Isis is the owner or exclusive licensee of over 1,500 issued patents covering RNA-based drug discovery and development. The Company's intellectual property estate contributes tremendously to Isis as it protects 1) technology and biological insights, 2) antisense research and drugs, and 3) the investment the Company and its shareholders have made in pioneering and developing its technologies.

Isis' intellectual property estate broadly covers the use of an antisense inhibitor as a drug and as a functional genomics tool. The patents held generally bear on the following six areas:

1) Fundamental oligonucleotide chemistries

2) Antisense-based gene functionalization and identification of validated therapeutic target regions for physiologically relevant genes

3) Antisense drug discovery (multiple mechansims)

4) Antisense therapeutics

5) Manufacturing, formulations, delivery of oligonucleotide therapeutics

6) Ibis RNA technology for the identification of infectious biological agents (Ibis T5000)

Isis’ growing patent position also improves the Company’s business of helping industry partners develop new therapies that target RNA. Isis has four primary goals concerning intellectual property: 1) protect and extend its leadership position in RNA technology 2) generate short-term revenue via licensing and development and regulatory milestones 3) encourage strategic relationships to expand ownership of a broad pipeline of antisense drugs, and 4) gain a royalty position in non-antisense drugs discovered by partners. Isis has made significant strides on each of these fronts by establishing many new partnerships and the Company continues its efforts to build and protect this estate.

Realizing value through licensing

Isis’ patent estate has been the basis of more than a dozen strategic partnerships. As of December 31, 2006, Isis has recognized over $77 million from licensing its intellectual property.

In March 2004, the Company announced a strategic partnership with Alnylam Pharmaceuticals, Inc., the leading RNAi therapeutics company to develop and commercialize RNAi therapeutics. The alliance combines Isis’ intellectual property and development expertise with Alnylam’s intellectual property and research expertise in RNAi therapeutics. Isis licensed to Alnylam its patent estate relating to antisense mechanisms and oligonucleotide chemistry for double stranded RNAi therapeutics in exchange for a technology access fee, participation in fees for Alnylam’s partnering programs, as well as downstream milestone and royalty payments.

Another example of Isis executing its patent licensing strategy is its deal with Eyetech Pharmaceuticals. In 2001, Eyetech Pharmaceuticals, the company developing Macugen, licensed from Isis specific patents necessary to develop, manufacture and commercialize Macugen. Eyetech received marketing clearance for Macugen in December 2004. Macugen is a non-antisense aptamer that includes oligonucleotide chemistry Isis invented.

During 2004, Isis earned a total of $6 million in milestone payments related to Macugen from Eyetech and, in December 2004, Isis sold a portion of its royalty rights to Macugen to Drug Royalty USA, Inc. (DRC) in exchange for $24 million to be paid over three years.

Under Isis' agreement with DRC, through 2009, DRC will receive all royalties on the first $500 million of annual sales of Macugen. Isis will receive 50 percent of royalties on annual sales between $500 million and up to $1 billion, and 90 percent of royalties on annual sales in excess of $1 billion. After 2009, Isis will receive 100 percent of royalties on annual sales of Macugen.

Eyetech is also studying Macugen as a treatment for diabetic macular edema (DME) and is currently conducting Phase 2 trials in this indication.

Age-related macular degeneration (AMD) is the most common form of irreversible and severe vision loss in Americans age 65 and older. Approximately 1.7 million Americans suffer from some form of AMD. Owing to the rapid aging of the U.S. Population, this number will increase to almost 3 million by 2020.