•
Estimating our net deferred income tax asset valuation allowance; and
•
Determining the fair value of convertible debt without the conversion feature.
Descriptions of these critical accounting policies follow.
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.
Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the
delivered items on a stand-alone basis. We use the following hierarchy of values to estimate the selling price of
each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price;
and (iii) best estimate of selling price, or BESP. The BESP reflects our best estimate of what the selling price
would be if we regularly sold the deliverable on a stand-alone basis. We recognize the revenue allocated to each
unit of accounting as we deliver the related goods or services. If we determine that we should treat certain
deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of
performance.
In December 2012, we entered into a global collaboration agreement withAstraZeneca to discover and
develop antisense drugs against five cancer targets. As part of the collaboration, we received a $25 million
upfront payment in December 2012 and a $6 million payment in June 2013 whenAstraZeneca elected to
continue the research collaboration. We are also eligible to receive milestone payments, license fees for the
research program targets and royalties on any product sales of drugs resulting from this collaboration. In
exchange, we grantedAstraZeneca an exclusive license to develop and commercialize ISIS-STAT3-2.5
Rx
and
ISIS-AR-2.5
Rx
. We also grantedAstraZeneca options to license up to three cancer drugs under the separate
research program. We were responsible for completing IND-enabling studies for ISIS-AR-2.5
Rx
, which we
completed in early 2014. We are also responsible for completing an ongoing clinical study of ISIS-STAT3-2.5
Rx
,
which we plan to complete in the first quarter of 2015. AstraZeneca is responsible for all other global
development, regulatory and commercialization activities for ISIS-STAT3-2.5
Rx
and ISIS-AR-2.5
Rx
. In addition,
if AstraZeneca exercises its option for any drugs resulting from the research program, AstraZeneca will assume
global development, regulatory and commercialization responsibilities for such drug. Since this agreement has
multiple elements, we evaluated the deliverables in this arrangement when we entered into the agreement and
determined that certain deliverables, either individually or in combination, have stand-alone value. Below is a list
of the four separate units of accounting under our agreement:
•
The exclusive license we granted toAstraZeneca to develop and commercialize ISIS-STAT3-2.5
Rx
for
the treatment of cancer;
•
The development services we are performing for ISIS-STAT3-2.5
Rx
;
•
The exclusive license we granted toAstraZeneca to develop and commercialize ISIS-AR-2.5
Rx
and the
research services we performed for ISIS-AR-2.5
Rx
; and
•
The option to license up to three drugs under a research program and the research services we are
performing for this program.
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