Research Collaboration And License Agreement

CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 240.24B-2. * INDICATES OMITTED
MATERIAL THAT IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST THAT IS
FILED SEPARATELY WITH THE COMMISSION


RESEARCH COLLABORATION AND LICENSE AGREEMENT


by and among


MERCK & CO., INC.


and


ISIS PHARMACEUTICALS, INC. 2
TABLE OF CONTENTS


PAGE ARTICLE I - DEFINITIONS .................................................................... 1 ARTICLE II - RESEARCH PROGRAM AND DRUG DEVELOPMENT PROGRAM ................................. 7
2.1 General............................................................................. 7
2.2 Description of Research............................................................. 7
2.3 Conduct Research.................................................................... 8
2.4 Joint Research Committee............................................................ 8
2.5 Exchange of Information............................................................. 9
2.6 Records and Reports................................................................. 10
2.7 Research Information and Inventions................................................. 10
2.8 Research Program Term............................................................... 10
2.9 Provision of Compounds.............................................................. 11 ARTICLE III - LICENSE; DEVELOPMENT AND COMMERCIALIZATION ................................... 12
3.1 License Grant....................................................................... 12
3.2 Retained Rights..................................................................... 12
3.3 Merck Grant......................................................................... 12
3.4 Development and Commercialization................................................... 13
3.5 Cell Adhesion Preclusion............................................................ 13 ARTICLE IV - CONFIDENTIALITY AND PUBLICATION................................................ 14
4.1 Non-disclosure and Non-Use Obligations.............................................. 14
4.2 Permitted Disclosure of Proprietary Information..................................... 14
4.3 Dual Information.................................................................... 15
4.4 Publication and Public Disclosures ................................................. 15 ARTICLE V - PAYMENTS; ROYALTIES AND REPORTS ................................................ 15
5.1 Commitment Fee and Option Payment................................................... 15
5.2 Research Program Funding............................................................ 15
5.3 Milestone Payments.................................................................. 16
5.4 Royalties........................................................................... 18
5.5 Reports; Payment of Royalty......................................................... 20
5.6 Audits.............................................................................. 21
5.7 Payment Exchange Rate............................................................... 21
5.8 Income Tax Withholding.............................................................. 22 ARTICLE VI - REPRESENTATIONS AND WARRANTIES................................................. 22
6.1 Isis Representations and Warranties................................................. 22
6.2 Merck Representations and Warranties................................................ 22 ARTICLE VII - PATENT MATTERS ............................................................... 23
7.1 Filing, Prosecution and Maintenance of Patents...................................... 23


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7.2 Right of Other Parties to Prosecute and Maintain Patents............................ 23
7.3 Interference, Opposition, Reexamination and Reissue................................. 23
7.4 Enforcement and Defense............................................................. 24
7.5 Patent Term Restoration............................................................. 25 ARTICLE VIII - TERM AND TERMINATION......................................................... 25
8.1 Term and Expiration................................................................. 25
8.2 Termination by Notice............................................................... 25
8.3 Termination......................................................................... 26
8.4 Effect of Expiration or Termination................................................. 27 ARTICLE XI - PUBLICITY...................................................................... 27
9.1 Public Disclosure .................................................................. 27 ARTICLE X - MISCELLANEOUS................................................................... 27
10.1 Force Majeure..................................................................... 27
10.2 Assignment........................................................................ 28
10.3 Severability...................................................................... 28
10.4 Notices........................................................................... 28
10.5 Applicable Law.................................................................... 29
10.6 Dispute Resolution................................................................ 29
10.7 Entire Agreement.................................................................. 29
10.8 Headings.......................................................................... 30
10.9 Independent Contractors........................................................... 30
10.10 Waiver............................................................................ 30
10.11 Counterparts...................................................................... 30


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6/1/98


RESEARCH COLLABORATION AND LICENSE AGREEMENT


THIS AGREEMENT effective as of June 1, 1998 (the "Effective Date") between Merck & Co., Inc., a corporation organized and existing under the laws of New Jersey ("Merck") and Isis Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware ("Isis") together referred to as the "Parties".


WITNESSETH:


WHEREAS, Isis has expertise in the area of nucleoside and nucleotide chemistry and is willing to utilize that expertise to discover Research Compounds (as hereinafter defined) under the terms of this Agreement; and


WHEREAS, Merck and Isis desire to enter into a research collaboration to discover Research Compounds (as hereinafter defined) upon the terms and conditions set forth herein; and


WHEREAS, Merck desires to obtain a license under Isis Intellectual Property (as hereinafter defined), upon the terms and conditions set forth herein;


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:


ARTICLE I


DEFINITIONS


Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:


1.1 "Affiliate" shall mean (i) any corporation or business entity of which
fifty percent (50%) or more of the securities or other ownership
interests representing the equity, the voting stock or general
partnership interest are owned, controlled or held, directly or
indirectly, by a Party; or (ii) any corporation or business entity
which, directly or indirectly, owns, controls or holds fifty percent
(50%) (or the maximum ownership interest permitted by law) or more of
the securities or other ownership interests representing the equity, the
voting stock or, if applicable, the general partnership interest, of a
Party.


1.2 "Anti-Viral Animal Product(s)" shall mean Anti-Viral Products for animal
use.


1.3 "Anti-Viral Human Product(s)" shall mean Anti-Viral Products for human
use.


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1.4 "Anti-Viral Product(s)" ( * )


1.5 "Calendar Quarter" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30
and December 31.


1.6 "Calendar Year" shall mean each successive period of twelve (12) months
commencing on January 1 and ending on December 31.


1.7 ( * )


1.8 "Collection Animal Products" shall mean Collection Products for animal
use.


1.9 "Collection Human Products" shall mean Collection Products for human
use.


1.10 "Collection Products". ( * )


1.11 "Combination Product" shall mean a Royalty Bearing Product which
includes one or more therapeutically active ingredients other than
Compound, in combination with Compound.


1.12 "Compounds" shall mean Research Compounds and Derived Compounds.


1.13 "Derived Compound(s)" shall mean a chemical entity derived by Merck from
a Research Compound after the term of the Research Program or any
derivative or analog of any such chemical entity or salt or ester
thereof, including but not limited to Oligonucleotides.


*CONFIDENTIAL TREATMENT REQUESTED


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1.14 "Effective Date" shall mean the date first set forth above.


1.15 "Extended Research Program Term" shall have the meaning set forth in
Section 2.8.


1.16 "FDA" shall mean the United States Food and Drug Administration and any
successor agency having substantially the same functions.


1.17 "First Commercial Sale" shall mean, with respect to any Royalty Bearing
Product, the first sale for end use or consumption of such Royalty
Bearing Product in a country after all required approvals, including
marketing and pricing approvals, have been granted by the governing
health authority of such country.


1.18 "Full Time Equivalent" or "FTE" shall mean the equivalent of a full-time
scientist's work time over a twelve-month period (including normal
vacations, sick days and holidays). The portion of an FTE year devoted
by a scientist to the Research Program shall be determined by dividing
the number of working days during any twelve-month period devoted by
such employee to the Research Program by the total number of working
days during such twelve-month period.


1.19 "HCV Human Products" shall mean HCV Products for human use.


1.20 HCV Product(s)" shall mean any preparations in final form for sale by
prescription, over-the-counter or any other method for any indication,
including human or animal use, which contain Compound(s) which (i) are
approved as an RMC Development Candidate during the Research Program
or within ten (10) years thereafter and (ii) are initially developed for
the prevention and/or treatment of infections caused by hepatitis C
virus. It is understood that Compounds which are claimed in or covered
by Isis Patent Assets or Isis Research Patent Assets and which meet the
criteria set forth in (ii) above but do not meet the criteria set forth
in (i) above are Compounds included in Article 1.10.


1.21 "Isis Compounds" shall mean nucleoside and/or nucleotide small molecules
identified and/or discovered by Isis (i) prior to the commencement of
this Agreement or (ii) during the term of the Research Program but
outside the course of the Research Program which are, in the sole
discretion of Isis, provided by Isis to Merck under the terms of this
Agreement.


1.22 "Isis Field" shall mean the use of Research Compounds solely for the
purpose of developing Oligonucleotide products for therapeutic
indications other than the prevention and/or treatment of infections
caused by Hepatitis C virus.


1.23 "Isis Intellectual Property" shall mean (i) Isis Know-How, (ii) Isis
Patent Assets, (iii) Isis Research Know-How and (iv) Isis Research
Patent Assets to the extent that (iii) and (iv) are owned solely by
Isis.


3 7 1.24 "Isis Know-How" shall mean all information and materials, including but
not limited to, discoveries, processes, formulas, data, non-patented
inventions, know-how and trade secrets of Isis conceived prior to the
Effective Date or during the term of the Research Program but outside
its scope, to the extent Isis is not precluded from licensing such
know-how to Merck by the terms of any third party agreement, which are
necessary or useful to Merck (a) in the conduct of Merck's activities
under the Research Program or (b) to make, have made, use, import or
sell Research Compounds and to incorporate Research Compounds into
Licensed Products.


1.25 "Isis Patent Assets" shall mean issued patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention), other than Isis Research
Patents Assets, which during the Research Program or any Extended
Research Program Term are owned by Isis or which Isis through license or
otherwise acquires rights, to the extent Isis is not precluded from
licensing such Isis Patent Assets to Merck by the terms of any third
party agreement, which claim or cover Research Compounds and/or Derived
Compounds their uses or a method of their manufacture, including all
divisions, continuations, continuations-in-part, reissues, renewals,
extensions, supplementary protection certificates or the like of any
such patents and patent applications and foreign equivalents thereof;
provided, however, that if a patent (other than an Isis Patent Asset) of
which Isis is the sole or joint owner issues after the Research Program
Term or any Extended Research Program Term which (i) claims or covers a
composition of matter or a process and (ii) prevents Merck from making,
having made, using, importing and/or selling a Research Compound, then
such patent shall be deemed to be part of Isis Patent Assets solely to
the extent such patent is necessary to enable Merck to make, have made,
use, import and/or sell such, Research Compound (or any Derived Compound
claimed in or covered by such patent, other than an Oligonucleotide).


1.26 "Isis Research Know-How" shall mean all information and Materials,
including but not limited to, discoveries, processes, formulas, data,
non-patented inventions, know-how and trade secrets of Isis conceived in
the course of the Research Program, including know-how conceived jointly
with Merck. It is understood that, notwithstanding the foregoing, Merck
retains its joint ownership of know-how conceived jointly with Isis
during the Research Program.


1.27 "Isis Research Patent Assets" shall mean patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention) which claim inventions
conceived solely by Isis or jointly by Isis and Merck in the course of
the Research Program and all divisions, continuations,
continuations-in-part, reissues, renewals, extensions, supplementary
protection certificates or the like of any such patents and patent
applications and foreign equivalents thereof. It is understood that,
notwithstanding the foregoing, Merck


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retains its joint ownership of patents and patent applications of
inventions conceived in the course of the Research Program jointly with
Isis.


1.28 "Joint Research Committee" shall mean the committee described in Section
2.4.


1.29 "Licensed Product" shall mean any preparation, including but not limited
to a Royalty Bearing Product, in final form for sale by prescription,
over-the-counter or any other method for any indication, including human
or animal use, which contains one or more Compound(s), including in
combination with a therapeutically active ingredient which is not a
Compound.


1.30 "Major Market Country" shall mean Japan, the United Kingdom, France,
Germany, Italy or Spain.


1.31 "Merck Know-How" shall mean all information and materials, including but
not limited to, discoveries, processes, formulas, data, non-patented
inventions, knowhow and trade secrets of Merck, to the extent Merck is
not precluded from licensing such know-how to Isis by the terms of any
third party agreement, which during the term of the Research Program are
not generally known and which are necessary to Isis in the performance
of its obligations under the Research Program.


1.32 "Merck Patent Assets" shall mean issued patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention which are owned by Merck and
which claim or cover-the manufacture, use or sale of Compounds and all
divisions, continuations, continuations in-part, reissues, renewals,
extensions, supplementary protection certificates or the like of any
such patents and patent applications and foreign equivalents thereof.


1.33 "NDA" shall mean a new drug application filed with the FDA for marketing
authorization of a Royalty Bearing Product.


1.34 "Net Sales" shall mean ( * )


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*CONFIDENTIAL TREATMENT REQUESTED


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1.35 "Oligonucleotide" shall mean ( * )


1.36 "Proprietary Information" shall mean any and all scientific, clinical,
regulatory, marketing, financial and commercial information or data,
whether communicated in writing, orally or by any other means, which is
provided by one Party to the other Party in connection with this
Agreement. Proprietary Information shall include, without limitation,
Merck Know-How and Isis Know-How and Isis Research Know-How.


1.37 "RMC Development Candidate" shall mean a Compound which has been
approved, in Merck's sole discretion, by the Merck Research Management
Committee (or its successor) for initiation of formal development
studies, including safety assessment.


1.38 "Research Compounds" shall mean ( * )


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*CONFIDENTIAL TREATMENT REQUESTED 10 1.39 "Research Field" shall mean chemistry efforts to design ( * ) small
molecules which inhibit hepatitis C virus polymerase.


1.40 "Research Program" shall mean the collaborative research effort between
the parties as described in Attachment 2.1 to identify and discover
nucleoside and nucleotide analogs which may be useful in the prevention
and/or treatment of infections caused by Hepatitis C virus and other
indications.


1.41 "Research Program Term" shall have the meaning set forth in Section 2.8.


1.42 "Royalty Bearing Products" shall mean HCV Products, Anti-Viral Products
and Collection Products.


1.43 "Territory" shall mean all countries of the world.


1.44 "Valid Patent Claim" shall mean a claim of an issued and unexpired
patent included within Isis Patent Assets, Isis Research Patent Assets
or Merck Patent Assets, which has not been revoked or held unenforceable
or invalid by a decision of a court or other governmental agency of
competent jurisdiction, unappealable or unappealed within the time
allowed for appeal, and which has not been disclaimed, denied or
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.


ARTICLE II


RESEARCH PROGRAM


2.1 General. Isis and Merck shall engage in the Research Program upon the
terms and conditions set forth in this Agreement. The activities to be
undertaken in the course of the Research Program are set forth in this
Article II and in Attachment 2.1 which may be amended from time to time
upon the mutual agreement of the parties. Isis shall dedicate the
efforts of at least ( * ) during each year of the Research Program Term.


2.2 Description of Research. Isis and Merck will cooperate in the design,
synthesis and evaluation of nucleosides and nucleotides as candidate
inhibitors of the ( * ) hepatitis C virus. Isis and Merck chemists will
collaborate in the design of the modular synthesis and purification of
the ( * ) Isis will prepare ( * ) for screening by Merck. Prodrug and
other modifications of selected compounds will also be synthesized by
Isis to explore structure-activity relationships. It is understood that
Merck, in its sole discretion, may also perform the activities to be
carried out by Isis. Merck ( * ) will provide support for the modular
syntheses


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*CONFIDENTIAL TREATMENT REQUESTED 11
at Isis by supplying (as agreed by Isis and Merck) pre-weighed samples,
with structures, of various starting materials from the Merck
proprietary chemical compound collection. All biochemical and biological
studies of ( * ) prepared by Isis, which will be directed to the
identification and optimization of lead compounds, will be performed by
Merck. It is understood that Merck's activities under the Research
Program may also, in Merck's discretion, be carried out by Merck's
Affiliates and at other Merck sites.


2.3 Conduct of Research. Isis and Merck each shall conduct the Research
Program in a good scientific manner, and in compliance in all material
respects with all requirements of applicable laws, rules and regulations
and all applicable standard laboratory practices to attempt to achieve
their objectives efficiently and expeditiously. Isis and Merck each
shall proceed diligently with the work set out in the Research Program
by using their respective good faith efforts.


2.4 Joint Research Committee. The parties hereby establish a joint research
committee to direct and monitor the Research Program as follows:


2.4.1 Composition of the Committee. The Research Program shall be
conducted under the direction of a joint research committee (the
"Joint Research Committee") comprised of three named
representatives of Merck and three named representatives of
Isis. Each of Merck and Isis shall appoint its respective
representatives to the Joint Research Committee, and from time
to time may substitute one or more of its representatives, in
its sole discretion, effective upon notice to the other Party of
such change. It is anticipated that these representatives shall
have appropriate technical credentials and knowledge, and
ongoing familiarity with the Research Program. The Merck
representatives initially shall be ( * ) and the Isis
representatives initially shall be ( * ) Additional employees of
Isis or Merck (or its Affiliates) may from time to time, by
mutual consent of the parties, be invited to attend Joint
Research Committee meetings. To the extent a party's
representative is unable to attend a Joint Research Committee
meeting, his or her vote on any matter coming before the Joint
Research Committee may be cast by another representative of that
party.


2.4.2 Chairman and Vice Chairman. The Chairman of the Joint Research
Committee shall be selected by Merck and the Vice Chairman shall
be selected by Isis. The Chairman and the Vice Chairman shall be
the primary contacts between the parties with respect to the
Research Program. Each Party shall notify the other as soon as
practicable upon changing this appointment.


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*CONFIDENTIAL TREATMENT REQUESTED 12


2.4.3 Meetings and Decisions. The Joint Research Committee shall meet
at least once each Calendar Quarter at such locations as shall
be determined by the Joint Research Committee. Each Party shall
bear its own expenses related to attendance of such meetings by
its representatives. At the first such meeting, which shall take
place within thirty (30) days after the Effective Date, the
Joint Research Committee shall discuss any necessary or
recommended changes in the Research Program. The Joint Research
Committee may meet by means of teleconference or video
conference or other similar communications equipment. The Joint
Research Committee shall confer and make decisions regarding the
status and direction of the Research Program and the other
matters specified in the Research Program and shall also advise
on issues regarding any technical, budgetary or economic matters
relating to the Research Program, provided that the Joint
Research Committee shall not have authority to decide on
technical, budgetary or economic matters. Decisions of the Joint
Research Committee shall be made by a majority of the members.
In the ev ...