ISIS PHARMACEUTICALS, INC.

2855 Gazelle Court

Carlsbad, CA 92010

NOTICE OF

2013 ANNUAL MEETING OF STOCKHOLDERS

AND PROXY STATEMENT

Dear Stockholders,

I am pleased to invite you to Isis Pharmaceuticals, Inc.’s 2013 Annual Meeting of Stockholders.  We will host the meeting at our offices in Carlsbad, California on Tuesday, June 25, 2013, at 2:00 p.m. Pacific Time.  In addition to covering the formal items on the agenda, we will review the major developments of the past year and our plans for 2013, and answer your questions.

This booklet includes the agenda for this year’s Annual Meeting and the Proxy Statement.  The Proxy Statement explains the matters we will discuss in the meeting and provides additional information about us.

Your vote is very important.  Whether or not you plan to attend the meeting, please be sure to vote your shares as soon as possible to ensure your representation at the meeting.  We are distributing our Notice of Annual Meeting and Proxy Materials using the Notice and Access procedures established by the United States Securities and Exchange Commission.  As a result, you will receive in the mail a notice regarding the availability of proxy materials.  This notice is important because it contains a control number and instructions that will allow you to access our proxy materials and vote electronically through the Internet or request printed proxy materials so you may vote by telephone or mail.

If you are a stockholder of record (that is, if your stock is registered with us in your own name), you may also vote by telephone, or electronically through the Internet, by following the instructions included with your proxy card.  If your shares are registered in the name of a broker or other nominee, your nominee may be participating in a program provided through Broadridge Financial Solutions, Inc. that also allows you to vote by telephone or through the Internet.  If so, the voting form your nominee sends you will provide telephone and Internet voting instructions.

If you plan to attend the meeting and prefer to vote in person, you may still do so even if you have already returned your proxy.  If you cannot attend, please note that we will make a webcast of the presentation available on the day of the meeting and for a limited time following the meeting at www.isispharm.com.(1)  In this document, the words “Isis,” “we,” “our” and “us” refer only to Isis Pharmaceuticals, Inc. and its subsidiaries and not any other person or entity.

PLEASE NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE HOLDS YOUR SHARES OF RECORD AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE BROKER, BANK OR OTHER NOMINEE.

We look forward to seeing you at the meeting.

(1)         Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

ISIS PHARMACEUTICALS, INC.

2855 Gazelle Court

Carlsbad, CA 92010

NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS

Dear Stockholders,

At our 2013 Annual Meeting, we will ask you to:

·                  Proposal 1:     elect Stanley T. Crooke and Joseph Klein, III to serve as Directors for a three-year term;

·                  Proposal 2:     approve an amendment to the Isis Pharmaceuticals, Inc. 2011 Equity Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the 2011 Equity Incentive Plan by 3,500,000 to an aggregate of 5,500,000 shares.

·                  Proposal 3:     make an advisory vote on executive compensation;

·                  Proposal 4:     ratify the Audit Committee’s selection of Ernst & Young LLP as independent auditors for our 2013 fiscal year; and

·                  Transact any other business that may be properly presented at the Annual Meeting.

The foregoing items of business are more fully described in the enclosed Proxy Statement.

If you were an Isis stockholder of record at the close of business on April 26, 2013 you may vote at the Annual Meeting.

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE BY TELEPHONE OR INTERNET BY FOLLOWING THE INSTRUCTIONS INCLUDED IN THIS PROXY STATEMENT AND YOUR NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS OR PROXY CARD.  ALTERNATIVELY, YOU MAY REQUEST A WRITTEN PROXY STATEMENT, AND COMPLETE, DATE, SIGN AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING.  IF YOU RECEIVE YOUR PROXY MATERIALS BY MAIL, WE WILL INCLUDE A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) FOR THAT PURPOSE.  EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.  PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE BROKER, BANK OR OTHER NOMINEE A PROXY ISSUED IN YOUR NAME.

ISIS PHARMACEUTICALS, INC.

2855 Gazelle Court

Carlsbad, CA 92010

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

Why did I receive a Notice regarding the availability of proxy materials on the Internet?

Isis’ Board of Directors is soliciting your proxy to vote at the 2013 Annual Meeting of Stockholders, including at any adjournments or postponements of the meeting.  We are distributing our Notice of Annual Meeting and Proxy Materials (the “Notice”) using the Notice and Access procedures established by the United States Securities and Exchange Commission (the “SEC”).  As a result, you received in the mail the Notice regarding the availability of proxy materials.  This Notice is important because it contains a control number and instructions that will allow you to access our proxy materials and vote electronically through the Internet or request printed proxy materials so you may vote by telephone or mail.  Your vote is very important.  Whether or not you plan to attend the meeting, please be sure to vote your shares as soon as possible to ensure your representation at the meeting.

We intend to mail the Notice on or about May 9, 2013 to all stockholders of record entitled to vote at the Annual Meeting.

Will I receive any other proxy materials by mail?

We may choose to send you a proxy card, along with a second Notice, on or after May 19, 2013.

Where and when is the Annual Meeting and how do I attend?

We will hold the meeting on Tuesday, June 25, 2013, at 2:00 p.m. Pacific Time at our offices located at 2855 Gazelle Court, Carlsbad, California 92010.  You may find directions to the Annual Meeting at www.isispharm.com.(2)  We discuss below information on how to vote in person at the Annual Meeting.

If you cannot attend, please note that we will make a webcast of the presentation available on the day of the meeting and for a limited time following the meeting at www.isispharm.com.(2)

If you plan to attend the meeting and prefer to vote in person, you may still do so even if you have already returned your proxy.

Who can vote at the Annual Meeting?

Only stockholders of record at the close of business on April 26, 2013 may vote at the Annual Meeting.  On this record date, there were 103,378,490 shares of common stock outstanding and entitled to vote.

Stockholder of Record:  Shares Registered in Your Name

If on April 26, 2013 your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, then you are a stockholder of record.  As a stockholder of record, you may vote in person at the meeting or vote by proxy.  Whether or not you plan to attend the meeting, we urge you to fill out and return the proxy card or vote by proxy over the telephone or on the Internet as instructed under the section titled “How do I vote” below to ensure your vote is counted.

(2)         Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If on April 26, 2013 your shares were not held in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and that organization is forwarding the Notice to you.  The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting.  As a beneficial owner, you may direct your broker or other agent regarding how to vote the shares in your account.  If your shares are registered in the name of a broker or other nominee, your nominee may be participating in a program provided through Broadridge Financial Solutions, Inc. (“Broadridge”) that also allows you to vote by telephone or through the Internet.  If so, the voting form your nominee sends you will provide telephone and Internet instructions.  You are also invited to attend the Annual Meeting in person.

PLEASE NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE HOLDS YOUR SHARES OF RECORD AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE BROKER, BANK OR OTHER NOMINEE.

What am I voting on?

There are four matters scheduled for a vote:

·                  Proposal 1:     elect Stanley T. Crooke and Joseph Klein, III to serve as Directors for a three-year term;

·                  Proposal 2:     approve an amendment to the Isis Pharmaceuticals, Inc. 2011 Equity Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the 2011 Equity Incentive Plan by 3,500,000 to an aggregate of 5,500,000 shares.

·                  Proposal 3:     make an advisory vote on executive compensation; and

·                  Proposal 4:     ratify the Audit Committee’s selection of Ernst & Young LLP as independent auditors for our 2013 fiscal year.

What if another matter is properly brought before the meeting?

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting.  If any other matters are properly brought before the meeting, the persons named in the accompanying proxy intend to vote on those matters in accordance with their best judgment.

How do I vote?

You may vote in one of the following ways:

·                  vote through the Internet by following the instructions included with your Notice of availability of proxy materials or proxy card;

·                  if you have received proxy materials electronically or by mail, you may vote by telephone by following the instructions included with your proxy card;

·                  complete, sign, date and return your proxy card in the postage paid envelope provided; or

·                  attend the 2013 Annual Meeting and vote in person.

The procedures for voting are fairly simple:

For Shares Registered in Your Name:

If you are a stockholder of record, you may go to www.proxyvote.com to vote your shares through the Internet.  The votes represented by your proxy will be displayed on the computer screen and you will be prompted to submit or revise your votes as desired.

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To vote your shares by telephone, you must first request that we send proxy materials to you by following the instructions included in your Notice regarding availability of proxy materials.  Once you have received your proxy materials, you may vote using a touch-tone telephone by calling 1-800-690-6903 and following the recorded instructions.  Please have your proxy card available at the time you vote.

For Shares Registered in the Name of a Broker or Bank:

If your broker or bank holds your shares in “street name,” you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker to vote your shares.  If you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items.  Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which a broker may vote shares held in street name in the absence of your voting instructions.  The proposal to ratify Ernst & Young LLP as independent auditors is a discretionary item.  Proposals 1-3 regarding the election of Directors, approval of an amendment to our equity incentive plan, and the advisory vote regarding executive compensation are non-discretionary items.  If you do not give your broker instructions for a non-discretionary item, the inspector of elections will treat your shares as broker non-votes.

A number of brokers and banks are participating in a program provided by Broadridge which allows proxies to vote shares by means of the telephone and Internet.  If your shares are held in an account with a broker or bank participating in the Broadridge program, you may vote your shares by telephone or through the Internet by having the voting form in hand and calling the number or going to the website indicated on the form and following the instructions.

What if I return a proxy card or otherwise vote but do not make specific choices?

If you return a signed and dated proxy card or otherwise vote without marking voting selections, your proxyholder (one of the individuals named on your proxy card) will vote your shares as follows:

·                  “For” the election of the nominees for Directors named in the Proxy Statement;

·                  “For” the approval of the amendment to the 2011 Equity Incentive Plan;

·                  “For” the approval, on an advisory basis, of executive compensation; and

·                  “For” the ratification of the Audit Committee’s selection of Ernst & Young LLP as independent auditors for our 2013 fiscal year.

If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

Our Board of Directors is soliciting your proxy to vote at the Annual Meeting.  We will bear the entire cost of soliciting proxies, including preparing, assembling, making available on the Internet and printing and mailing this Proxy Statement, the proxy card and any additional information furnished to stockholders.  We will furnish copies of solicitation materials to banks, brokerage houses, fiduciaries and custodians holding in their name shares of our common stock beneficially owned by others to forward to such beneficial owners.  We may reimburse persons representing beneficial owners of our common stock for their costs of forwarding solicitation materials to such beneficial owners.  Our Directors, officers or other employees may supplement original solicitation of proxies by telephone, electronic mail or personal solicitation.  We will not pay our Directors, officers or employees any additional compensation for soliciting proxies.  We have engaged Alliance Advisors LLC to render solicitation services, and will pay Alliance its customary fee, which we estimate to be about $13,000.  However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers or telephone companies.

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What does it mean if I receive more than one Notice?

If you receive more than one Notice of availability of proxy materials or proxy card, your shares are registered in more than one name or are registered in different accounts.  Please complete, sign and date and return each separate proxy card or vote by telephone or through the Internet by following the instructions included with each Notice or proxy card to properly vote your shares.

Can I change my vote after submitting my proxy?

Yes.  Once you have submitted your proxy by mail, Internet or telephone, you may revoke it at any time before we exercise it at the Annual Meeting.  You may revoke your proxy by any one of the following four ways:

·                  you may mail another proxy marked with a later date;

·                  you may revoke it through the Internet;

·                  you may notify our Secretary in writing sent to 2855 Gazelle Court, Carlsbad, California 92010 that you wish to revoke your proxy before the Annual Meeting takes place; or

·                  you may vote in person at the Annual Meeting.  Attendance at the meeting will not, by itself, revoke a proxy.

When are stockholder proposals due for next year’s Annual Meeting?

If you have a proposal or Director nomination that you would like us to include in our Proxy Statement and form of proxy for, or to present at the 2014 Annual Meeting of Stockholders, you must send the proposal to us by no later than January 9, 2014.  Stockholders wishing to submit proposals or Director nominations that are not to be included in such Proxy Statement and form of proxy must do so no later than the close of business on February 25, 2014.  Stockholders should also review our bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and Director nominations.

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting.  A quorum will be present at the meeting if at least a majority of the outstanding shares are represented in person or by proxy.  We will count your shares towards the quorum only if you submit a valid proxy vote or vote at the meeting.  We will count abstentions and broker non-votes towards the quorum requirement.

If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy may adjourn the meeting to another date.

How are votes counted?

Each share of our common stock that you own entitles you to one vote.  Your Notice of availability of proxy materials and proxy card indicates the number of shares of our common stock that you owned at the close of business on April 26, 2013.  The inspector of election will count votes for the meeting, and will separately count “For” and “Against” votes, abstentions and broker non-votes.  With respect to the election of Directors, stockholders do not affirmatively vote “Against” Directors.  Instead, if you do not want to elect a particular Director, you may simply withhold your “For” vote.  Except with respect to Proposal 1, election of directors, the inspector of election will count abstentions towards the vote total for each proposal and abstentions will have the same effect as “Against” votes.  Broker non-votes have no effect and the inspector of election will not count them towards the vote total for any proposal.  For Proposal 1, the inspector of election will not count abstentions and broker non-votes.

What are “broker non-votes”?

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.”  If your broker holds your shares in “street name,” and you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items.  Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which a broker may vote shares

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held in street name in the absence of your voting instructions.  The proposal to ratify Ernst & Young LLP as independent auditors is a discretionary item.  Proposals 1-3 regarding the election of a Director, approval of the amendment to our equity incentive plan, and the advisory vote regarding executive compensation are non-discretionary items.  If you do not give your broker instructions for a non-discretionary item, the inspector of elections will treat your shares as broker non-votes.

How many votes are needed to approve each proposal?

·                  For the election of Directors in an uncontested election, a Director nominee must receive a majority of the votes cast in person or by proxy in the election such that the number of shares voted “For” the nominee must exceed 50% of the votes cast with respect to that Director.  Only “For” and “Withhold” votes will affect the outcome.  Abstentions and broker non-votes will have no effect;

·                  To be approved, Proposal 2 regarding the amendment of the Isis Pharmaceuticals, Inc. 2011 Equity Incentive Plan must receive “For” votes from the holders of a majority of shares either present in person or represented by proxy and entitled to vote.  If you mark your proxy to “Abstain” from voting, it will have the same effect as an “Against” vote.  Broker non-votes will have no effect;

·                  We will consider Proposal 3 regarding advisory approval of the compensation of our executive officers, to be approved if it receives “For” votes from the holders of a majority of shares either present in person or represented by proxy and entitled to vote.  If you “Abstain” from voting, it will have the same effect as an “Against” vote.  Broker non-votes will have no effect; and

·                  To be approved, Proposal 4, ratification of the selection of Ernst & Young LLP as our independent auditors for our 2013 fiscal year, must receive “For” votes from the holders of a majority of shares present in person or by proxy and entitled to vote.  If you “Abstain” from voting, it will have the same effect as an “Against” vote.

How can I find out the results of the voting at the Annual Meeting?

We will announce preliminary voting results at the Annual Meeting.  In addition, we will publish final voting results in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting.  If final voting results are not available to us in time to file a Form 8-K within four business days after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after we know the final results, file an additional Form 8-K to publish final results.

How can I elect to receive materials for future Annual Meetings electronically?

We are pleased to offer to our stockholders the benefits and convenience of electronic delivery of Annual Meeting materials, including:

·                  delivering the Proxy Statement, Annual Report and related materials by email to our stockholders;

·                  stockholder voting online;

·                  helping the environment by decreasing the use of paper documents;

·                  reducing the amount of bulky documents stockholders receive; and

·                  reducing our printing and mailing costs associated with more traditional delivery methods.

We encourage you to conserve natural resources and to reduce printing and mailing costs by signing up for electronic delivery of our stockholder communications after you place your current vote at www.proxyvote.com.

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PROPOSAL 1

ELECTION OF DIRECTORS

Information about our Board of Directors

The Board is divided into three classes.  Presently, the Board has six members with one class consisting of three Directors, one class consisting of two Directors and one class consisting of one Director.  Each class serves a three-year term and we hold elections each year at the Annual Meeting to elect the Directors whose terms are expiring.

In addition, the Board may elect a new Director to fill any vacant spot, including a vacancy caused by an increase in the size of the Board.  However, the Board believes it is important for our stockholders to ratify any member of the Board who the Board appoints.  As a result, whenever the Board appoints a new member, the Board will submit such new member’s directorship for approval at the next regularly scheduled Annual Meeting of Stockholders.  If the stockholders elect the Board member, he or she will serve the remaining term of the class of Directors to which he or she was elected.

The Board represents the interests of our stockholders by overseeing the Chief Executive Officer and other members of senior management in our operation.  The Board’s goal is to optimize long-term value by providing guidance and strategic oversight to Isis’ management on our stockholders’ behalf.

Ongoing Director Search

We are currently conducting a Director search in the exercise of due care for at least one new candidate as soon as practicable.  This new Director will not only satisfy the independence requirements under the NASDAQ listing requirements, but will have no material connection to our Company (that is, no material financial, personal, business or other relationship that a reasonable person could conclude could potentially influence boardroom objectivity) prior to being appointed to the Board.  We commit to having this new Director in place within no more than six months after the Annual Meeting.

Information about the 2013 Elections

The Board has nominated two Directors for election at the 2013 Annual Meeting.  Each of the nominees currently serves as one of our Directors.  Dr. Crooke and Mr. Klein have served as a Director since January 1989 and December 2005, respectively, and have been re-elected by our stockholders each successive term.  In addition, Dr. Crooke has served as Chairman of the Board since February 1991.  If re-elected, Dr. Crooke and Mr. Klein will serve until the 2016 Annual Meeting or, in each case, until his successor is elected and has qualified, or until his death, resignation or removal.

On December 13, 2011, the Board of Directors, upon recommendation of the Nominating, Governance and Review Committee, adopted our Amended and Restated Bylaws to, among other things, adopt a majority vote standard for the election of directors in uncontested elections.  The new majority vote standard provides that to be elected, in an uncontested election, a director nominee must receive a majority of the votes cast in the election such that the number of shares voted “for” the nominee must exceed 50% of the votes cast with respect to that Director.  The number of votes cast with respect to a Director’s election excludes abstentions and broker non-votes with respect to that Director’s election.  In contested elections where the number of nominees exceeds the number of Directors to be elected, the vote standard will be a plurality of the shares present in person or by proxy and entitled to vote.

If a nominee who already serves as a Director is not elected, and no successor is elected, the Director will offer to tender his or her resignation to the Board of Directors. The Nominating, Governance and Review Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether to take other action. The Board will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The Director who tenders his or her resignation will not participate in the recommendation of the Nominating, Governance and Review Committee or in the Board’s decision. If a nominee’s failure to be elected at the Annual Meeting results in a vacancy on the Board, then the Board can fill the vacancy.

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The Nominating, Governance and Review Committee delivered its report to the Board on February 12, 2013.  Following that report, the Board determined it would be in the best interests of Isis and its stockholders to nominate Dr. Crooke and Mr. Klein as Directors to be elected at the Annual Meeting.  We provide below a short biography for Dr. Crooke and Mr. Klein and for each Director whose term of office will continue after the Annual Meeting.  Dr. Crooke and Mr. Klein have agreed to serve if elected, and we have no reason to believe that they cannot serve.  However, if Dr. Crooke and Mr. Klein cannot serve, we may vote your proxy for another nominee proposed by the Board, or the Board may reduce the number of authorized Directors.

Biography of the Nominees for Election for a Three-year Term Expiring at the 2016 Annual Meeting

Stanley T. Crooke, M.D., Ph.D., age 68, is a founder of Isis and has been Chief Executive Officer and a Director since January 1989.  He was elected Chairman of the Board in February 1991.  Prior to founding Isis, from 1980 until January 1989, Dr. Crooke worked for SmithKline Beckman Corporation, a pharmaceutical company, where his titles included President of Research and Development of SmithKline and French Laboratories.

The Board believes Dr. Crooke is uniquely suited to serve on the Board primarily because as the Chief Executive Officer and founder of Isis he has dedicated nearly 25 years to the discovery and development of antisense, our technology platform.  He is the named inventor on some of the key patents in the field of RNA-targeted therapeutics, and has over 30 years of drug discovery and development experience.

Joseph Klein, III, age 52, has served as a Director of Isis since December 2005.  Mr. Klein is currently Managing Director of Gauss Capital Advisors, LLC, a financial consulting and investment advisory firm focused on biopharmaceuticals, which he founded in March 1998.  From September 2003 to December 2008, Mr. Klein also served as a Venture Partner of Red Abbey Venture Partners, L.P., a life science private equity fund.  From September 2001 to September 2002, Mr. Klein was a Venture Partner of MPM Capital, a healthcare venture capital firm.  From June 1999 to September 2000 when it merged with WebMD Corporation, Mr. Klein served as Vice President, Strategy, for Medical Manager Corporation, a leading developer of physician office management information systems.  For over nine years from 1989 to 1998, Mr. Klein was a health care investment analyst at T. Rowe Price Associates, Inc., where he was the founding portfolio manager of the T. Rowe Price Health Sciences Fund, Inc.  Mr. Klein serves on the board of directors of The Prospector Funds, Inc., an SEC Registered Investment Company that manages two no-load mutual funds.  Mr. Klein also serves on the boards of private and non-profit entities.  Within the last five years, Mr. Klein formerly served on the board of directors of five publicly held biotechnology companies:  BioMarin Pharmaceutical Inc., NPS Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc., PDL BioPharma, Inc. and Savient Pharmaceuticals, Inc.

The Board believes that Mr. Klein is uniquely suited to serve on the Board and the Audit Committee because he is a Chartered Financial Analyst, and because he has extensive public company, venture investment, board, and financial advisory expertise in the life sciences industry.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF THE ABOVE NOMINEES.

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Biographies of Directors Whose Terms Expire at the 2014 Annual Meeting

Spencer R. Berthelsen, M.D., age 61, has served as a Director of Isis since May 2002.  Since 1980, he has practiced Internal Medicine with the Kelsey Seybold Clinic, a 370 physician medical group based in the Texas Medical Center in Houston.  Dr. Berthelsen has served in various senior leadership positions at Kelsey Seybold, including Chairman of the Department of Internal Medicine, Medical Director and Managing Director.  He has been Chairman of their Board of Directors since October 2001.  He has served as a Clinical Professor of Medicine at Baylor College of Medicine and the University of Texas Health Science Center of Houston.  Dr. Berthelsen has served on the board of the Texas Academy of Internal Medicine in the past and the Caremark National Pharmacy and Therapeutics Committee from 1999 through 2005.

The Board believes Dr. Berthelsen is uniquely suited to serve on the Board because of his current position managing a large multispecialty group practice and 32 years of experience as a practicing physician.

B. Lynne Parshall, age 58, has served as a Director of Isis since September 2000.  She has been our Chief Operating Officer since December 2007 and previously served as our Chief Financial Officer from June 1994 through December 31, 2012.  She also serves as our Corporate Secretary, and has served with the Company in various executive roles since November 1991.  Prior to joining Isis, Ms. Parshall practiced law at Cooley LLP, outside counsel to Isis, where she was a partner from 1986 to 1991.  Ms. Parshall is a member of the American, California and San Diego bar associations.  Ms. Parshall serves on the board of directors of Regulus Therapeutics, Inc. and Cytokinetcs Inc., two biopharmaceutical companies.  Within the last five years, Ms. Parshall formerly served as a Director of CardioDynamics International Corporation and Corautus Genetics Inc., both biopharmaceutical companies.

The Board believes Ms. Parshall is uniquely suited to serve on the Board primarily because, as the Chief Operating Officer and an executive of the Company for nearly 20 years, she has valuable Company-specific experience and expertise.  In addition, Ms. Parshall has over 25 years of experience structuring and negotiating strategic licensing and financing transactions in the life sciences field.

Joseph H. Wender, age 68, has served as a Director of Isis since January 1994.  Mr. Wender began with Goldman, Sachs & Co. in 1971 and became a General Partner of that firm in 1982, where he headed the Financial Institutions Group for over a decade.  Since January 2008, he has been a Senior Consultant to Goldman Sachs & Co.  He is also an Independent Trustee of the Schwab Family of Funds and Director of Grandpoint Capital, a bank holding company.

The Board believes Mr. Wender is uniquely suited to serve on the Board primarily because, with over 35 years of experience as an investment banker with Goldman, Sachs & Co., he provides Isis important advice regarding our financial reporting, corporate finance matters, strategic transactions, and compensation matters.  Mr. Wender is also highly qualified to serve on the Audit Committee.

Biographies of Directors Whose Terms Expire at the 2015 Annual Meeting

Frederick T. Muto, age 59, has served as a Director of Isis since March 2001.  Mr. Muto joined the law firm of Cooley LLP, outside counsel to Isis, in 1980 and became a partner in 1986.  He is Chair of the firm’s Business Department and a founding partner of Cooley LLP’s San Diego office.

The Board believes Mr. Muto is uniquely suited to serve on the Board primarily because, with over 30 years experience at one of the country’s leading law firms focused on life sciences and technology companies, he provides us important advice regarding our strategic transactions, corporate governance and compensation matters.

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Independence of the Board of Directors

As required under The NASDAQ Stock Market (“NASDAQ”) listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the company’s Nominating, Governance and Review Committee of the Board of Directors.  Our Nominating, Governance and Review Committee consults with our legal counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in the applicable NASDAQ listing standards and applicable SEC rules and regulations, as in effect from time to time.

Consistent with these considerations, after review of all relevant transactions or relationships between each Director, or any of his or her family members, and Isis, its senior management and its independent auditors, the Board affirmatively has determined that all of our Directors are independent Directors within the meaning of the applicable NASDAQ listing standards and SEC rules and regulations, except for Dr. Crooke and Ms. Parshall, our Chief Executive Officer and Chief Operating Officer, respectively.  In making this determination, the Board found that none of these Directors or nominees for Director has a material or other disqualifying relationship with us.  With respect to Mr. Muto who is a partner of Cooley LLP, our outside legal counsel, he is independent for purposes other than serving on the Audit Committee or Compensation Committee, of which he is not a member.

Information Regarding the Board of Directors and its Committees

Leadership Structure

Our Chief Executive Officer is the Chairman of the Board.  The Board believes that Isis’ CEO is best situated to serve as Chairman because he has served as CEO since Isis was formed over 24 years ago and he is the Director most familiar with our science, business and industry.  Because of that experience, he is the Director most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy.  Independent Directors and management have different perspectives and roles in strategy development.  Our independent Directors bring experience, oversight and expertise from outside Isis and industry, while the CEO brings Company-specific experience and expertise.  The Board believes that the combined role of Chairman and CEO promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for executing the established strategy.  As part of each Board meeting, our independent Directors meet in executive session without the presence of our employee Directors.  We do not formally have a single “lead independent director.”  Instead the Chairpersons of the Audit Committee, the Compensation Committee, and the Nominating, Governance and Review Committee on a rotating basis preside over the executive sessions.  This rotating approach provides added balance to the process, thereby ensuring healthy discussion since the same individual does not continuously lead each executive session.  In addition, Mr. Wender (chairman of the Audit Committee) and Mr. Muto (independent Board member) are part of the committee that sets the agenda for each Board meeting.  The Board believes the combined role of Chairman and CEO, together with the executive sessions and agenda setting described above, is in the best interest of stockholders because it provides the appropriate balance between developing strategy and independently overseeing management.

Risk Oversight

Our Board administers its risk oversight function directly and through both its Audit Committee and its Nominating, Governance and Review Committee.  The Audit Committee oversees management of financial risks and related party transactions.  The Nominating, Governance and Review Committee manages risks associated with the independence of the Board and potential conflicts of interests at the Board level, and periodically reviews our policies and procedures, and makes recommendations when appropriate.  We provide a complete description of each committee and its respective roles and responsibilities on pages 11 through 14 of this Proxy Statement.  While each committee is responsible for evaluating certain risks and overseeing the management of such risks, these committees regularly inform the entire Board about such risks through committee reports.

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In addition to the formal compliance program, the Board, the Audit Committee and the Nominating, Governance and Review Committee encourage management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations.  Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for Isis.  As a result, the Board, the Audit Committee, and the Nominating, Governance and Review Committee periodically ask our executives to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.

Board Committees

The Board has three committees:  an Audit Committee, a Compensation Committee, and a Nominating, Governance and Review Committee.  Below is a description of each committee of our Board.  Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities.  The Board has determined that each member of each committee:

·                  meets the applicable rules and regulations regarding “independence,” including, but not limited to, Rule 5605(a)(2) of the NASDAQ listing standards and applicable SEC rules and regulations;

·                  is not an officer or employee of Isis; and

·                  is free of any relationship that would interfere with his individual exercise of independent judgment with regard to Isis.

Meetings and Attendance; Committee Members

The Board met four times in 2012.  During 2012, all Directors attended 100% of the meetings of the Board.  In addition, all Directors attended 100% of the meetings of the Board committees on which they served.  We encourage each member of the Board to attend the Annual Meeting of Stockholders.

Board Committee Members

The table below provides membership and meeting information for fiscal 2012 for each of the Board committees and identifies our current Board and Committee members.

*                 Committee Chairperson

(1)         Mr. Muto serves as counsel to the Nominating, Governance and Review Committee.

(2)         Dr. Reed served as a Director and as a member of our Nominating, Governance and Review Committee, and the Compensation Committee in 2012.  On February 12, 2013, Dr. Reed resigned as a member of the Board of Directors due to his commitments as Head of Roche Pharma Research and Early Development and as a member of Roche’s Corporate Executive Committee.  Mr. Joseph H. Wender replaced Dr. Reed as a member of the Nominating, Governance and Review Committee.

(3)         The Audit Committee also acted by written consent one time.

(4)         The Compensation Committee also acted by written consent 11 times.  Our Compensation Committee acts by unanimous written consent each month to confirm stock options and RSUs granted in connection with new hires and promotions.

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Audit Committee

The Audit Committee of the Board oversees our corporate accounting and financial reporting process.  For this purpose, the Audit Committee performs several functions.

The Audit Committee:

·                  reviews the annual and quarterly financial statements and oversees the annual and quarterly financial reporting processes, including a session with the auditors in which Isis’ employees and management are not present;

·                  selects and hires our independent auditors;

·                  oversees the independence of our independent auditors;

·                  evaluates our independent auditors’ performance; and

·                  has the authority to hire its own outside consultants and advisors, if necessary.

In addition to the responsibilities listed above, the Audit Committee has the following functions:

·                  reviewing our annual budget with management and, if acceptable, recommending the budget to the Board for approval;

·                  setting and approving changes to our investment policy;

·                  receiving and considering our independent auditors’ comments as to internal controls, adequacy of staff and management performance and procedures in connection with internal controls;

·                  reviewing and, if appropriate, approving related party transactions;

·                  establishing and enforcing procedures for the receipt, retention and treatment of complaints regarding accounting or auditing improprieties; and

·                  pre-approving all audit and non-audit services provided by our independent auditors that are not prohibited by law.

Our Audit Committee charter requires that each member must be independent.  We consider the members to be independent as long as they:

·                  do not accept any consulting, advisory or other compensatory fee from us, except in connection with their service as a Director;

·                  are not an affiliate of Isis or one of its subsidiaries; and

·                  meet all of the other NASDAQ independence requirements.

In addition, all Audit Committee members must be financially literate and at least one member must be a “financial expert,” as defined by SEC regulations.  Our Board has determined that the Audit Committee’s financial expert is Mr. Wender based on, among other things, his over 35 years of experience as an investment banker with Goldman, Sachs & Co.  We provide the Audit Committee with the funding it needs to perform its duties.

In 2012, the Audit Committee met four times and acted by unanimous written consent once.  You can find the Audit Committee charter on our corporate website at www.isispharm.com.(3)  Each member meets the membership criteria set forth in the Audit Committee charter and as stated above.

(3)         Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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Compensation Committee

The primary function of the Compensation Committee of the Board is to review, modify (as needed) and approve our overall compensation strategy and policies and approve the compensation and other terms of employment of our executive officers, including our Chief Executive Officer.  We include a full list of the Compensation Committee’s responsibilities as part of the Compensation Discussion and Analysis (“CD&A”) set forth on pages 39 through 59 of this Proxy Statement.  The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel, as well as authority to obtain, at our expense, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.  In particular, the Compensation Committee has the sole authority to retain independent compensation consultants to assist in its evaluation of executive and Director compensation, including the authority to approve the consultants’ reasonable fees and other retention terms.

We also have a Non-Management Stock Option Committee that, as delegated by the Compensation Committee, may award stock options and restricted stock unit awards to employees who are below director level in accordance with guidelines adopted by the Compensation Committee.  The Non-Management Stock Option Committee has one member, Dr. Crooke.

The Compensation Committee met four times in 2012 and acted by unanimous written consent 11 times.  You can find our Compensation Committee charter on our corporate website at www.isispharm.com.(3)

The Compensation Committee reviews with management Isis’ CD&A to consider whether to recommend that we include the CD&A in our Proxy Statements and other filings.

Compensation Committee Interlocks and Insider Participation

As noted above, during the fiscal year ended December 31, 2012, our Compensation Committee was composed of Drs. Berthelsen and Reed, and Mr. Wender.  Since February 12, 2013, our Compensation Committee is composed of Dr. Berthelsen and Mr. Wender.  None of the members of the Compensation Committee has ever been an employee or officer of Isis.  None of our executive officers serves as a member of the Board of Directors or Compensation Committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Nominating, Governance and Review Committee

Role and Responsibilities

The Nominating, Governance and Review Committee of the Board of Directors is responsible for:

·                  interviewing, evaluating, nominating and recommending individuals for membership on our Board, and as part of this process, the Nominating, Governance and Review Committee will consider nominees recommended by our stockholders;

·                  on an annual basis, reviewing the performance of the Board and its committees, including evaluating the Board’s ability to function as a group and the integrity, independence and competency of the individual Board members;

·                  periodically reviewing our policies and procedures and recommending appropriate changes, if any;

·                  annually reviewing and assessing the adequacy of our corporate governance guidelines and recommending any proposed changes to the Board for approval; and

·                  performing such other functions as may be necessary or convenient for the efficient discharge of the foregoing.

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The Nominating, Governance and Review Committee met twice during 2012.  You can find our Nominating, Governance and Review Committee charter on our corporate website at www.isispharm.com.(4)

Director Nominations - Quality Standards

The Nominating, Governance and Review Committee believes that candidates for Director should have certain minimum qualifications.  As a result, the Board adopted membership standards and believes that the Board members should meet the minimum membership requirements listed below.

The minimum membership requirements are as follows:

·                  members must be able to read and understand basic financial statements;

·                  members must demonstrate high personal integrity and ethics;

·                  members cannot serve as a director on the board of more than seven other publicly traded companies;

·                  members cannot serve more than ten consecutive terms on the Board; and

·                  members cannot run for re-election or serve on the Board once they have reached the age of 80.

In addition to these minimum standards, the Nominating, Governance and Review Committee will consider such factors as:

·                  possessing relevant expertise to offer advice and guidance to management;

·                  having sufficient time to devote to Isis’ affairs;

·                  demonstrating excellence in his or her field;

·                  having sound business judgment; and

·                  having commitment to rigorously represent the long-term interests of our stockholders.

Director Nominations - Diversity Discussion

In considering Director nominations, the Nominating, Governance and Review Committee evaluates and considers the total mix of competencies represented on the Board as a whole, as well as the competencies each member, or nominee brings to the Board.  In general, the constitution of the Board is diversified across three large categories: (1) investment banking, financial accounting and corporate governance experience; (2) medical and scientific expertise; and (3) employee versus non-employee directors.  By selecting individuals who have investment banking, financial accounting and corporate governance backgrounds, we gain valuable experience that ensures we are managing our financial resources appropriately, reporting our financial results fairly and accurately, and generally running our business consistent with current good corporate practices.  As a cutting edge drug discovery and development company, we also greatly benefit from Board members who themselves are scientists and medical doctors.  This way we can set and adjust our strategy and objectives based on the results we generate from our research and development efforts.  In different ways, these first two categories allow us to effectively manage our cash and make prudent investments in our technology to achieve the greatest likelihood of success.  As a general rule, we try to evenly balance the Board members across these first two categories.

Regarding the third category, a mix of employee and non-employee directors offers different perspectives for the Board to consider when making decisions.  Employee directors can provide the Board valuable insight regarding our day-to-day operations, which can help the Board make important management and compensation decisions.  Non-employee directors can compare the opportunities and challenges presented to Isis against the facts and circumstances these Directors are experiencing outside Isis.  As a rule, we have a significantly higher number of non-employee directors vs. employee directors.  Finally, we do not discriminate against nominees on the basis of gender, race, religion, national origin, sexual orientation, disability or any other basis prohibited by applicable law.

(4)   Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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Director Nominations - Process

The Nominating, Governance and Review Committee will consider Director candidates our stockholders recommend.  The Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not a stockholder recommended the candidate.

The Committee reviews new candidates for Director in the context of the Board’s composition, our operating requirements and our stockholders’ long-term interests.  In conducting this assessment, the Committee considers diversity, maturity, skills, the minimum membership requirements discussed above, and such other factors as it deems appropriate given the current needs of the Board and Isis, to maintain a balance of knowledge, experience and capability.  In the case of incumbent Directors whose terms of office are set to expire, the Nominating, Governance and Review Committee reviews such Directors’ overall service to Isis during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such Directors’ independence.  The Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a paid professional search firm.  The Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board.

The Committee meets to discuss and consider the candidates’ qualifications and determines whether each candidate is independent, which determination is based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.  Finally, the Committee then selects a nominee for recommendation to the Board by majority vote.  To date, the Nominating, Governance and Review Committee has not paid a fee to any third party to assist in the process of identifying or evaluating Director candidates.

Stockholder Recommendations for Directors

Stockholders who wish to recommend individuals for consideration by the Nominating, Governance and Review Committee to become nominees for election to the Board to include in our Proxy Statement for our 2014 Annual Meeting of stockholders may do so by delivering a written recommendation to the Secretary of Isis at the following address: 2855 Gazelle Court, Carlsbad, CA 92010, by January 9, 2014.  Submissions must include:

·                  the name, age, business address and residence address of the nominee;

·                  the principal occupation or employment of the nominee;

·                  the stock ownership in Isis of the nominee;

·                  the stock ownership in Isis of the stockholder making the nomination, including any trading in derivative securities that may disguise ownership occurring within the last 12 months;

·                  the information relating to the nominee that is required to be disclosed in solicitations of proxies under applicable securities laws;

·                  the nominee’s written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected;

·                  other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence of the proposed nominee; and

·                  any voting commitments the nominee has to third parties.

In addition, the nominee will need to complete a written questionnaire regarding the background and qualifications of the nominee, and the background of any other person or entity on whose behalf the nomination is being made.  The nominee must also agree to comply with all of our applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines.  The description of the requirements for Director nomination set forth above is qualified in its entirety by reference to our full and complete Amended and Restated Bylaws, which is an exhibit to our Current Report on Form 8-K filed with the SEC on December 14, 2011 a copy of which is available by contacting our Corporate Secretary.  To date, the Board has not received or rejected a timely Director nominee for election at the upcoming stockholder meeting from a stockholder or stockholders holding more than 5% of our voting stock.

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Stockholder Communications with the Board of Directors

We make every effort to ensure that our Board or individual Directors, as applicable, hear the views of stockholders, and provide appropriate responses to stockholders in a timely manner.  Stockholders who wish to communicate with the Board, or individual Directors, may do so by sending written communications addressed to the Secretary of Isis at 2855 Gazelle Court, Carlsbad, CA 92010.  If you wish to communicate with the independent Directors about your concerns or issues, you may address correspondence to a particular Director or to the independent Directors generally.  If you do not name a particular Director, depending on the subject matter, we will forward the letter to the Chair of the Audit, Compensation, or Nominating, Governance and Review Committee.  One or more of our employees designated by the Board will review these communications and will determine whether to present the materials to the Board.  The purpose of this screening is to allow the Board to avoid having to consider irrelevant or inappropriate communications, such as advertisements, commercial solicitations and hostile communications.  All communications directed to the Audit Committee in accordance with our Code of Ethics policy that relates to questionable accounting or auditing matters involving Isis will be promptly and directly forwarded to the Audit Committee.  Other than the processes described above, our Board has not adopted a formal written process for stockholder communications with the Board.  We believe our Board’s responsiveness to stockholder communications has been excellent.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics that applies to all officers, Directors and employees.  We have posted our Code of Ethics on our website.  If we make any substantive amendments to the Code of Ethics or grant any waiver from a provision of the Code of Ethics to any executive officer or Director, we will promptly disclose the nature of the amendment or waiver on our website at www.isispharm.com.(5)

Corporate Governance Guidelines

In 2003, the Board of Directors documented the governance practices we follow by adopting corporate governance guidelines to ensure that the Board will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management.  The guidelines are also intended to align our Directors’ and management’s interests with those of our stockholders.  The corporate governance guidelines set forth the practices the Board intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning Board committees and compensation, “clawbacks” of executive compensation, and share retention guidelines for our executive officers and Directors.  The Board adopted the corporate governance guidelines to, among other things, reflect changes to the NASDAQ listing standards and SEC rules adopted to implement provisions of the Sarbanes-Oxley Act of 2002.  You may view our corporate governance guidelines, as well as the charters for each committee of the Board, at www.isispharm.com.(5)

(5) Any information that is included on or linked to our website is not part of this Proxy Statement or any registration statement or report that incorporates this Proxy Statement by reference.

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PROPOSAL 2

AMENDMENT OF THE 2011 EQUITY INCENTIVE PLAN TO INCREASE SHARES

In March 2011, the Compensation Committee of the Board, and the Board, adopted the Isis Pharmaceuticals, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and the stockholders approved the 2011 Plan on June 16, 2011.  In this Proposal 2, we are requesting stockholders to approve an amendment to the 2011 Plan to increase the aggregate number of shares of common stock authorized for issuance under the 2011 Plan by 3,500,000 to an aggregate of 5,500,000 shares

Our management, Board and Compensation Committee believe that stock options and restricted stock units (“RSUs”) are a key aspect of our ability to attract and retain qualified personnel in the face of intense competition for experienced scientists and other personnel among many pharmaceutical and health care companies.  The Board, upon the recommendation of the Compensation Committee, has approved an increase in the aggregate number of shares of common stock authorized for issuance under the 2011 Plan by 3,500,000, to an aggregate of 5,500,000 shares, in order to ensure that for a period of at least three years, based on our current business plans, we can continue to grant stock options and RSUs to employees and consultants at appropriate levels as determined by the Compensation Committee.  If the stockholders do not approve Proposal 2, and as a consequence, we cannot continue to grant options and RSUs at competitive levels, we believe that it will negatively affect our ability to meet our needs for highly qualified personnel and our ability to manage future growth.  Without these additional shares, management expects that the current shares available for grant under the 2011 Plan will not be sufficient to maintain our stock award practices for new employees or for promotions or merit awards for current employees after January 2014.

Subject to stockholder approval of this Proposal 2, a total of 5,500,000 shares are reserved for issuance under the 2011 Plan.  As of March 31, 2013, no options were granted and outstanding, no options were vested and exercisable, and no options had been exercised, 383,765 RSUs were outstanding and 38,377 shares had been issued upon the vesting of RSUs under the 2011 Plan.  If our stockholders do not approve this Proposal 2, as of March 31, 2013 there would only be 1,577,858 shares available for future grants under the 2011 Plan.

As of March 31, 2013, there were 20,000,000 shares reserved for issuance under the Isis Pharmaceuticals, Inc. 1989 Stock Option Plan (the “89 Plan”).  As of March 31, 2013, a total of 321,295 shares were available for future grants under the 89 Plan, a total of 8,739,799 options were granted and outstanding, of which 4,829,078 were vested and exercisable, and options to purchase an aggregate of 10,938,906 shares had been exercised.

The main reason we adopted the 2011 Plan was so that we could begin granting a combination of stock options and RSUs as part of our overall compensation strategy.  We believe providing our employees a combination of stock options and RSUs will have the following benefits:

·                  allow us to retain the highest quality employees while motivating all employees to achieve key drivers of stock value;

·                  issue fewer shares, thereby reducing dilution;

·                  better align employee and stockholder interests; and

·                  encourage long term holding by executive employees because stock settlement for RSUs does not require a same-day-sale.

The 2011 Plan also allows us to utilize a broad array of equity incentives and performance cash incentives to secure and retain the services of our employees, consultants and Directors, and to provide long term incentives that align the interests of our employees, consultants and Directors with the interests of our stockholders.

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Required Vote and Board of Directors Recommendation

Approval of Proposal 2 requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting.  Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes.  Broker non-votes will have no effect on the outcome of the vote.

Our Board believes that approval of Proposal 2 is in our best interests, and the best interests of our stockholders for the reasons stated above.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF AN AMENDMENT TO THE ISIS PHARMACEUTICALS, INC. 2011 EQUITY INCENTIVE PLAN.

DESCRIPTION OF THE ISIS PHARMACEUTICALS, INC. 2011 EQUITY INCENTIVE PLAN

Below is a high-level summary of the terms of the 2011 Plan. This summary is qualified in its entirety by reference to the complete text of the 2011 Plan.  We encourage our stockholders to read the actual text of the 2011 Plan in its entirety, a copy of which we filed with this Proxy Statement.

The 2011 Plan:

·                  is administered by our Compensation Committee, which is composed entirely of independent Directors;

·                  has a term ending on June 15, 2021;

·                  prohibits the repricing of any option or stock appreciation rights (SARs) outstanding under the 2011 Plan, or “cashing-out” underwater awards unless approved by our stockholders;

·                  is limited to the granting of stock options, SARs, restricted stock awards, RSUs, performance stock awards, and performance cash awards;

·                  requires that each newly granted option and SAR not become fully vested until a date at least two years after the date of grant, except in the case of death, disability, retirement, or change of control;

·                  requires that nearly all newly granted restricted stock awards and RSUs granted to employees that vest on the basis of continuous service not become fully vested until a date at least three years after the date of grant, except in the case of death, disability, retirement or change of control;

·                  requires that nearly all newly granted restricted stock awards and RSUs granted to employees that vest on the basis of performance goals not become fully vested until a date at least one year after the date of grant, except in the case of death, disability, retirement or change of control;

·                  limits our ability to accelerate vesting only in case of death, disability, retirement or change of control; and

·                  requires all options and SARs outstanding under the 2011 Plan to have an exercise or strike price of not less than 100% of the fair market value of our common stock on the date of grant.

Purpose

The main purpose of the 2011 Plan was to allow us to give our employees (including officers), Directors and consultants an opportunity to benefit from increases in value of our common stock through the granting of a combination of stock options and RSUs.  We believe providing our employees a combination of stock options and RSUs has the following benefits:

·                  allow us to retain the highest quality employees while motivating all employees to achieve key drivers of stock value;

·                  issue fewer shares, thereby reducing dilution;

·                  better align employee and stockholder interests; and

·                  encourage long term holding by executive employees because stock settlement for RSUs does not require a same-day-sale.

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In 2013, we granted our employees a combination of stock options under our 89 Plan and RSUs under our 2011 Plan, where we allocated 75% of the value to stock options and allocated 25% of the value to RSUs; and assumed that each share subject to an RSU was worth two shares subject to a stock option.

Background

The terms of the 2011 Plan provide for the grant of stock options, SARs, restricted stock awards, RSUs, performance stock awards and performance cash awards that may be settled in cash, stock, or other property.

Shares Available for Awards

If this Proposal 2 is approved, there will be a total of 5,500,000 shares of our common stock authorized for issuance under the 2011 Plan and 5,077,858 of these are available for future grants.  When combined with the 321,295 shares available for future grant as of March 31, 2013 under our 89 Plan, we believe that the aggregate shares available for grant would be sufficient to meet our expected needs for stock option and RSU grants for at least the next three years.

This estimate is based on assuming that our future grant activity will be similar to the equity awards granted over the last three years, and through March 31, 2013 to our employees under our equity plans, as summarized in the table below.  We grant most of our equity awards for each year in January of such year as part of the annual merit compensation process.  We have not attempted to separately forecast our future grant activity due to the number of assumptions that would be necessary to do so and the potential unpredictability of such underlying assumptions and estimates.

Equity Award Grant History Under Employee Equity Plans(1)

(1)         We currently grant equity awards to our non-employee directors separately under our 2002 Non-Employee Directors’ Stock Option Plan.

(2)         Shares subject to equity awards that are canceled or expire become available for re-issuance under the applicable equity plan.  Therefore, net shares for any year is the total shares subject to awards granted in that year less the shares subject to awards canceled in such year.

If, under the 2011 Plan, a stock option or RSU is cancelled or terminated, then any unexercised shares subject to such cancelled or terminated stock options or unissued shares subject to such cancelled or terminated RSU will become available for issuance under the 2011 Plan.  In addition, if we issue common stock pursuant to a stock award and the common stock is later forfeited, then the forfeited shares will again become available for issuance under the 2011 Plan.  Any shares we reacquire pursuant to our withholding obligations in connection with a restricted stock award, RSU, performance stock award or other stock award will again become available for issuance under the 2011 Plan.  Any shares we reacquire pursuant to our withholding obligations in connection with a stock option or stock appreciation right or as consideration for the exercise of a stock option or stock appreciation right will become available for issuance under the 2011 Plan.

Eligibility

All of our employees, numbering approximately 344 as of the record date, and our Directors and consultants are eligible to participate in the 2011 Plan and may receive all types of awards available under the 2011 Plan.

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Administration

Our Board administers the 2011 Plan. The Board may delegate authority to administer the 2011 Plan to a committee, but may retain the authority to concurrently administer the 2011 Plan with the committee and may, at any time, revest in itself some or all of the powers previously delegated to the Committee. Our Board has delegated administration of the 2011 Plan to the Compensation Committee of the Board (the “Committee”).  Subject to the terms of the 2011 Plan, the Committee may determine the recipients, numbers and types of stock awards to be granted, and terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the Committee also determines the fair market value applicable to a stock award and the exercise price of stock options and SARs granted under the 2011 Plan.

In the discretion of the Board, the Committee may consist solely of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or solely of two or more “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).  We also have a Non-Management Stock Award Committee that, as delegated by the Compensation Committee, awards stock awards to employees who are below director level in accordance with guidelines adopted by the Compensation Committee.  The Non-Management Stock Award Committee has one member, Dr. Crooke.  As used herein, except as explicitly stated otherwise, with respect to the 2011 Plan, the “Board” refers to any committee the Board appoints or, if applicable, any subcommittee, as well as to the Board itself.

No Repricing, “Cash-Out,” or Cancellation and Re-Grant of Stock Awards without Stockholder Approval

Under the 2011 Plan, the Board cannot reprice any outstanding options or SARs by reducing the exercise price of the stock award or cancel any outstanding options or SARs in exchange for cash or other stock awards without obtaining the approval of our stockholders within 12 months prior to the repricing or cancellation and re-grant event.

Minimum Vesting; Restrictions on Accelerated Vesting

Under the 2011 Plan, no option or SAR granted to an employee or member of the Board will become 100% vested in a period of less than two years after the grant of such option, except that the vesting of an option or SAR may accelerate (or may be accelerated by the Board or Committee) in the case of death, disability, retirement, corporate sale or change of control.

Under the 2011 Plan, no restricted stock award or RSU award granted to an employee or discretionary restricted stock award or RSU award granted to a member of the Board will vest more rapidly than:

·                  ratably over a three-year period for awards that vest based on continuous service; and

·                  one year for awards that vest upon the achievement of performance goals;

except that the vesting of a restricted stock award or RSU may accelerate (or may be accelerated by the Board or Committee) in the case of death, disability, retirement, corporate sale or change of control; and Isis may grant up to 200,000 shares worth of restricted stock awards and RSUs that vest earlier than the minimum periods described above.

No Evergreen

The 2011 Plan does not include any automatic share reserve increase provision (i.e., an evergreen provision).

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Stock Options

The Board may grant stock options under the 2011 Plan pursuant to stock option agreements.  The Plan permits the grant of stock options that qualify as nonstatutory stock options, or NSOs.  Individual stock option agreements may be more restrictive as to any or all of the permissible terms described in this section.

Exercise Price; Payment

The exercise price of stock options may not be less than 100% of the fair market value of the common stock subject to the stock option on the date of grant.  As of April 26, 2013, the closing price of our common stock as reported on NASDAQ was $22.46 per share.

Vesting

Stock options granted under the 2011 Plan may become exercisable in cumulative increments, or “vest,” as determined by our Board at the rate specified in the stock option agreement, subject to the minimum vesting requirements described above. Shares covered by different stock options granted under the 2011 Plan may be subject to different vesting schedules as our Board may determine.

Term

In general, the term of stock options granted under the 2011 Plan may not exceed ten years.  Unless the terms of an optionholder’s stock option agreement or other agreement with the Company provides for earlier or later termination:

·                  if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability, the optionholder may exercise any vested stock options for up to 12 months after the date the service relationship ends;

·                  if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to death, the optionholder, or his or her beneficiary, may exercise any vested stock options for up to 18 months after the date the service relationship ends; and

·                  if an optionholder’s service relationship with us, or any affiliate of ours, ceases for any reason, other than as described above, the optionholder may exercise any vested stock options for up to three months after the date the service relationship ends.

Under the 2011 Plan, the stock option term may be extended in the event that exercise of the stock option following termination of service is prohibited by applicable securities laws or if the sale of stock received upon exercise of a stock option would violate the Company’s insider trading policy. In no event may a stock option be exercised after its expiration date.

Consideration

Our Board determines the acceptable forms of consideration for the purchase of our common stock pursuant to the exercise of a stock option under the 2011 Plan, which may include cash, check, bank draft or money order made payable to us, shares of our common stock, payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board, or a net exercise feature.

Transferability

Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order.  However, to the extent permitted under the terms of the applicable stock option agreement, an optionholder may designate a beneficiary who may exercise the stock option following the optionholder’s death.

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Restricted Stock Unit Awards

RSUs are granted under the 2011 Plan pursuant to restricted stock unit award agreements.  Payment of any purchase price is made in any legal form acceptable to the Board.  We settle a payment due to a recipient of a restricted stock unit award by delivery of shares of our common stock, by cash, by a combination of cash and stock, or in any other form of consideration determined by our Board and set forth in the restricted stock unit award agreement.  We may credit dividend equivalents in respect of shares of our common stock covered by a restricted stock unit award.  RSUs are subject to vesting in accordance with a vesting schedule determined by our Board, subject to the minimum vesting requirements described earlier.  Except as otherwise provided in the applicable RSU award agreement, RSUs that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

Restricted Stock Awards

The Board may grant restricted stock awards under the 2011 Plan pursuant to restricted stock award agreements.  The Board may grant a restricted stock award in consideration for cash, check, bank draft or money order payable to us, the recipient’s services performed for us or our affiliate, or any other form of legal consideration acceptable to the Board.  Shares of our common stock acquired under a restricted stock award are subject to forfeiture to us in accordance with a vesting schedule determined by our Board.  Holders of awards may only transfer their rights to acquire shares of our common stock under a restricted stock award upon such terms and conditions as are set forth in the restricted stock award agreement.  Except as otherwise provided in the applicable restricted stock award agreement, restricted stock awards that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

Stock Appreciation Rights

The Board may grant SARs under the 2011 Plan pursuant to SAR agreements. Each SAR is denominated in common stock share equivalents.  The Board will determine the strike price of each stock appreciation right but the strike price cannot be less than 100% of the fair market value of the stock subject to the SAR at the time of grant.  Our Board may also impose restrictions or conditions upon the vesting of SARs that it deems appropriate, subject to the minimum vesting requirements described earlier.  We may settle SARs in our common stock, in cash, in a combination of cash and stock, or in any other form of legal consideration approved by our Board and set forth in the stock appreciation right agreement.  SARs will be subject to the same conditions upon termination and restrictions on transfer as stock options under the 2011 Plan.

Performance Awards

The 2011 Plan provides for the grant of two types of performance awards: performance stock awards and performance cash awards.  The Board may grant, vest or settle performance awards based upon the attainment of specified performance goals during a specified period of time.  The Committee will determine the length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained. The maximum amount covered by a performance award that may be granted to any individual in a calendar year (whether the grant, vesting or exercise is contingent upon the attainment during a performance period of the performance goals) may not exceed 750,000 shares of our common stock in the case of performance stock awards, or $2,000,000 in the case of performance cash awards.

In granting a performance award, the Committee will set a period of time, called a performance period, over which the attainment of one or more performance goals will be measured for the purpose of determining whether the award recipient has a vested right in or to such award. Within the time period prescribed by Section 162(m) of the Code, at a time when the achievement of the performance goals remains substantially uncertain and before the earlier of the 90th day of a performance period or the date on which twenty-five percent of the performance period has elapsed, the Committee will establish the performance goals, based upon one or more criteria, called performance criteria enumerated in the 2011 Plan and described below. As soon as administratively practicable following the end of the performance period, the Committee will certify (in writing) whether the performance goals have been satisfied.

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The Board will determine performance goals under the 2011 Plan, based on any one or more of the following performance criteria:

The Board is authorized to determine whether, when calculating the attainment of performance goals for a performance period, as follows:

·                  to exclude restructuring and/or other nonrecurring charges;

·                  to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated Performance Goals;

·                  to exclude the effects of changes to generally accepted accounting principles;

·                  to exclude the effects of any statutory adjustments to corporate tax rates;

·                  to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; and

·                  to exclude accounting expenses relating to share-based compensation.

Compensation attributable to performance-based awards under the 2011 Plan will qualify as performance-based compensation, provided that:

·                  the award is granted by a compensation committee comprised solely of “outside directors;”

·                  the award is granted (or exercisable) only upon the achievement of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain and before the earlier of the 90th day of the performance period and the date on which twenty-five percent of the performance period has elapsed; and

·                  the compensation committee certifies in writing prior to the granting, payment or exercisability of the award that the performance goal has been satisfied.

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Changes to Capital Structure

In the event of certain capitalization adjustments, the Board will appropriately adjust:

·                  the class(es) and maximum number of securities subject to the 2011 Plan;

·                  the class(es) and maximum number of securities that may be awarded to any person pursuant to Section 162(m) limits; and

·                  the class(es) and number of securities and price per share of stock subject to outstanding stock awards.

Corporate Transactions

In the event of certain significant corporate transactions, the Board 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.

The Board need not take the same action for each stock award.

For purposes of the 2011 Plan, a corporate transaction will be deemed to occur in the event of the consummation of:

·                  a sale of all or substantially all of our consolidated assets;

·                  a sale of at least 90% of our outstanding securities;

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

·                  a merger or consolidation in which we are the surviving corporation but shares of our outstanding common stock are converted into other property by virtue of the transaction.

The acceleration of vesting of an award in the event of a corporate transaction under the 2011 Plan may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of the Company.

Change in Control

A stock award may be subject to additional acceleration of vesting and exercisability upon or after specified change in control transactions (as defined in the 2011 Plan), as provided in the stock award agreement or in any other written agreement between us or any affiliate and the participant, but in the absence of such provision, no acceleration will occur.

The acceleration of vesting of an award in the event of a change in control event under the 2011 Plan may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of the Company.

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Plan Amendments

Our Board has the authority to amend or terminate the 2011 Plan.  However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the 2011 Plan as required by applicable law and listing requirements.

Plan Termination

Unless sooner terminated by our Board, the 2011 Plan will automatically terminate on June 15, 2021.

U.S. FEDERAL INCOME TAX CONSEQUENCES

The information set forth below is a summary only and does not purport to be complete.  The information is based upon current federal income tax rules and therefore is subject to change when those rules change.  Because the tax consequences to any recipient may depend on his or her particular situation, each recipient should consult the recipient’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award.  The 2011 Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974.  Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income, as well as the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of our tax reporting obligations.

Nonstatutory Stock Options

Generally, there is no taxation upon the grant of an NSO if the stock option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date.  On exercise, an optionholder will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price.  If the optionholder is employed by us or one of our affiliates, that income will be subject to withholding taxes.  The optionholder’s tax basis in those shares will be equal to their fair market value on the date of exercise of the stock option, and the optionholder’s capital gain holding period for those shares will begin on that date.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionholder.

Restricted Stock Unit Awards

Generally, the recipient of a stock unit structured to conform to the requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize ordinary income at the time the stock is delivered equal to the excess, if any, of the fair market value of the shares of our common stock received over any amount paid by the recipient in exchange for the shares of our common stock.  To conform to the requirements of Section 409A of the Code, the shares of our common stock subject to a stock unit award may generally only be delivered upon one of the following events: a fixed calendar date (or dates), separation from service, death, disability or a change in control.  If delivery occurs on another date, unless the stock units otherwise comply with or qualify for an exception to the requirements of Section 409A of the Code, in addition to the tax treatment described above, the recipient will owe an additional 20% federal tax and interest on any taxes owed.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock units will be the amount paid for such shares plus any ordinary income recognized when the stock is delivered.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

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Restricted Stock Awards

Generally, the recipient of a restricted stock award will recognize ordinary income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock.  If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock.  A recipient may, however, file an election with the Internal Revenue Service, within 30 days following his or her receipt of the stock award, to recognize ordinary income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient for the stock.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

Stock Appreciation Rights

We may grant under the 2011 Plan SARs separate from any other award or together with other awards under the 2011 Plan.

Where the SARs are granted with a strike price equal to the fair market value of the underlying stock on the grant date, the recipient will recognize ordinary income equal to the fair market value of the stock or cash received upon such exercise.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.

Section 162 Limitations

Compensation of persons who are “covered employees” of the Company is subject to the tax deduction limits of Section 162(m) of the Code.  Awards that qualify as “performance-based compensation” are exempt from Section 162(m), thereby permitting us to claim the full federal tax deduction otherwise allowed for such compensation.  The 2011 Plan is intended to enable the Committee to make awards, including cash performance awards, that will be exempt from the deduction limits of Section 162(m). Under Section 162(m), compensation attributable to stock options and SARs will qualify as performance-based compensation if (i) such awards are approved by a compensation committee composed solely of “outside directors,” (ii) the plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, (iii) the per-employee limitation is approved by the stockholders, and (iv) the exercise or strike price of the award is no less than the fair market value of the stock on the date of grant.  Compensation attributable to restricted stock awards, RSUs and performance awards and other stock-based awards will qualify as performance-based compensation, provided that (a) the award is approved by a compensation committee composed solely of “outside directors,” (b) the award is granted, becomes vested or is settled, as applicable, only upon the achievement of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain and before the earlier of the 90th day of the performance period and the date on which twenty-five percent of the performance period has lapsed, (c) a committee of outside directors certifies in writing prior to the granting (or vesting or settlement) of the award that the performance goal has been satisfied, and (d) prior to the granting (or vesting or settlement) of the award, the stockholders have approved the material terms of the award (including the class of employees eligible for such award, the business criteria on which the performance goal is based, and the maximum amount, or formula used to calculate the maximum amount, payable upon attainment of the performance goal).

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New Plan Benefits

The following table presents certain information with respect to stock options and RSUs granted in January 2013 for the recipient’s 2012 performance to (i) each executive officer named in the Summary Compensation Table under “Executive Compensation—Compensation of Executive Officers”, (ii) all executive officers as a group, (iii) all non-employee Directors as a group and (iv) all non-executive officer employees as a group.  This information regarding such grants is for illustration only and may not be indicative of grants that are made in the future under the 2011 Plan.

NEW PLAN BENEFITS

2011 EQUITY INCENTIVE PLAN

*Stock options issued under the 89 Plan in January 2013 for 2012 performance.  To date, we have not granted stock options under the 2011 Plan to any of our employees or Directors, but expect to grant such options under the 2011 Plan in the future.

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EQUITY COMPENSATION PLAN INFORMATION, INCLUDING ISIS’ OTHER PLANS

The 2011 Plan is in addition to the 89 Plan.  We also maintain our Amended and Restated 2002 Non-Employee Director Stock Option Plan (the “Director Plan”), that may be used only for grants of stock options and RSUs to our non-employee directors, and our Amended and Restated 2000 Employee Stock Purchase Plan (the “ESPP”) that permits full-time employees to purchase common stock through payroll deductions.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding outstanding options and shares reserved for future issuance under our equity compensation plans as of March 31, 2013.

(a)   Consists of the following Isis plans: 1989 Stock Option Plan and Amended (321,295 shares available for future grant), Restated 2002 Non-Employee Directors’ Stock Option Plan (402,000 shares available for future grant to non-employee Directors) and the 2011 Equity Incentive Plan (1,577,858 shares available for future grant).

(b)   The ESPP incorporates an evergreen formula pursuant to which, on January 1 of each year, we automatically increase the aggregate number of shares reserved for issuance under the plan by 150,000 shares.

(c)   Consists of the 2000 Broad-Based Equity Incentive Plan, more fully described below.  The 2000 Broad-Based Equity Incentive Plan expired on January 5, 2010.

(d)   Value of restricted stock units as of date of grant.

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Description of 2000 Broad-Based Equity Incentive Plan

We adopted the 2000 Broad-Based Equity Incentive Plan (the “2000 Plan”), to provide our employees, officers, directors and consultants an opportunity to benefit from increases in the value of our common stock through the granting of non-statutory stock options, stock bonuses and rights to purchase restricted stock. At the time we adopted the 2000 Plan, we were not required to seek the approval of our stockholders. The Board delegated administration of the 2000 Plan to the Compensation Committee of the Board, and the Compensation Committee has delegated administration of the 2000 Plan to the Non-Management Stock Option Committee with respect to certain option grants to employees who are not our executive officers. The Board has the power to construe and interpret the 2000 Plan and, subject to the provisions of the 2000 Plan, to select the persons to whom stock awards are to be made, to designate the number of shares to be covered by each stock award, to establish vesting schedules, to specify the exercise price and the type of consideration to be paid to us upon exercise or purchase.

The 2000 Plan expired on January 5, 2010, so we may no longer grant new options under the 2000 Plan.

As of March 31, 2013, the 2000 Plan had 5,990,000 shares authorized for issuance, options to purchase an aggregate of 1,839,046 shares were granted and outstanding under the 2000 Plan, option holders had exercised options to purchase an aggregate of 3,698,089 shares under the 2000 Plan, and no shares remained available for grant thereunder.

Options granted under the 2000 Plan generally have a term of seven or ten years, have an exercise price equal to the fair market value at the time of grant, can only be exercised with a cash payment and vest at the rate of 25 percent per year after the first year and then at the rate of 2.08 percent per month thereafter during the option holder’s employment or service as a consultant, employee or director. If any change is made in the common stock subject to the 2000 Plan, or subject to any stock award, without the receipt of consideration by us (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by us), we will adjust the outstanding stock awards appropriately in the class(es) and number of securities and price per share of common stock subject to such outstanding stock awards. Our board of directors will make such adjustments, and its determination will be final, binding and conclusive. We will not treat the conversion of any of our convertible securities as a transaction without receipt of consideration.

In the event of our dissolution or liquidation, all outstanding stock awards will terminate immediately prior to such event.

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 or will substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction for those outstanding under the 2000 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, then with respect to stock awards held by participants whose continuous service has not terminated, we will accelerate the vesting of such stock awards in full and the stock awards will terminate if not exercised (if applicable) at or prior to such event.

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PROPOSAL 3

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, called the “Dodd-Frank Act,” enables Isis’ stockholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our Chief Executive Officer, Chief Financial Officer in 2012 and our two other executive officers, called our “named executive officers” as disclosed in this Proxy Statement in accordance with the SEC’s rules.

We are asking our stockholders to indicate their support for our named executive officer compensation as described in this Proxy Statement.  This proposal, commonly known as a “say on pay” proposal, gives our stockholders the opportunity to express their views on the compensation paid to our named executive officers.  This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement.  Accordingly, we are asking our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that Isis’ stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement for the 2013 Annual Meeting of stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.”

We recommend you carefully review the EXECUTIVE COMPENSATION section of this Proxy Statement located on pages 39 through 59.  Below is a high-level summary of some of our compensation practices.  This summary is qualified by the detailed disclosure contained in the EXECUTIVE COMPENSATION section of this Proxy Statement.

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Below we summarize some of our compensation practices, both the practices we implement because we believe they are consistent with our vision and long-term stockholder value (see “What We Do” below), and those that we choose not to implement as we believe they are counter to our vision and long-term stockholder value (see “What We Don’t Do” below):

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CEO Compensation vs. Total Return

(Over Five Years)

The following graphs show the relationship of our Chief Executive Officer’s compensation ($ in thousands) as calculated pursuant to SEC rules compared to the total return (TSR) on $100 invested on December 31, 2008 in our common stock through December 31, 2012.  Although stock price is only one of the measures of Isis’ performance we use to set the compensation for our executive officers, including our CEO, as illustrated below, our CEO’s compensation generally decreased when our TSR declined.(6)

The affirmative vote of a majority of the holders of shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter is required to adopt the resolution.  If you indicate on your proxy to “Abstain” from voting, it will have the same effect as a vote “Against” this Proposal 3.  Brokers do not have discretion to vote uninstructed shares with respect to this Proposal 3.  Accordingly, if brokers do not receive voting instructions from beneficial owners of the shares, they cannot vote the shares.  However, broker non-votes will not affect the outcome of the voting on this Proposal 3.

The “say on pay” vote is advisory, and therefore is not binding on Isis, the Compensation Committee or the Board of Directors.  However, Isis’ management, the Board and the Compensation Committee value the opinions of the stockholders.  As such, if there is any significant vote against the named executive officers’ compensation as disclosed in this Proxy Statement, the Board will consider the stockholders’ concerns and the Board and Compensation Committee will evaluate whether any actions are necessary to address those concerns.

We currently hold the “say on pay” vote every year.  As such, following the 2013 Annual Meeting, the next scheduled “say on pay” vote will be at the 2014 Annual Meeting of stockholders.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL 3.

(6)  This table is not “soliciting material,” is not deemed “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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PROPOSAL 4

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors has selected Ernst & Young LLP as our independent registered public accounting firm for our 2013 fiscal year, and has requested management to ask for stockholder ratification at the Annual Meeting.  Ernst & Young LLP has audited our financial statements since we were founded in 1989.  Representatives of Ernst & Young LLP will be at the 2013 Annual Meeting to answer any questions and make a statement should they desire to do so.

Although our bylaws do not require stockholders to approve our independent registered public accounting firm, the Audit Committee of the Board would like our stockholders’ opinion as a matter of good corporate practice.  If the stockholders vote against Ernst & Young LLP, the Audit Committee of the Board will reconsider whether to keep the firm.  However, even if the stockholders ratify the selection, the Audit Committee of the Board may choose to appoint a different independent accounting firm at any time during the year if it believes that a change would be in the best interests of our stockholders and Isis.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the 2013 Annual Meeting will be required to ratify the selection of Ernst & Young LLP.  If you indicate on your proxy to “Abstain” from voting, it will have the same effect as an “Against” vote for this Proposal 4.

As of December 31, 2012, none of our finance or accounting employees had been employed by Ernst & Young LLP during the past six years.

Independent Auditors’ Fees

The Audit Committee has adopted a policy and procedures for the pre-approval of audit and permissible non-audit services rendered by our independent registered public accounting firm, Ernst & Young LLP.  The policy generally pre-approves specific services in the defined categories of audit services, audit-related services, and tax services up to pre-determined amounts.  The Audit Committee may pre-approve services as part of its approval of the scope of the engagement of the independent auditor or on an individual explicit case-by-case basis before the Audit Committee engages the independent registered public accounting firm to provide each service.  As an additional measure to ensure auditor independence, beginning in 2004, the Audit Committee engaged Deloitte Tax LLP as our primary tax advisor.  The Audit Committee pre-approved the fees described below.

Audit Fees

For the fiscal years ended December 31, 2012 and 2011, the fees billed by Ernst & Young LLP related primarily to the integrated audit of our financial statements and reviews of our interim financial statements for such fiscal years were $480,000 and $470,000, respectively.  In addition, Ernst & Young LLP billed us $10,000 and $26,000 in 2012 and 2011, respectively, related to accounting consultations for our partnership activities and for implementing new accounting standards.  Furthermore, Ernst & Young LLP billed us $135,000 in 2012 related to our convertible debt offering in August 2012.

Audit Related Fees

For the years ended December 31, 2012 and 2011, there were no audit related fees billed by Ernst & Young LLP that were reasonably related to the performance of the audit or review of our financial statements that are not included under “Audit Fees” above.

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Tax Fees

For the years ended December 31, 2012 and 2011, there were no tax fees billed by Ernst & Young LLP for tax related matters that were not part of the integrated audit fees.  In 2012 and 2011, we utilized Deloitte Tax LLP for our tax services.

Financial Information Systems Design and Implementation Fees

During the fiscal years ended December 31, 2012 and 2011, there were no fees billed by Ernst & Young LLP for information technology consulting.

All Other Fees

During the fiscal years ended December 31, 2012 and 2011, all other fees billed by Ernst & Young LLP were $2,000 in each year.  These fees were for a subscription to an online accounting and tax information service.

The Audit Committee has determined that the rendering of all non-audit services by Ernst & Young LLP is compatible with maintaining the auditor’s independence.

During the fiscal year ended December 31, 2012, none of the total hours expended on our financial audit by Ernst & Young LLP were provided by persons other than Ernst & Young LLP’s employees.

The Board UNANIMOUSLY recommends a vote “FOR” APPROVAL of Proposal 4.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This table outlines the ownership of our common stock as of March 31, 2013 by:

·                  each Director and nominee for Director;

·                  each executive officer named in the Summary Compensation Table under “Executive Compensation—Compensation of Executive Officers”;

·                  all Directors and executive officers as a group; and

·                  every entity that we know beneficially owns more than five percent of our common stock.

*Less than one percent

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(1)         We base this table upon information supplied by officers, Directors, principal stockholders and Form 3s, Form 4s, Form 5s, Schedules 13D and 13G filed with the SEC.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

(2)         Applicable percentages are based on 102,695,200 shares of common stock outstanding on March 31, 2013, adjusted as required by rules promulgated by the SEC.

(3)         Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 15,541,449 shares as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. The number of shares of our common stock owned by the investment companies at December 31, 2012 included 481,095 shares of common stock resulting from the assumed conversion of $8,000,000 principal amount of our 2 ¾% convertible notes (60.1368 shares of common stock for each $1,000 principal amount of debenture).

The ownership of one investment company, Fidelity Growth Company Fund, amounted to 10,016,251 shares. Fidelity Growth Company Fund has its principal business office at 82 Devonshire Street, Boston, Massachusetts 02109.

Edward C. Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 15,541,449 shares owned by the Funds.

Members of the family of Edward C. Johnson 3d, Chairman of FMR LLC, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC.

Neither FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds’ Boards of Trustees.

Pyramis Global Advisors, LLC (“PGALLC”), 900 Salem Street, Smithfield, Rhode Island, 02917, an indirect wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 240,547 shares as a result of its serving as investment adviser to institutional accounts, non-U.S. mutual funds, or investment companies registered under Section 8 of the Investment Company Act of 1940 owning such shares.  The number of shares of our common stock owned by the institutional account(s) at December 31, 2012 included 240,547 shares of common stock resulting from the assumed conversion of $4,000,000 principal amount of our 2 ¾% convertible notes (60.1368 shares of common stock for each $1,000 principal amount of debenture).

Edward C. Johnson 3d and FMR LLC, through its control of PGALLC, each has sole dispositive power over 240,547 shares and sole power to vote or to direct the voting of 240,547 shares of common stock owned by the institutional accounts or funds advised by PGALLC as reported above.

Pyramis Global Advisors Trust Company (“PGATC”), 900 Salem Street, Smithfield, Rhode Island, 02917, an indirect wholly-owned subsidiary of FMR LLC and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 30,211 shares as a result of its serving as investment manager of institutional accounts owning such shares.

Edward C. Johnson 3d and FMR LLC, through its control of Pyramis Global Advisors Trust Company, each has sole dispositive power over 30,211 shares and sole power to vote or to direct the voting of 30,211 shares of common stock owned by the institutional accounts managed by PGATC as reported above.

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(4)         BB Biotech shares voting and dispositive powers for its shares with Biotech Target N.V., a wholly-owned subsidiary of BB Biotech AG.

(5)         Various persons at BlackRock, Inc. have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of shares of our common stock.  No one person’s interest in the shares of our common stock was more than five percent of the total outstanding common shares on December 31, 2012.

(6)         ClearBridge Advisors, LLC, is an investment adviser registered under the Investment Advisers Act.  ClearBridge Advisors has sole voting power to direct the vote of 6,164,555 shares and sole power to dispose or direct the disposition of 6,223,056 shares.

(7)         Artisan Partners Holdings LP, Artisan Investment Corporation, the general partner of Artisan Holdings, Artisan Partners Limited Partnership, Artisan Investments GP LLC, the general partner of Artisan Partners, ZFIC, Inc., the sole stockholder of Artisan Corp., Andrew A. Ziegler and Carlene M. Ziegler have sole voting power to direct the vote of 5,532,400 shares and sole power to dispose or direct the disposition of 5,862,500 shares.

(8)         The Vanguard Group has sole voting power to direct the vote of 138,260 shares, sole power to dispose or direct the disposition of 5,437,039 shares, shared dispositive power for 135,060 shares. Vanguard Fiduciary Trust Company (“VFTC”), a wholly-owned subsidiary of The Vanguard Group, Inc., and is the beneficial owner of 135,060 shares as a result of its serving as investment manager of collective trust accounts.  Vanguard Investments Australia, Ltd. (“VIA”), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 3,200 shares as a result of its serving as investment manager of Australian investment offerings.

(9)         Includes 70 shares owned by Dr. Berthelsen’s daughter for which he disclaims beneficial ownership.  Includes 82,500 shares of common stock issuable upon exercise of options held by Dr. Berthelsen that are exercisable on or before May 30, 2013.

(10) Includes shares of common stock held by Dr. Crooke and 855,494 shares of common stock issuable upon exercise of options held by Dr. Crooke that are exercisable on or before May 30, 2013.  Also includes 62,315 shares of common stock issuable upon exercise of options held by Rosanne Crooke, Dr. Crooke’s wife, that are exercisable on or before May 30, 2013.  Dr. Crooke disclaims beneficial ownership of the shares of common stock owned and issuable upon exercise of options held by his wife.

(11) Includes 15,000 shares of common stock issuable upon exercise of options held by Mr. Klein that are exercisable on or before May 30, 2013 and 100 shares of common stock beneficially owned by Mr. Klein’s son.

(12) Includes 1,500 shares of common stock beneficially owned through the Cooley LLP Salary Deferral and Profit Sharing Plan and 92,500 shares of common stock issuable upon exercise of options held by Mr. Muto that are exercisable on or before May 30, 2013.

(13) Includes 441,663 shares of common stock issuable upon exercise of options held by Ms. Parshall that are exercisable on or before May 30, 2013, and an aggregate of 20,000 shares of common stock issuable upon exercise of options which Ms. Parshall transferred to her two daughters that are exercisable on or before May 30, 2013.

(14) Includes 92,500 shares of common stock issuable upon exercise of options held by Mr. Wender that are exercisable on or before May 30, 2013.

(15) Includes 186,459 shares of common stock issuable upon exercise of options held by Dr. Bennett that are exercisable on or before May 30, 2013.

(16) Includes 148,072 shares of common stock issuable upon exercise of options held by Dr. Geary that are exercisable on or before May 30, 2013.

(17) Includes 117,764 shares of common stock issuable upon exercise of options held by Dr. Monia that are exercisable on or before May 30, 2013.

(18) Includes an aggregate of 2,243,778 shares issuable upon exercise of options held by all current Directors and executive officers as a group that are exercisable on or before May 30, 2013.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our Directors, executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.  Officers, Directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2012, all Section 16(a) filing requirements applicable to our officers, Directors and greater than ten percent beneficial owners were complied with.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

Antisense technology exists today primarily because of the innovation at Isis. Isis has more than 1,500 issued patents and approximately 800 patent applications that assure substantial control of key elements of the technology for many years to come.  This intellectual property has been critical in the completion of partnerships that have resulted in nearly $2 billion in cash to date and the development of a consortium of companies who advance the technology alongside us, and thereby increase our reach. We should continue to realize the value of the partnerships and the consortium of companies for many years to come in the form of milestones and royalties. Isis has been recognized as one of the top ten most innovative companies in the Biotechnology industry, based on number of granted patents, scientific strength, industry impact, technology strength and research intensity. Our nearly 2,300 issued patents and applications are all the more remarkable given that Isis has fewer than 350 employees.  This means Isis has produced more than six issued patents and applications per employee.

A key component of our business and organizational strategy is to maintain an optimal size to foster innovation. We believe the optimal size is 350-400 employees. To maintain this optimal size we license our medicines at key value inflection points during development, thus avoiding the need to build the large, complex, inefficient organizations associated with fully integrated pharmaceutical companies. We also demand more of every employee at Isis and do not tolerate mediocrity. We have been remarkably successful in achieving these goals. Today we have 28 new medicines in development, so one medicine in development per 12 employees. And we believe this productivity is sustainable. We plan to add three to five new medicines to the pipeline every year without significant increases in the number of employees.

By design, Isis demands more of every employee, particularly the middle and senior level leaders. Our compensation system is designed to recruit, motivate and retain outstanding individuals. Here too, we have been successful. Our average employee turnover rate over the last five years has been 6.5% per year, while the average turnover in the San Diego/La Jolla area for biotech/pharmaceutical companies during the same period was 18%. Given the uniqueness and complexity of our technology, it is critical to retain the knowledge and experience of outstanding long service employees. The experience and seniority of our employees is as critical to our future success as it has been to the success we have enjoyed to date.

In summary, at Isis, our vision is clear and is designed to promote long-term creation of value through innovation, and bring benefit to generations of patients with many diseases.  Our vision is to:

·      create and constantly advance a new more efficient drug discovery platform, antisense technology;

·      create a unique business model and culture committed to creating long-term value through innovation;

·      broaden, deepen and advance our pipeline of antisense drugs;

·      demand more of every employee: more commitment, more knowledge, more intensity, more innovation;

·      aggressively manage average and below average performance so that every employee produces more; and

·      demand great performance and pay for that performance.

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Response to 2012 Say-on-Pay Vote

We value the feedback our stockholders provide regarding executive compensation.  As such, we are committed to providing our stockholders the opportunity for a “Say-on-Pay” vote annually.

In 2012 we asked our stockholders to provide a non-binding approval regarding our executive officer compensation for the previous year.  This proposal, commonly known as a “Say-on-Pay” proposal, gave our stockholders the opportunity to express their views on the compensation paid to our named executive officers (NEOs).  At our 2012 Annual Meeting of Stockholders, we received an advisory vote in favor of our executive compensation by approximately 63% of the shares voted at the meeting.  As a result, we solicited feedback from our institutional stockholders holding approximately 65% of the shares voted at the meeting regarding our executive compensation.  The table below summarizes key feedback we received from these stockholders and the specific actions we took in response.

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Summary of Compensation Practices

Below we summarize some of our compensation practices, both the practices we implement because we believe they are consistent with our vision and long-term stockholder value (see “What We Do” below), and those that we choose not to implement as we believe they are counter to our vision and long-term stockholder value (see “What We Don’t Do” below):

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Compensation Overview and the Role of the Compensation Committee

We have designed our executive compensation program to attract and retain executives who can help us meet our business objectives and will motivate our executives to enhance long-term stockholder value.  The Compensation Committee of the Board of Directors, with input from an independent compensation consultant, manages and oversees our executive compensation program.  At the end of each year, and as otherwise required, the Compensation Committee approves the total compensation for each of our executive officers.  In addition, the full Board of Directors reviews and approves the Compensation Committee’s recommendations regarding the compensation of executive officers.

The Compensation Committee’s responsibilities include:

·                  reviewing and approving overall compensation strategy;

·                  reviewing and approving corporate performance goals and objectives relevant to the compensation of our executive officers;

·                  evaluating and recommending to the Board the compensation plans and programs advisable for Isis, as well as modifying or terminating existing plans and programs;

·                  establishing policies with respect to stock compensation arrangements;

·                  reviewing and approving compensation arrangements for our executive officers, including our Chief Executive Officer;

·                  reviewing and approving compensation arrangements for our Directors;

·                  administering our stock-based awards and ESPP;

·                  evaluating risks associated with our compensation policies and practices and assessing whether these risks are reasonably likely to have a material adverse effect on us;

·                  selecting and retaining a qualified, independent compensation consultant;

·                  performing other functions as may be necessary or convenient in the efficient discharge of the foregoing; and

·                  reporting to the Board of Directors from time to time, or whenever it shall be called upon to do so.

As the SEC continues to adopt the final rules implementing and defining the Dodd Frank legislation, Isis’ management and the Compensation Committee will:

·                  monitor the SEC’s adoption of the final rules and definitions; and

·                  adjust Isis’ compensation policies as necessary to satisfy the new rules.

Independent Compensation Consultant

The Compensation Committee has the authority and budget to hire an independent compensation consultant as it deems necessary.  The Compensation Committee has retained Barney & Barney LLC as its independent compensation consultant.  Barney & Barney LLC primarily provided the Compensation Committee advice in the following areas:

·                  responding to feedback provided by our stockholders regarding executive compensation;

·                  selecting the 2012 Executive Peer Group;

·                  evaluating the pay mix for our named executive officers; and

·                  designing stock ownership guidelines for our executive officers and non-employee members of the Board

Barney & Barney LLC did not provide any additional services to us or our affiliates.

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Compensation Philosophy

Our compensation philosophy supports and rewards the characteristics and behaviors we believe will make us successful:

We incorporate a number of features into our compensation structure to mitigate the risk that our compensation policies and practices could encourage unnecessary or imprudent business risk taking.  We use a combination of compensation vehicles that provide a balanced mix of fixed and variable cash incentives, and long-term stock incentives.  Our cash bonuses are not guaranteed (i.e. are 100% at risk) and include a multiplier, or performance factor, based on Isis’ and the employee’s performance.  Therefore, if either Isis or the employee does not perform well, the cash bonus can be, and has been, zero.

An executive officer’s salary plus bonus represents the officer’s total cash compensation.  Our philosophy has been to have the CEO’s total cash compensation be between 20-30 times the lowest level of compensation received by an employee.  Dr. Crooke’s total cash compensation is on average 24.06 times that of the average cash compensation for our lowest level employees and 1.75 times greater than the average of our other executive officers.  Stockholder advocacy organizations consider 3 times and lower an appropriate ratio when measuring CEO compensation against all executive officers and vice presidents.  We cover the specific elements of our compensation structure in more detail below.

Objectives

As noted above, our vision is clear and is designed to promote long-term creation of value through innovation, and bring benefit to generations of patients with many diseases.  Our vision is to:

·      create and constantly advance a new more efficient drug discovery platform, antisense technology;

·      create a unique business model and culture committed to creating long-term value through innovation;

·      broaden, deepen and advance our pipeline of antisense drugs;

·      demand more of every employee: more commitment, more knowledge, more intensity, more innovation;

·      aggressively manage average and below average performance so that every employee produces more; and

·      demand great performance and pay for that performance.

Drug discovery and development across a portfolio of many drugs (currently 28 for Isis) is a long process that spans many years, where decisions we make today can have a positive or negative consequence five years, ten years, and even later into the future.  As such, it is essential that we set goals that incentivize our employees to execute our long-term strategy, because we believe our long-term strategy should continue to reward our stockholders into the future.

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For us to retain our technology leadership and effectively manage the technical complexity and broad scope of our development pipeline, our most senior executives must advance multiple drug strategies and collaborative partnerships in parallel and consistently over many years, versus emphasizing one or two at the expense of others that deserve attention.  As a result, we do not use metric-based objectives such as earnings per share because metrics typically overly emphasize two or three annual business metrics and ignore the complexity of the tasks we are undertaking.  By taking this approach, we avoid the temptation to deviate from creating fundamental long-term value to meet a short-term metric.

We structure our objectives so that they are results driven rather than task driven.  We typically include a number of objectives that are based on achieving positive data in the clinic.  For example, in 2012 we had a corporate objective to mature our pipeline and as a measure to achieve positive data from Phase 2 studies.  This type of objective only rewards our executives if the data are positive - we do this to encourage the prudent spending of stockholder money on development decisions.  In other words, we want to structure our objectives to reward success based on judgment, rather than the making of “bad bets.”

At the beginning of each year, we set aggressive corporate objectives that our Board approves. On at least a quarterly basis, the Board evaluates our progress in achieving our objectives. We define excellent performance as a year in which we have met most of our objectives.

·                  Long tenure among a dedicated and highly skilled workforce, combined with the highest performance standards, contributes to our leadership in the industry and serves the interests of stockholders.

·                  Our focus on retention is coupled to a strong belief that executive talent most often should be developed and promoted from within Isis.

·                  The long tenure of high-performing executive officers reflects this strategy at all levels of the organization.

·                  Our NEOs have tenures at Isis ranging from 17 years to more than 24 years.

·                  Our other officers have on average 12.7 years of tenure at Isis.

·                  Each of the executive officers has been carefully evaluated and selected through a rigorous performance assessment process over a long career. In their current assignments, they remain subject to a challenging annual performance assessment in which they must continue to meet the highest standards or be reassigned or separated from the Company.

Elements of Executive Compensation

Employees in our organization do not share either accountability or responsibility equally for strategic and/or tactical decisions.  It is well ingrained in our culture that not everyone should share the same level of risk/reward for

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(1)         base salary,

(2)         a cash incentive bonus, no portion of which is guaranteed, and

(3)         stock-based compensation.

We have historically awarded stock-based compensation through stock option grants.  Beginning in 2012, we broadened our stock-based compensation vehicles to include RSUs.  The cash incentive bonus is the only element that does not apply to all employees.  The cash incentive bonus is available only to employees at the director level and above.  We provide all other benefits, including 401(k) matching, to all employees.  We describe these benefits in more detail later.

We consider many factors in determining the amounts we grant to our executives for each of the above three compensation elements.  These factors include:

·       company-wide performance, including achievement of corporate objectives;

·       the Compensation Committee’s assessment of our CEO’s and executive officers’ individual performance;

·       competitive compensation practices;

·       increased efficiencies and process improvements;

·       effective collaboration and teamwork;

·       individual expertise, skills and knowledge;

·       the need to retain and motivate;

·       the impact an individual’s judgment has on our success or failure; and

·       the advice of our independent compensation consultant.

The Compensation Committee relies on these and other factors such as general economic conditions, industry conditions, and the Compensation Committee’s collective business judgment in setting and/or approving the appropriate increases.    We do not have specific weightings assigned to these performance factors, as the importance of each factor can vary among the executive officers and from year to year.

Peer Group

The Compensation Committee considers relevant market pay practices when setting executive compensation to ensure our ability to recruit and retain high performing talent.

As part of setting the 2012 compensation, the Compensation Committee, in consultation with the independent compensation consultant, evaluated and selected a peer group of 22 life science companies for evaluating Isis’ compensation (the “Executive Peer Group”).  The Compensation Committee reviews the compensation of our NEOs against the Executive Peer Group’s executive compensation to ensure that our compensation is competitive and to inform and shape its decision-making when setting compensation.  However, the Compensation Committee does not strictly adhere to quantitative benchmarks.

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The Executive Peer Group does not include companies headquartered outside the United States (because compensation practices are generally different outside the United States, the comparable compensation data for the named executive officers is not available and cost of living is different) or companies in industries whose compensation programs are not comparable to our programs, such as non-life science companies.

The following table lists the companies in the 2012 Executive Peer Group, along with Isis’ rankings among these companies, based on financial data reported by each company for the most recently-reported fiscal year at the time the Compensation Committee selected the Executive Peer Group, September 2012.