F-9
ISISPHARMACEUTICALS, INC.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
1.OrganizationandSignificantAccountingPolicies
Basis of Presentation
The consolidated financial statements include the accounts of Isis Pharmaceuticals, Inc. (“we”, “us” or “our”) andourwholly
owned subsidiary, SymphonyGenIsis, Inc., which is currently inactive. In addition toourwhollyowned subsidiary, our consolidated
financial statements include our equity investment inRegulusTherapeutics Inc. InOctober 2012, Regulus completed an initial public
offering (IPO). We began accounting for our investment inRegulus at fair value in the fourthquarter of 2012whenour ownership in
Regulus droppedbelow20percent andwe no longer had significant influence over Regulus’ operating and financial policies.
Organizationandbusiness activity
We incorporated inCalifornia on January10, 1989. In conjunctionwithour initial public offering, we reorganized as a
Delaware corporation inApril 1991.Wewere organizedprincipally todevelophuman therapeutic drugs using antisense technology.
Basic anddilutednet loss per share
We compute basic net loss per share bydividing the net loss by theweighted-average number of common shares outstanding
during the period. Aswe incurred a net loss for the years endedDecember 31, 2013, 2012 and 2011, we did not include dilutive
common equivalent shares in the computationof dilutednet loss per share because the effect would have been anti-dilutive. Common
stock from the followingwouldhave had an anti-dilutive effect onnet loss per share:
2
3
4
percent convertible senior notes;
2
5
/
8
percent convertible subordinatednotes;
GlaxoSmithKline, orGSK, convertible promissorynotes issuedbyRegulus;
Dilutive stockoptions;
Unvested restricted stockunits; and
Warrants issued toSymphonyGenIsisHoldingsLLC.
InApril 2011, SymphonyGenIsisHoldingsLLC exercised itswarrants. As a result, the SymphonyGenIsiswarrantswere not
common equivalent shares for the years endedDecember 31, 2013 and2012. We redeemed all of our 2
5
8
percent notes in
September 2012 and inOctober 2012Regulus completed an IPO, afterwhichwewere no longer guarantors of the two convertible
notes that Regulus issued toGSK. As a result, the 2
5
8
percent notes andGSK convertible promissorynoteswere not common
equivalent shares for the year endedDecember 31, 2013.
RevenueRecognition
We generally recognize revenuewhenwe have satisfied all contractual obligations and are reasonably assuredof collecting
the resulting receivable.We are often entitled tobill our customers and receive payment fromour customers in advance of recognizing
the revenue. In the instances inwhichwe have receivedpayment fromour customers in advance of recognizing revenue, we include
the amounts indeferred revenue onour consolidatedbalance sheet.
Researchanddevelopment revenue under collaborative agreements
Our collaboration agreements typically containmultiple elements, or deliverables, including technology licenses or options to
obtain technology licenses, research anddevelopment services, and in certain casesmanufacturing services. Our collaborationsmay
provide for various types of payments to us includingupfront payments, fundingof research anddevelopment,milestone payments,
licensing fees, profit sharing and royalties onproduct sales.We evaluate the deliverables inour collaboration agreements todetermine
whether theymeet the criteria tobe accounted for as separate units of accountingorwhether they shouldbe combinedwithother
deliverables and accounted for as a single unit of accounting.When the delivered items in an arrangement have “stand-alone value” to
our customer, we account for the deliverables as separate units of accounting andwe allocate the consideration to eachunit of
accountingbasedon the relative sellingpriceof eachdeliverable. Delivered items have stand-alone value if they are sold separatelyby
anyvendor or the customer could resell the delivered items on a standalone basis.We use the followinghierarchyof values to
estimate the selling price of eachdeliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling
