64
EstimatedLiability forClinical Development Costs
We record accrued liabilities related to expenses forwhich service providers have not yet billed us related to products or
services thatwe have received, specifically related to ongoingpreclinical studies and clinical trials. These costs primarily relate to
third-party clinicalmanagement costs, laboratory and analysis costs, toxicology studies and investigator grants.We havemultiple
drugs in concurrent preclinical studies and clinical trials at several clinical sites throughout theworld. Inorder to ensure thatwe have
adequatelyprovided for ongoingpreclinical and clinical development costs during the period inwhichwe incur such costs, we
maintain an accrual to cover these expenses.We update our estimate for this accrual on at least a quarterly basis. The assessment of
these costs is a subjective process that requires judgment. Upon settlement, these costsmay differmaterially from the amounts
accrued inour consolidated financial statements. Our historical accrual estimates havenot beenmateriallydifferent fromour actual
amounts.
ValuationAllowance forNetDeferredTaxAssets
We record a valuation allowance to offset any net deferred tax assets if, basedupon the available evidence, it ismore likely
thannot thatwewill not recognize some or all of the deferred tax assets. Except for 2009, we have hadnet losses since inception, and
as a result, we have established a 100percent valuation allowance for our net deferred tax asset. Ifwe determine thatwe are able to
realize a portionor all of these deferred tax assets in the future, wewill record an adjustment to the valuation allowance.
ConvertibleDebt
We account for convertible debt instruments thatmaybe settled in cashupon conversion (includingpartial cash settlement)
by separating the liability and equity components of the instruments in amanner that reflects our nonconvertible debt borrowing rate.
We determine the carrying amount of the liability component bymeasuring the fair value of similar debt instruments that donot have
the conversion feature. If no similar debt instrument exists, we estimate fair value byusing assumptions thatmarket participants
would use in pricing a debt instrument, includingmarket interest rates, credit standing, yield curves andvolatilities. Determining the
fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are
judgmental in nature and could have a significant impact on the determinationof the debt component, and the associated non-cash
interest expense.
InAugust 2012,we completed a $201.3millionofferingof convertible senior notes, whichmature in2019 andbear interest
at 2¾percent. We assigned a value to the debt component of our 2¾percent notes equal to the estimated fair value of similar debt
instrumentswithout the conversion feature, which resulted in us recording the debt at a discount. We are amortizing the debt discount
over the life of these 2¾percent notes as additional non-cash interest expense utilizing the effective interestmethod. For additional
information, seeNote 4,
Long-TermObligations andCommitments,
in theNotes to theConsolidatedFinancial Statements.
Results ofOperations
YearsEndedDecember 31, 2013 andDecember 31, 2012
Revenue
Total revenue for the year endedDecember 31, 2013was $147.3million compared to$102.0million for 2012. Our revenue
fluctuates basedon the nature and timingof payments under agreementswith our partners, including license fees,milestone-related
payments andother payments. In2013, we earned$83million in revenue frommilestone and licensingpayments including:
$26.5million fromGSK becausewe advanced ISIS-TTR
Rx
, ISIS-GSK3
Rx
and ISIS-GSK4
Rx
indevelopment;
$25million fromGenzymewhen theFDA approved theKYNAMRONDA;
$10millionwhenAstraZeneca added a seconddevelopment candidate, ISIS-AR
Rx
, toour collaboration;
$17million fromBiogen Idec becausewe advanced the Phase 2 study of ISIS-SMN
Rx
in infants and for selecting and
advancing ISIS-DMPK
Rx
indevelopment; and
$3.5millionwhenXenon licensedXEN701.
Our revenue in2013 also included$64millionprimarily from the amortizationof upfront fees andmanufacturing services
performed for our partners.
