ISIS PHARMACEUTICALS, INC.
NOTES TOCONSOLIDATEDFINANCIALSTATEMENTS
1. Organization and Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Isis Pharmaceuticals, Inc. (‘‘we’’, ‘‘us’’ or
‘‘our’’) and our wholly owned subsidiary, Akcea Therapeutics, Inc., which was formed in December 2014 to
develop and commercialize the drugs in our lipid franchise.
Organization and business activity
We incorporated in California on January 10, 1989. In conjunction with our initial public offering, we
reorganized as a Delaware corporation inApril 1991. We were organized principally to develop human
therapeutic drugs using antisense technology.
Basic and diluted net loss per share
We compute basic net loss per share by dividing the net loss by the weighted-average number of common
shares outstanding during the period. As we incurred a net loss for the years ended December 31, 2014, 2013
and 2012, we did not include dilutive common equivalent shares in the computation of diluted net loss per share
because the effect would have been anti-dilutive. Common stock from the following would have had an
anti-dilutive effect on net loss per share:
•
1 percent convertible senior notes;
•
2¾ percent convertible senior notes;
•
2
⅝
percent convertible subordinated notes;
•
GSK convertible promissory notes issued by Regulus;
•
Dilutive stock options;
•
Unvested restricted stock units; and
•
Employee Stock Purchase Plan, or ESPP.
We issued 1 percent convertible senior notes in November 2014. We issued 2¾ percent convertible senior
notes inAugust 2012, of which a portion was redeemed in conjunction with the issuance of our 1 percent notes.
We redeemed all of our 2
⅝
percent notes in September 2012. In October 2012 Regulus completed an IPO, after
which we were no longer guarantors of the two convertible notes that Regulus issued to GSK. As a result, the
2
⅝
percent notes and GSK convertible promissory notes were not common equivalent shares for the years ended
December 31, 2014 and 2013.
Revenue Recognition
We generally recognize revenue when we have satisfied all contractual obligations and are reasonably
assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment
from our customers in advance of recognizing the revenue. In the instances in which we have received payment
from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our
consolidated balance sheet.
Research and development revenue under collaborative agreements
Our collaboration agreements typically contain multiple elements, or deliverables, including technology
licenses or options to obtain technology licenses, research and development services, and in certain cases
manufacturing services. Our collaborations may provide for various types of payments to us including upfront
payments, funding of research and development, milestone payments, licensing fees, profit sharing and royalties
on product sales. We evaluate the deliverables in our collaboration agreements to determine whether they meet
the criteria to be accounted for as separate units of accounting or whether they should be combined with other
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 and we
allocate the consideration to each unit of accounting based on the relative selling price of each deliverable.
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