F-32
We analyze filingpositions in all of the federal and state jurisdictionswherewe are required to file income tax returns, and
all open tax years in these jurisdictions todetermine ifwe have anyuncertain taxpositions on anyof our income tax returns. We
recognize the impact of an uncertain taxpositionon an income tax return at the largest amount that the relevant taxing authority is
more-likely-thannot to sustainupon audit. We donot recognize uncertain income taxpositions if theyhave less than50percent
likelihoodof being sustained.
The following table summarizes our gross unrecognized taxbenefits (in thousands):
YearEndedDecember 31,
2013
2012
2011
Beginningbalance of unrecognized taxbenefits ........................ $
10,872 $
9,834 $
8,968
Decrease for prior period taxpositions ......................................
—
(174)
(97)
Increase for prior period tax positions .......................................
9,821
791
—
Increase for current period taxpositions ....................................
3,271
421
963
Endingbalance of unrecognized tax benefits ............................. $
23,964 $
10,872 $
9,834
Our unrecognizedgross taxbenefits presented abovewouldnot reduce our annual effective tax rate if recognizedbecausewe
have recorded a full valuation allowance onour deferred tax assets.We donot foresee anymaterial changes toour gross unrecognized
tax benefitswithin the next twelvemonths. We recognize interest and/or penalties related to income taxmatters in income tax
expense.We didnot recognize any accrued interest andpenalties related togross unrecognized taxbenefits during the year ended
December 31, 2013.
TheAmericanTaxpayer ReliefAct of 2012, which reinstated theUnitedStates federal research anddevelopment tax credit
retroactively from January1, 2012 throughDecember 31, 2013, was not enacted into lawuntil the first quarter of 2013. Therefore, the
expected taxbenefit resulting from such reinstatement for 2012 is reflected in theCompany’s estimated annual effective tax rate for
2013.
7. CollaborativeArrangements andLicensingAgreements
PharmaceuticalAlliances andLicensing
AstraZeneca
InDecember 2012, we entered into a global collaboration agreement withAstraZeneca todiscover and develop antisense
drugs against five cancer targets. As part of the agreement, we grantedAstraZeneca an exclusive license to develop and
commercialize ISIS-STAT3
Rx
and ISIS-AR
Rx
for the treatment of cancer and anoption to license up to three cancer drugs under a
separate researchprogram. We are eligible to receivemilestone payments and license fees fromAstraZeneca as programs advance in
development. In addition, we are eligible to receive double-digit royalties on anyproduct sales of drugs resulting from this
collaboration. Under the terms of the agreement, we received$31million inupfront andnear-termpayments comprised of a $25
million upfront paymentwe received inDecember 2012 and a $6million payment we received in June 2013, ofwhichwe recognized
$11.5million upon receipt of the payments. We are recognizing the remaining$19.5million as follows:
$11.2million related to the ISIS-AR
Rx
program, whichwe are amortizing throughMarch2014;
$7.6million related to the option to license three drugs under a separate researchprogram, whichwe are amortizing through
December 2016; and
$0.7million related to the ISIS-STAT3
Rx
program, whichwe are amortizing throughOctober 2014.
TogetherwithAstraZeneca, we are evaluating ISIS-STAT3
Rx
inpatientswith advanced cancer. AstraZeneca is conducting a
Phase 1b/2a clinical studyof ISIS-STAT3
Rx
inpatientswith advancedmetastatic hepatocellular carcinoma, orHCC. We are
concurrently completing a clinical study evaluating ISIS-STAT3
Rx
inpatientswith advanced lymphomas, includingpatientswith
diffuse large b-cell lymphoma. We are responsible for completingour clinical study inpatientswith advanced lymphomas and
AstraZeneca is responsible for all other development activities for ISIS-STAT3
Rx
. In June 2013, we earned a $10millionmilestone
payment whenAstraZeneca added a seconddevelopment candidate, ISIS-AR
Rx
, toour collaboration. ISIS-AR
Rx
is an antisense drug
we designed to treat patientswithprostate cancer by inhibiting the productionof the androgen receptor, orAR. IfAstraZeneca
successfully develops ISIS-STAT3
Rx
, ISIS-AR
Rx
, and three drugs under the research program, we could receive substantivemilestone
payments ofmore than$970million, includingup to$315.5million for the achievement of developmentmilestones andup to$655
million for the achievement of regulatorymilestones. Wewill earn the nextmilestone payment of $15million ifAstraZeneca initiates
aPhase 1 study for ISIS-AR
Rx
.
