DRUGDEVELOPMENT AND LICENSE OPTION AGREEMENT BETWEEN ELILILLY AND COMPANY AND ISISPHARMACEUTICALS, INC. December 2,2009

Infringement Claim will promptly notify the other in writing.  The notice will set forth the facts of the Infringement Claim in reasonable detail.

7.8           Responsibilities.  Isis will have the sole right to control any defense of any Infringement Claim involving alleged infringement of Third Party rights by Isis’ activities at its own expense and by counsel of its own choice, and Lilly will have the right, at its own expense, to be represented in any such action by counsel of its own choice.  Lilly will have the sole right to control any defense of any Infringement Claim involving alleged infringement of Third Party rights by Lilly’s activities at its own expense and by counsel of its own choice, and Isis will have the right, at its own expense, to be represented in any such action by counsel of its own choice.  Notwithstanding the foregoing, if the claim involves an allegation of a violation of the trade secret rights of a Third Party, the Party accused of such violation will have the obligation to defend against such claim and will indemnify the other Party against all costs associated with such claim (in accordance with Sections 6.5 through 6.7).  Neither Party will have the right to settle any patent infringement litigation under this Section 7.8 relating to any Patent Rights owned by or exclusively licensed to the other Party hereunder without the consent of such other Party.  Each Party will also keep the other Party continually informed of all significant matters relating to Infringement Claims of Third Parties.

7.9           Infringement Claims Against Third Parties.

7.9.1        Protection Against Infringement.  Isis and Lilly each agree to take reasonable actions to protect their respective patents and technology from infringement and from unauthorized possession or use.

7.9.2        Notice of Infringement.  If any Isis ASO Compound Patent Right licensed by Isis to Lilly under this Agreement is infringed or misappropriated, as the case may be, by a Third Party, the Party to this Agreement first having knowledge of such infringement or misappropriation, will promptly notify the other in writing.  The notice will set forth the facts of such infringement or misappropriation in reasonable detail.  In such case, Lilly will have the primary right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to infringement or misappropriation of such Isis ASO Compound Patent Right by its own counsel.  The other Party will have the right, at its own expense, to be represented in such action by its own counsel.  Except as otherwise agreed to by the Parties as part of a cost-sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of any litigation expenses of Isis and Lilly, will be retained by the Party that brought and controlled such litigation for purposes of this Agreement, except that any recovery realized by Lilly as a result of such litigation, after reimbursement of the Parties’ litigation expenses, will, to the extent [***] to [***], be treated as [***] of [***] by Lilly.

7.9.3        Expenses of Bringing Infringement Action.  Subject to Section 7.9.2, Lilly will bear the costs and expenses of all infringement or misappropriation actions brought by Lilly under this Agreement.  Subject to Section 7.9.2,  Isis will bear the costs and expenses of all infringement or misappropriation actions brought by Isis under this Agreement.

7.9.4        Lilly’s Failure to Institute, Prosecute and Control.  If Lilly fails to institute, prosecute, and control such action or prosecution within a period of [***] days after

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receiving notice of the infringement, Isis, subject to the prior rights of any Third Party, will have the right to bring and control any such action by counsel of its own choice, and Lilly will have the right, at its own expense, to be represented in any such action by counsel of its own choice. Except as otherwise agreed to by the Parties as part of a cost-sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of 100% of any litigation expenses of Isis and 100% of any litigation expenses of Lilly (including the costs and expenses incurred by Lilly in providing reasonable assistance to Isis), will be shared [***] by the Parties.  No settlement or consent judgment or other voluntary final disposition of a suit under this Section 7.9.4 may be entered into without the joint consent of Isis and Lilly (which consent will not be unreasonably withheld or delayed).

7.9.5        Settlement Approval.  Neither Party will settle any such proceeding under this Section 7.9 without the approval of the other Party, which approval will not be unreasonably withheld or delayed.

ARTICLE 8

TERM AND TERMINATION

8.1           Term of Agreement.  This Agreement will commence on the Effective Date and will continue until no payments are due or are capable of becoming due hereunder, unless the Agreement is terminated earlier in accordance with this ARTICLE 8. All licenses granted hereunder that are in effect at expiration of this Agreement will be deemed fully paid-up and perpetual (as more specifically described in 8.6.1 below), except as provided otherwise by this Agreement.

8.2           Termination for Breach.  Either Party may terminate this Agreement by notice to the other Party at any time during the term of this Agreement if the other Party is in breach of any material obligations hereunder and has not cured such breach within ninety (90) days after notice requesting cure of the breach or such longer period of time as is required to cure such breach as long as the breaching Party is proceeding in good faith to cure; provided, however, that in any case when a breach is alleged regarding the payment of money hereunder, the time period will be thirty (30) days and undisputed amounts must be paid prior to such time to avoid breach.  Upon material breach by a Party of its obligations hereunder, if such Party decides not to terminate this Agreement, such Party will have the right to offset any costs it may incur as a result of curing such breach against the amounts payable to the breaching Party for the performance of such obligations.  Further, to the extent that a Party prevails in a lawsuit brought against the other Party for material breach of this Agreement, such prevailing Party will be entitled to collect from the other Party reasonable attorneys’ fees and legal costs incurred in connection with such law suit. If the non-breaching Party terminates this Agreement under Section 8.2 following material breach by the breaching Party, the breaching Party will return to the non-Breaching Party all of the non-breaching Party’s Confidential Information and all materials received from the non-breaching Party during the Agreement, and the breaching Party will cease all use of the non-breaching Party’s Confidential Information and materials received from the non-breaching Party for any purpose except as provided in Section 8.7, and except that the breaching Party may (1) keep a copy of all documents for record keeping purposes only and (2) keep and use any Confidential Information and materials received from the non-breaching

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Party that are necessary for the breaching Party to exercise those of its rights and fulfill those of its obligations that survive the termination of this Agreement.

8.3           Termination Upon Insolvency.  Either Party may terminate this Agreement upon notice to the other should the other Party become insolvent or file or consent to the filing of a petition under any bankruptcy or insolvency law or have any such petition filed against it which has not been stayed within sixty (60) days of such filing.  During the term of this Agreement, all rights and licenses granted under or pursuant to this Agreement by Isis or Lilly are, and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code.  The Parties agree that, during the term of this Agreement, the Parties, as licensees of such rights under this Agreement, will retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code.  The Parties further agree that, in the event of the commencement of a bankruptcy proceeding-by or against either Party under the U.S. Bankruptcy Code, the Party hereto that is not a party to such proceeding will be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in their possession, will be promptly delivered to them (i) upon any such commencement of a bankruptcy proceeding upon their written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

8.4           Termination at Will by Lilly.  Lilly shall have the right to terminate this Agreement at will upon 90 days written notice to Isis.

8.5           Effect of Termination Due to Lilly Breach, Insolvency or at Will.  If Isis terminates the Agreement based on material breach by or insolvency of Lilly, or if Lilly terminates this agreement at will pursuant to Section 8.4, then:

8.5.1        the licenses granted by Isis to Lilly pursuant to Section 3.1 will terminate, and Lilly will stop making and selling such Product;

8.5.2        any sublicense granted by either Party to any Sublicensee under a license hereunder that terminates as a result of termination of this Agreement by Isis pursuant to Section 8.2 or 8.3 will continue in full force and effect but will be assigned by such Party to the other Party, and such Party will provide the other Party with complete and accurate copies of such sublicense agreements within thirty (30) days following the effective date of such termination; and

8.5.3        Lilly will promptly re-assign any patents assigned to Lilly under this Agreement, and Lilly will assign or otherwise transfer ownership of any regulatory filings related to the Product.

8.6           Effect of Termination Due to Isis Breach or Insolvency.  If Lilly terminates the Agreement based on material breach by or insolvency of Isis, then:

8.6.1        licenses granted by Isis to Lilly pursuant to Section 3.1 will survive;

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8.6.2        Lilly’s payment obligations set forth in ARTICLE 4 will continue, provided, however, that the amounts of the payments will be decreased to reflect the nature of Isis’s breach and the damages caused thereby by amounts to be agreed upon by the Parties or, if the Parties are unable to reach agreement, by an independent Third Party with the requisite expertise selected by the Parties, the expense of which will be borne by Isis; and

8.6.3        any sublicense granted by either Party to any Sublicensee under a license hereunder that terminates as a result of termination of this Agreement by Lilly pursuant to Section 8.2 or 8.3 will continue in full force and effect but will be assigned by such Party to the other Party, and such Party will provide the other Party with complete and accurate copies of such sublicense agreements within thirty (30) days following the effective date of such termination.

8.7           Accrued Rights/Surviving Obligations.  Except as expressly provided in this Agreement, expiration or termination of this Agreement will not relieve the Parties of any obligation that accrued prior to such expiration or termination, and Lilly will be obligated to pay and will pay to Isis, within [***] days of such expiration or termination, all payments and royalties due or accrued pursuant to the terms of ARTICLE 4.  Upon expiration or early termination of this Agreement, all rights and obligations of the Parties will cease, except as follows:

8.7.1        In the case of expiration of this Agreement only (and, for purposes of clarification, not in the case of termination of this Agreement pursuant to Section 8.2 or 8.3), each of the licenses set forth in Sections 3.1 will survive and will be deemed to be perpetual and fully paid up, provided that all payment and other obligations with respect to such licenses have been fulfilled;

8.7.2        The obligations to pay royalties and other sums accruing hereunder up to the date of termination or expiration will survive;

8.7.3        The obligations of confidentiality set forth in ARTICLE 5 will survive;

8.7.4        The obligations for record keeping and accounting reports set forth in ARTICLE 4 will survive for so long as Products are sold.  At such time after termination or expiration of this Agreement when sales or other dispositions of Products have ceased, the Party selling such Product will render a final report along with any royalty payment due;

8.7.5        Isis’ and Lilly’s rights to inspect books and records as described in ARTICLE 4 will survive;

8.7.6        The obligations of defense and indemnity set forth in ARTICLE 6 will survive;

8.7.7        Any cause of action or claim of Isis or Lilly accrued or to accrue because of any breach or default by the other Party hereunder will survive; and

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8.7.8        All other terms, provisions, representations, rights and obligations contained in this Agreement that are intended to survive as specifically set forth elsewhere in this Agreement will survive.

8.8           Limitation of Liability.  No Party will be liable to another for indirect, incidental, consequential or special damages, including but not limited to lost profits, arising from or relating to any breach of this Agreement, regardless of any notice of the possibility of such damages.  Nothing in this Section is intended to limit or restrict the indemnification rights or obligations of any Party under ARTICLE 6.

ARTICLE 9

PUBLICITY

9.1           Press Release.  Upon execution of this Agreement, the Parties shall issue a joint press release announcing the existence of this Agreement in a form and substance agreed to in writing by the Parties.

9.2           Disclosure of Agreement.  Neither Party to this Agreement may release any information to any Third Party regarding the terms or existence of this Agreement or the reasons for any termination hereof, without the prior written consent of the other Party.  Without limitation, this prohibition applies to press releases, educational and scientific conferences, quarterly investor updates, promotional materials, governmental filings and discussions with public officials, the media, security analysts and investors.  However, this provision does not apply to any disclosures regarding this Agreement or related information to regulatory agencies such as the FDA or Federal Trade Commission and/or Department of Justice for such disclosures which may be required by law, including requests for a copy of this Agreement or related information by tax authorities.  If any Party to this Agreement determines a release of information regarding the existence or terms of this Agreement is required by law (including releases a may be required to be filed through the Securities Exchange Commission or other government agency), that Party will notify the other Party as soon as practicable and give as much detail as possible in relation to the disclosure required.  The Parties will then cooperate with respect to determining what information should actually be released.  The Parties hereby agree that release of a press release upon complete execution of this Agreement is appropriate and such press release will be mutually agreed upon by the Parties.

9.3           Use of Names, Logos or Symbols.  No Party hereto will use the name, trademarks, logos, physical likeness, employee names or owner symbol of any other Party for any purpose, including, without limitation, private or public securities placements, without the prior written consent of the affected Party, such consent not to be unreasonably withheld or delayed so long as such use of name is limited to objective statements of fact, rather than for endorsement purposes.  Nothing contained herein will be construed as granting either Party any rights or license to use any of the other Party’s trademarks or tradenames without separate, express written permission of the owner of such trademark or tradename.

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9.4           Publications.

9.4.1        On a country by country basis and only with respect to the Major Market Countries, prior to Registration of the Product in such country, (i) Lilly will notify (and provide as much advance notice as possible to) Isis of any event materially related to Product (including the Product’s efficacy, safety, clinical data or results, any Registration Submission or Registration) so that the Parties may analyze the need to or desirability of publicly disclosing or reporting such event; and (ii) Lilly may publish, present or otherwise disclose results regarding the Product to the public at its sole discretion; however, any press release or other similar public communication by either Party related to a Product’s efficacy, safety, clinical data or results, Registration Submission or Registration, will be submitted to the other Party for review at least 5 Business Days in advance of such proposed public disclosure.

9.4.2        On a country by country basis and only with respect to the Major Market Countries, after Registration of the Product in such country, the appropriateness of all publications regarding development or commercialization of the Products in such country shall be determined by Lilly and Lilly may publish, present or otherwise disclose results regarding the Product to the public at its sole discretion; however, in each case Lilly will submit to Isis for review at least 5 Business Days in advance of such proposed public disclosure, any press release or other similar public communication related to new and materially negative information regarding a Product’s safety, or clinical data or results.

9.4.3        Notwithstanding the foregoing, the contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either Party without a requirement for re-approval.

ARTICLE 10

MISCELLANEOUS

10.1         Further Assurances, HSR.  Each Party will duly execute and deliver such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary or as the other Party may reasonably request in connection with this Agreement in order to carry out more effectively the provisions and purposes of this Agreement. Each of the Parties shall use its commercially reasonable efforts to take all actions necessary or advisable under applicable laws to consummate and make effective the transactions contemplated by this Agreement including the taking of such reasonable actions as are necessary to obtain any requisite approvals, consents, orders, exemptions or waivers by any governmental authority, including filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), if required.  The Parties shall make any necessary filings under the HSR Act as soon as practicable, but in any event not more than fifteen (15) days following the Effective Date.  In the event the Parties conclude that a filing under the HSR Act is necessary, no payments shall be made and no license granted hereunder shall become effective and, except for this Section 10.1, no time period measured from the Effective Date, shall commence until the applicable waiting period under the HSR Act has expired or been terminated.  In the event the applicable waiting period has not expired or been terminated within six months of the Effective Date, either Party shall have the option to terminate this Agreement without liability upon written notice to the other.  Neither Party shall be obligated

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to agree to any divestiture of assets or limitation on its current or future businesses in connection with obtaining clearance under the HSR Act or other requirement if the Party in good faith believes that the same is unreasonable.

10.2         Force Majeure.  No Party will be held liable or responsible to the other Party nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement (except payment obligations) when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party including, but not limited to, fire, flood, earthquake, embargo, war, acts of war or terrorism (whether war be declared or not), insurrection, riot, civil commotion, strike, lockout or other labor disturbance, act of God or act, omission or delay in acting by any governmental authority or the other Party.  The affected Party will notify the other Party of such force majeure circumstances as soon as reasonably practical.

10.3         Assignment.  This Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred, by a Party without the written consent of the other Party; provided, however, that either Party may, without such consent, (1) assign the Agreement and its rights and obligations hereunder to (i) any wholly-owned subsidiary in a manner such that the assignor (if it continues as a separate entity) will remain liable and responsible for the performance and observance of all its duties and obligations hereunder or (ii)  to any successor by merger or sale of substantially all of its business unit to which this Agreement relates, or in the event of its merger or consolidation or Change in Control or similar transaction; or (2) Isis may assign or transfer its rights to receive fees, royalties and milestones under this Agreement (but no liabilities), without Lilly’s consent, to a Third Party in connection with a payment factoring transaction.  This Agreement will be binding upon the permitted successors and permitted assigns of the Parties.  Any assignment not in accordance with this Section 10.3 will be void.

10.4         Severability.  In the event that any of the provisions contained in this Agreement are held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affect the substantive rights of the Parties.  The Parties will replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s), which, insofar as practical, implement the purposes of this Agreement.

10.5         Notices.  All notices or other communications which are required or permitted hereunder will be in writing and deemed to be effective (a) on the date of delivery if delivered in person and written confirmation of delivery is provided, (b) on the date sent by facsimile or other electronic transmission, provided such receipt is verified, (c) on the day following date of deposit with an overnight courier if a receipt confirming delivery by overnight courier is provided, or (d) three days after mailing if mailed by first-class certified mail, postage paid, to the respective addresses given below, or to another address as it will designate by written notice given to the other Party.

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if to Isis, to:

Isis Pharmaceuticals, Inc.

1896 Rutherford Road

Carlsbad, CA 92008

Attention:          Chief Operating Officer

Telephone:        760 ###-###-####

Facsimile:           760 ###-###-####

with a copy to:

Attention:          General Counsel

Telephone:        760 ###-###-####

Facsimile:           760 ###-###-####

if to Lilly, to:

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, IN 46285

Attention:          Group Vice President, Lilly Research Laboratories

with a copy to:

Attention:          General Patent Counsel

10.6         Dispute Resolution.  In the event of any controversy or claim arising from or relating to any provision of this Agreement, or any term or condition hereof, or the performance by a Party of its obligations hereunder, or its construction or its actual or alleged breach, the Parties will try to settle their differences amicably between themselves.

10.7         Choice of Law.  This Agreement will be governed by and construed in accordance with the laws of the State of New York and the United States without reference to any rules of conflict of laws.

10.8         Entire Agreement.  This Agreement (including all Schedules hereto), constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersedes all previous arrangement with respect to the subject matter hereof, whether written or oral.  Any amendment or modification to this Agreement will be made in writing signed by both Parties.

10.9         Headings.  The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.

10.10       Independent Contractors.  It is expressly agreed that the Parties will be independent contractors and that the relationship between the Parties will not constitute a partnership, joint venture or agency.  No Party will have the authority to make any statements,

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representations or commitments of any kind, or to take any action, which will be binding on the other Parties, without the prior consent of such other Parties.

10.11       Further Actions.  Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of the Agreement.

10.12       Waiver.  The waiver by a Party hereto of any right hereunder or the failure to perform or of a breach by another Party will not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

10.13       Jointly Prepared.  This Agreement has been prepared jointly and will not be strictly construed against either Party.

10.14       Counterparts.  This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

[THIS SPACE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

[SIGNATURE PAGE TO DEVELOPMENT AND LICENSE AGREEMENT]

List of Schedules

Schedule 1.1              Definitions

Schedule A               Isis ASO Compound Patent Rights as of the Effective Date

Schedule B                Isis Manufacturing Patent Rights as of the Effective Date

Schedule C                Isis Core Technology Patent Rights as of the Effective Date

SCHEDULE 1.1

DEFINITIONS

“Active Program” means with respect to a Product, any [***], of a Product.  Without limitation of the generality of the foregoing, for purposes of clarification, research, development and commercialization efforts with respect to a Product will be deemed reasonable if Lilly’s research and development efforts with respect to such Product are reasonably comparable with other products in Lilly’s portfolio at a similar stage of development, of similar market potential, and presenting similar development or commercialization challenges.

“Affiliate” means any person, organization, corporation or other business entity that controls, directly or indirectly, the power to direct, or cause the direction of, the management and policies of another person, organization, corporation or entity, whether through the ownership of voting securities or by contract or court order or otherwise.  For purposes of this definition, an entity will be deemed to control another entity if it owns or controls, directly or indirectly, at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors or their equivalent of such other entity.  Regulus Therapeutics Inc. will not be considered an Affiliate of Isis.

“ASO Compound” means an [***].

“ASO Field” means the development, manufacture and sale of ASO Products for all uses.

“Calendar Quarter” will mean the respective three month periods ending on March 31, June 30, September 30, or December 31 for so long as the Agreement is in effect.

“Calendar Year” will mean each successive twelve month period commencing on January 1 and ending on December 31 for so long as the Agreement is in effect.

“Change in Control” means any of the following events:  (i) the acquisition by any Person or group, other than a Person or group controlling such Party as of the Effective Date, of “beneficial ownership” (as defined in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended), directly or indirectly, of fifty percent (50%) or more of the shares of such Party’s capital stock the holders of which have general voting power under ordinary circumstances to elect at least a majority of such Party’s Board of Directors or equivalent body (the “Board of Directors”) (the “Voting Stock”); (ii) the first day of which less than two-thirds of the total membership of such Party’s Board of Directors will be Continuing Directors (as such term is defined below); (iii) the approval by the shareholders of such Party of a merger, share exchange, reorganization, consolidation or similar transaction of such Party (a “Transaction”), other than a Transaction which would result in the Voting Stock of such Party outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the Voting Stock of such Party or such surviving entity immediately after such Transaction; or (iv) approval by the shareholders of such Party of a complete liquidation of such Party or a sale or disposition of all or substantially all of the assets of such Party.  For purposes of this