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Assessing the recoverability of long-lived assets, includingproperty and equipment, intellectual property and licensed
technology;
Determining the appropriate cost estimates for unbilled preclinical studies and clinical development activities;
Estimating our net deferred income tax asset valuation allowance;
Determining the fair value of convertible debtwithout the conversion feature;
Descriptions of these critical accountingpolicies follow.
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
price; and (iii) best estimate of selling price, orBESP. TheBESP reflects our best estimate ofwhat the selling pricewouldbe ifwe
regularly sold the deliverable on a stand-alone basis.We recognize the revenue allocated to eachunit of accounting aswe deliver the
relatedgoods or services. Ifwe determine that we should treat certaindeliverables as a single unit of accounting, thenwe recognize
the revenue ratablyover our estimated periodof performance.
InDecember 2012, we entered into a collaboration agreement withAstraZeneca todiscover anddevelop antisense
therapeutics against five cancer targets. As part of the collaboration, we received a $25million upfront payment inDecember 2012
and a $6millionpayment in June 2013whenAstraZeneca elected to continue the research collaboration. We are also eligible to
receivemilestone payments, license fees for the researchprogram targets and royalties on anyproduct sales of drugs resulting from
this collaboration. In exchange, we grantedAstraZeneca an exclusive license todevelop and commercialize ISIS-STAT3
Rx
and ISIS-
AR
Rx
. We alsograntedAstraZeneca options to license up to three cancer drugs under the separate research program.We are
responsible for completing anongoing clinical studyof ISIS-STAT3
Rx
and IND-enabling studies for ISIS-AR
Rx
. AstraZeneca is
responsible for all other global development, regulatory and commercialization activities for ISIS-STAT3
Rx
and ISIS-AR
Rx
. In
addition, ifAstraZeneca exercises its option for anydrugs resulting from the research program, AstraZenecawill assume global
development, regulatory and commercialization responsibilities for suchdrug. Since this agreement hasmultiple elements, we
evaluated the deliverables in this arrangement anddetermined that certaindeliverables, either individuallyor in combination, have
stand-alone value. Below is a list of the four separate units of accountingunder our agreement:
The exclusive licensewe granted toAstraZeneca to develop and commercialize ISIS-STAT3
Rx
for the treatment of
cancer;
The development serviceswe are performing for ISIS-STAT3
Rx
;
The exclusive licensewe granted toAstraZeneca to develop and commercialize ISIS-AR
Rx
and the research serviceswe
are performing for ISIS-AR
Rx
; and
The option to license up to three drugs under a research program and the research serviceswewill perform for this
program.
