agreements	Dec. 31, 2012
Collaborative Arrangements and Licensing Agreements
Collaborative Arrangements and Licensing Agreements	7. Collaborative Arrangements and Licensing Agreements Pharmaceutical Alliances and Licensing AstraZeneca In December 2012, we entered into a global collaboration agreement with AstraZeneca to discover and develop antisense drugs against five cancer targets. The agreement includes $31 million in upfront and near-term payments, comprising a $25 million payment we received in December 2012 and a $6 million payment we are eligible to receive in the second quarter of 2013 assuming the research program is continuing. We are also eligible to receive milestone payments, license fees and double-digit royalties on any product sales of drugs resulting from this collaboration. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize ISIS-STAT3Rx for the treatment of cancer and a preclinical program, ISIS-AZ1Rx, and an option to license up to three drugs we expect to develop under a separate research program. We are currently conducting a focused clinical study of ISIS-STAT3Rx in patients with advanced cancer. We are responsible for completing the ongoing clinical study and AstraZeneca is responsible for all other development activities for ISIS-STAT3Rx. We have the potential to receive up to $75 million in milestone payments over the next two years, including the potential to receive up to a $50 million milestone payment subject to meeting pre-agreed efficacy and safety criteria in the ongoing ISIS-STAT3Rx study. If AstraZeneca successfully develops drugs under all three programs, we could receive substantive milestone payments of more than $980 million, including up to $325.5 million for the achievement of development milestones and up to $655 million for the achievement of regulatory milestones. We will earn the next milestone payment of $10 million if AstraZeneca accepts ISIS-AZ1Rx as the second development candidate in our collaboration. During 2012, we earned revenue of $9.3 million from the $25 million upfront payment we received from AstraZeneca in December 2012, which represented nine percent of our total revenue for that period. Our balance sheet at December 31, 2012 included deferred revenue of $15.7 million related to our relationship with AstraZeneca. Biogen Idec We have established three strategic collaborations with Biogen Idec that broaden and expand our severe and rare disease franchise. In January 2012, we entered into a global collaboration agreement with Biogen Idec to develop and commercialize ISIS-SMNRx for the treatment of SMA. Under the terms of the agreement, we received an upfront payment of $29 million and are eligible to receive up to $45 million in substantive milestone payments associated with the clinical development of ISIS-SMNRx prior to licensing. We are responsible for developing ISIS-SMNRx. Biogen Idec has the option to license ISIS-SMNRx until completion of the first successful Phase 2/3 study or the completion of two Phase 2/3 studies. If Biogen Idec exercises its option, it will pay us a license fee and will assume global development, regulatory and commercialization responsibilities. We are also eligible receive up to $150 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of ISIS-SMNRx. We will earn the next milestone payment of $18 million if we initiate the Phase 2/3 study for ISIS-SMNRx. In June 2012, we and Biogen Idec entered into a second and separate collaboration and license agreement to develop and commercialize a novel antisense drug targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. Under the terms of the agreement, we received an upfront payment of $12 million and are eligible to receive up to $59 million in substantive milestone payments associated with the development of the DMPK-targeting drug prior to licensing. We are responsible for global development of the drug through the completion of Phase 2 clinical trials. Biogen Idec has the option to license the drug through the completion of the Phase 2 trial. We are also eligible to receive up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of the drug. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for our DMPK program. In December 2012, we and Biogen Idec entered into a third and separate collaboration to develop and commercialize novel antisense drugs to three targets to treat neurological or neuromuscular diseases. We are responsible for the development of the drugs through the completion of the initial Phase 2 clinical study. Biogen Idec has the option to license a drug from each of the three programs through the completion of Phase 2 studies. Under the terms of the agreement, we received an upfront payment of $30 million and are eligible to receive development milestone payments to support research and development of each program including a $10 million milestone payment per program upon initiation of an IND-enabling toxicology study. We are also eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program including up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive double-digit royalties on any product sales of drugs resulting from each of the three programs. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for a development candidate identified under this collaboration. During 2012, we earned revenue of $8.5 million from our relationships with Biogen Idec, which represented eight percent of our total revenue for that period. Our balance sheet at December 31, 2012 included deferred revenue of $62.6 million related to the upfront payments. 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. 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 2012, 2011 and 2010, we earned revenue of $290,000, $2.4 million and $12.2 million, respectively, from Bristol-Myers Squibb, which represented less than one percent, two percent and 11 percent, respectively, of our total revenue for those years. Our balance sheets at both December 31, 2012 and 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. In the second quarter of 2012, Eli Lilly and Company decided not to continue the development of LY2181308. Therefore we will not earn future milestone payments from Eli Lilly and Company associated with 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 2012, 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. The license and co-development agreement provides Genzyme with exclusive worldwide rights for all therapeutic purposes to our patents and know-how related to KYNAMRO, including the key product related patents and their foreign equivalents pending or granted in various countries outside the United States, including in the European Union via the European Patent Convention, Japan, Canada, Australia, South Africa and India. In addition, we agreed that we would not develop or commercialize another oligonucleotide-based compound designed to modulate apo-B by binding to the messenger RNA, or mRNA, encoding apo-B, throughout the world. The transaction included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock, and a share of worldwide profits on KYNAMRO and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales. In May 2012, we earned a $25 million milestone payment from Genzyme when the FDA accepted the NDA for KYNAMRO and in January 2013 we earned an additional $25 million milestone payment when the NDA was approved. We may also receive over $1.5 billion in substantive milestone payments if Genzyme achieves pre-specified events, including up to $700 million for the achievement of regulatory milestones and up to $825 million for the achievement of commercialization milestones. The next milestone payment we could earn under our agreement with Genzyme is $25 million upon the earlier of an NDA Approval for the use of KYNAMRO to treat patients who have heterozygous FH or annual net revenue equals or exceeds $250 million in a calendar year. Under this alliance, Genzyme is responsible for the continued development and commercialization of KYNAMRO. We agreed to supply the drug substance for KYNAMRO for the Phase 3 clinical trials and initial commercial launch. Genzyme is responsible for manufacturing the finished drug product for KYNAMRO, including the initial commercial launch supply, and Genzyme will be responsible for the long term supply of KYNAMRO drug substance and finished drug product. As part of the agreement, we contributed the first $125 million in funding for the development costs of KYNAMRO. In 2011, we satisfied our development funding obligation. As such, we and Genzyme shared development expenses equally in 2012. Our shared funding of development expenses will end when KYNAMRO is profitable. The license and co-development agreement for KYNAMRO will continue in perpetuity unless we or Genzyme terminate it earlier under the following situations: · Genzyme may terminate the license and co-development agreement at any time by providing written notice to Isis; · We may terminate the license and co-development agreement on a country-by-country basis or in its entirety upon Genzyme’s uncured failure to use commercially reasonable efforts to develop and commercialize KYNAMRO in the United States, France, Germany, Italy, Spain, the United Kingdom, Japan and Canada; and · Either we or Genzyme may terminate the license and co-development agreement upon the other party’s uncured failure to perform a material obligation under the agreement. Upon termination of the license and co-development agreement, the license we granted to Genzyme for KYNAMRO will terminate and Genzyme will stop selling the product. In addition, if Genzyme voluntarily terminates the agreement or we terminate the agreement in a country or countries for Genzyme’s failure to develop and commercialize KYNAMRO, then the rights to KYNAMRO will revert back to us and we may develop and commercialize KYNAMRO in the countries that are the subject of the termination, subject to a royalty payable to Genzyme. If we are the subject of an acquisition, then within 180 days following the acquisition, Genzyme may elect to purchase all of our rights to receive payments under the KYNAMRO license and co-development agreement for a purchase price to be mutually agreed to by us and Genzyme, or, if we cannot agree, a fair market value price determined by an independent investment banking firm. Genzyme has agreed to monthly limits on the number of shares it can sell of the Company’s stock that it purchased in February 2008. In addition, Genzyme has agreed that until the earlier of the 10 year anniversary of the KYNAMRO license and co-development agreement or the date Genzyme holds less than two percent of our issued and outstanding common stock, Genzyme will not acquire any additional shares of our common stock without our consent. The price Genzyme paid for our common stock represented a significant premium over the then fair value of our common stock. In May 2012, we finished amortizing this $100 million premium along with the $175 million licensing fee that we received in the second quarter of 2008. During 2012, 2011 and 2010, we earned revenue of $67.6 million, $72.3 million and $66.9 million, respectively, from our relationship with Genzyme, which represented 66 percent, 73 percent and 62 percent, respectively, of our total revenue for those years. Our balance sheets at December 31, 2012 and 2011 included deferred revenue of $3.8 million and $27.7 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. Under the terms of the original agreement, which includes five programs in addition to the transthyretin, or TTR, program, we are eligible to receive on average up to $20 million in milestone payments per program up to Phase 2 proof-of-concept. GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and will be responsible for all further development and commercialization. In October 2012, we and GSK amended the original agreement to reflect an accelerated clinical development plan for ISIS-TTRRx. Under the amended terms of the agreement, we received a $2.5 million upfront payment in December 2012, and we received a $7.5 million milestone payment in February 2013 when we initiated the Phase 2/3 clinical study for ISIS-TTRRx. We have already received $17.5 million in milestone payments from GSK related to the development of ISIS-TTRRx, including the $7.5 million milestone payment we received in February 2013. We are also eligible to earn an additional $50 million in pre-licensing milestone payments associated with the ISIS-TTRRx Phase 2/3 study. In addition, GSK has increased the regulatory and commercial milestone payments we can earn should ISIS-TTRRx achieve registration and meet certain sales thresholds. Under the terms of the amended agreement, 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 $1.3 billion, including up to $231.5 million for the achievement of development milestones, up to $594.5 million for the achievement of regulatory milestones and up to $545 million for the achievement of commercialization milestones. We will earn the next milestone payment of $2 million upon dosing the 10th patient in the Phase 2/3 clinical study for ISIS-TTRRx. In addition, we are eligible to receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance. During 2012, 2011 and 2010, we earned revenue of $8.2 million, $17.7 million and $10.3 million, respectively, from our relationship with GSK, which represented eight percent, 18 percent and nine percent, respectively, of our total revenue for those years. Our balance sheets at December 31, 2012 and 2011 included deferred revenue of $19.9 million and $25.3 million, respectively, related to the upfront and expansion payments. 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 are eligible to receive royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development of plazomicin. During 2012 and 2011, we did not earn any revenue from our relationship with Achaogen. During 2010, we earned $2 million in revenue from our relationship with Achaogen, which does not include any revenue from the equity we received from Achaogen. At December 31, 2012 and 2011, 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. In August 2012, we expanded the license to include using the double-stranded RNAi technology for agricultural products. 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. 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. 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, 2012, 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. In 2012, we earned $2.7 million in sublicense revenue when Alnylam licensed our technology to Monsanto Company and Genzyme. In addition, we have the potential to receive a portion of future milestone payments and royalty payments from these licenses. As of December 31, 2012, we have earned a total of $48.1 million from Alnylam resulting from licenses of our technology for the development of RNAi therapeutics and technology that we granted to Alnylam and Alnylam has granted to its partners. During 2012, 2011 and 2010, we earned revenue from our relationship with Alnylam totaling $2.7 million, $375,000 and $10.3 million, respectively, which represented three percent, less than one percent and nine 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 three years, ATL has raised approximately $8 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. We are eligible to receive royalties 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, 2012 and 2011, we owned less than 10 percent of ATL’s equity. During 2012, we did not earn any revenue from our relationship with ATL. During 2011 and 2010, we earned revenue of $210,000, and $35,000, respectively, from 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, 2012 and 2011, we owned approximately 11 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. Atlantic Pharmaceuticals is solely responsible for the continued development of alicaforsen. In 2010, Atlantic Pharmaceuticals began supplying alicaforsen under international Named Patient Supply regulations for patients with inflammatory bowel disease, or IBD, for which we are receiving royalties. Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen. During 2012, we earned $3,000 from our relationship with Atlantic Pharmaceuticals and during 2011 and 2010 we did not earn any revenue from our relationship with Atlantic Pharmaceuticals. 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 December 2011, Pfizer Inc. acquired Excaliard. To date, we have received $5.7 million and we are eligible to receive up to an additional $8.3 million in contingent payments upon achievement of various milestones associated with the clinical and commercial progress of EXC 001. In addition, we continue to be eligible for milestone and royalty payments under our licensing agreement for EXC 001. Assuming Pfizer Inc. successfully develops and commercializes EXC 001, 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 are eligible to receive royalties on any product sales of EXC 001. At December 31, 2012, we owned no equity in Excaliard. During 2012 and 2011, we received $1.3 million and $4.4 million, respectively, from Pfizer Inc. in payments related to the acquisition of Excaliard, which we recorded as a gain on investments. We did not earn any revenue during 2012 and 2011 and during 2010 we earned revenue of $3,000 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 and is currently evaluating it in a Phase 2 study in patients with diabetic retinopathy. We received a $500,000 upfront fee from iCo and may receive 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 are eligible to receive royalties on any product sales of iCo-007. Under the terms of the agreement, iCo is solely responsible for the development and commercialization of the drug. Over the course of our relationship, iCo has paid us in a combination of cash, common stock and convertible notes. As a result, our ownership in iCo at December 31, 2012 and 2011 was approximately nine percent and 12 percent, respectively. During 2012 we did not earn any revenue from our relationship with iCo and during 2011 and 2010 we earned $7,000 in each period 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 custirsen, formerly 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 custirsen. In exchange, OncoGenex agreed to pay us royalties on sales of custirsen and to share consideration it receives from licensing custirsen 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 custirsen 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 custirsen. 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 custirsen, 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 custirsen 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 custirsen and related compounds, with OncoGenex having an option to co-promote custirsen 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 any product sales of custirsen 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 custirsen 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 custirsen 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 custirsen, 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 are eligible to receive royalties on future product sales of OGX-225. As of December 31, 2012, 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 are eligible to 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 2011, we earned $750,000 in revenue from our relationship with OncoGenex. During 2012 and 2010, we did not earn any revenue from our relationship with OncoGenex. 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-targeting therapeutics. 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. We and Alnylam co-founded Regulus and we each granted Regulus exclusive licenses to our respective intellectual property for microRNA therapeutic applications, and certain early fundamental patents in the microRNA field. Under this agreement, we are eligible to receive fees and/or royalty payments on microRNA therapeutic products that Regulus or its partners develop. In October 2012 Regulus completed an IPO, in which we participated by purchasing $3 million of Regulus’ common stock at the offering price. We remain a significant shareholder with approximately seven million shares. We now own less than 20 percent of Regulus’ common stock and we no longer have significant influence over the operating and financial policies of Regulus. In the fourth quarter of 2012 we stopped using the equity method of accounting for our investment in Regulus and instead we began accounting for our investment at fair value. In the fourth quarter of 2012, we recorded an $18.4 million gain to reflect the change in our ownership percentage as a result of Regulus’ IPO. Regulus has successfully developed strategic partnerships with partners like Sanofi, GSK, Biogen Idec and AstraZeneca. We benefit from Regulus’ strategic partnerships because we have the potential to receive a portion of future milestone payments and royalty payments. For example, under Regulus’ strategic partnership with Sanofi, we and Alnylam each received 7.5 percent, or $1.9 million, of the $25 million upfront payment and are eligible to receive 7.5 percent of all future milestone payments, in addition to royalties on any product sales. During 2012 and 2011, we did not earn any revenue from our relationship with Regulus. In 2010, we earned $1.9 million from our relationship with Regulus. 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 May 2012, Xenon selected XEN701, a drug targeting the hepcidin-hemojuvelin pathway, as a development candidate. Xenon may take an exclusive license for the development and worldwide commercialization of XEN701. Under our collaboration agreement with Xenon we may receive up to $296 million in substantive milestone payments for the achievement of pre-specified milestone events that are met by two independent products, including up to $26 million for the achievement of development milestones, up to $150 million for the achievement of regulatory milestones and up to $120 million for the achievement of commercialization milestones. In addition, we are eligible to receive royalties on future product sales of XEN701 and a portion of sublicense revenue. We will earn the next milestone payment of $3 million if Xenon initiates a Phase 2 clinical trial for XEN701. In August 2012, we and Xenon entered into a separate collaboration to discover and develop an antisense drug targeting sodium channel, voltage-gated, type IX, alpha subunit, or SCN9A. Under our collaboration, we obtained exclusive and non-exclusive licenses to certain Xenon patent rights related to SCN9A. Xenon has the option to license a drug targeting SCN9A through identification of a development candidate. If Xenon exercises its option, Xenon will pay us a license fee and will assume global development, regulatory and commercialization responsibilities. In addition to a license fee, we may receive up to $177 million in substantive milestone payments upon the achievement of pre-specified events, including up to $22 million for the achievement of development milestones, up to $85 million for the achievement of regulatory milestones and up to $70 million for the achievement of commercialization milestones. In addition, we are eligible to receive royalties on future product sales of SCN9A and a portion of sublicense revenue. We will earn the next milestone payment of $5 million when Xenon completes studies that are sufficient to support filing an IND for an antisense drug targeting the SCN9A gene. During 2012 and 2011, we earned revenue of $84,000 and $80,000, respectively, from our relationship with Xenon. 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 2012, and 2011, we earned revenue of $2.0 million and $2.4 million, respectively, from our relationship with CHDI. In 2010, we did not earn any revenue from our relationship with CHDI. Our balance sheets at December 31, 2012 and 2011 included deferred revenue of $229,000 and $568,000, respectively, related to our relationship with CHDI. The Ludwig Institute; Center for Neurological Studies 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. Technology and 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 Abbott Molecular Inc., or 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 2012, 2011 and 2010 we did not earn any revenue from our relationship with AMI. Eyetech Pharmaceuticals, Inc. (acquired by Valeant Pharmaceuticals International, 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. Eyetech markets Macugen in the United States and Pfizer Inc. markets the drug outside of the United States. In February 2012, Eyetech was acquired by Valeant Pharmaceuticals International, 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. In 2012, 2011 and 2010, we earned $499,000, $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 2012, 2011 and 2010, we earned revenue of $1.0 million, $828,000 and $1.8 million, respectively, from our relationship with Roche Molecular Systems. Our balance sheets at December 31, 2012 and 2011 included deferred revenue of $400,000 and $300,000, respectively, 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 its 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 2012, 2011 and 2010 we earned revenue of $10,000, $10,000 and $20,000, respectively, from our relationship with Idera. 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.

Organization and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Organization and Significant Accounting Policies

Basis of Presentation

Basis of Presentation

Basic and diluted net loss per share

Basic and diluted net loss per share

· 25/8 percent convertible subordinated notes;

· 23¤4 percent convertible senior notes;

· GlaxoSmithKline convertible promissory notes issued by Regulus;

· Dilutive stock options;

· Restricted stock units; and

· Warrants issued to Symphony GenIsis Holdings LLC.

Revenue Recognition