This ISIS 3521 Clinical Supply Agreement ("Agreement") is made and

entered into as of August 29, 2001 (the "Effective Date") between Eli Lilly

and Company, a corporation organized and existing under the laws of the State

of Indiana ("LILLY") and Isis Pharmaceuticals, Inc., a corporation organized

and existing under the laws of the State of Delaware ("ISIS").



                                   WITNESSETH



WHEREAS, ISIS and LILLY have entered into the Development and License Agreement

relating to the development and commercialization of ISIS 3521, and the

conditions to entering into this Agreement described in the Development and

License Agreement have been satisfied; and



WHEREAS, ISIS will initially manufacture, release and deliver ISIS 3521 API to

LILLY for support of ongoing clinical trials and will also perform CMC

activities and transfer to LILLY or a third party selected by LILLY the

technology to manufacture ISIS 3521 for commercial uses, pursuant to the terms

set forth herein;



NOW, THEREFORE, in consideration of the covenants herein contained, the parties

hereto agree as follows:



                                    ARTICLE 1



                                   DEFINITIONS



         Capitalized terms used in this Agreement have the meanings set forth in

Exhibit 1 hereto.





                                    ARTICLE 2



                          MANUFACTURE AND SUPPLY OF API



2.1      Subject to the terms and conditions set forth herein, LILLY will

         provide ISIS with estimates of LILLY's requirements of API for support

         of ongoing clinical trials prior to the start of Calendar Years 2002

         and 2003. ISIS will supply API to LILLY, in amounts agreed upon by the

         parties, based on LILLY's requirements and ISIS' Annual Capacity, in

         accordance with the terms of this Agreement.



2.2      ISIS will provide bulk API to LILLY for use in Clinical Products. LILLY

         will be responsible for the formulation, filling, finishing, labeling

         and packaging of the Clinical Products, including stability studies;

         provided, however, that, in accordance with





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         Section 6.2, until the Release Technology Transfer is completed, ISIS

         will perform Clinical Product release.



2.3      The parties acknowledge that as of the Effective Date, a third party

         manufacturer performs the formulation, filling and finishing of

         Clinical Product for ISIS. Following the Effective Date, LILLY will be

         responsible for the formulation, filling and finishing of Clinical

         Product and will use commercially reasonable efforts to promptly

         establish, itself or through a third party manufacturer, the

         manufacturing process for formulating, filling, and finishing Clinical

         Product. If requested by LILLY, ISIS will cooperate with LILLY, as

         appropriate, to enable LILLY to enter into an agreement with the third

         party manufacturer used by ISIS to perform the formulation, filling and

         finishing of Clinical Product.



                                      ARTICLE 3



                            ORDERS AND LIMITATION OF SUPPLY



3.1      PRODUCTION AND DELIVERY PLANS AND ORDERS.



(a)      Not later than July 1 of each year, except 2001, in which this

         Agreement is in effect, LILLY will provide ISIS with a written estimate

         of the amount of API LILLY will require during the subsequent Calendar

         Year, which estimate will indicate the quantity of API to be utilized

         in Clinical Products. [LILLY's API order estimate for Calendar Year

         2002 is set forth on Exhibit 2. [*]



(b)      At the time of delivery of each such estimate (but within 30 days after

         the Effective Date with regard to the estimate for Calendar Year 2002),

         LILLY representatives will meet with ISIS representatives to discuss

         and agree upon a production and delivery plan for the next Calendar

         Year (the "Production and Delivery Plan"). Each year's agreed-upon

         Production and Delivery Plan will specify the quantity of API to be

         utilized in Clinical Product that ISIS will supply to LILLY during the

         subsequent Calendar Year, taking into account all relevant factors

         including, without limitation, ISIS' Annual Capacity and its

         obligations to other parties. Each such Production and Delivery Plan

         will be deemed a firm purchase order of LILLY for the quantities of API

         specified therein, and a firm commitment of ISIS to Manufacture and

         supply such quantities of API to LILLY.



(c)      The Production and Delivery Plan will further specify one or more dates

         upon which Delivery of the API to be supplied by ISIS will occur during

         the relevant Calendar Year. ISIS will use commercially reasonable

         efforts to Deliver the API to LILLY according to the agreed-upon

         Delivery schedule set forth in the Production and Delivery Plan. The

         Production and Delivery Plan will provide for Delivery of API promptly

         after completion of Manufacture and release. The date on which the

         parties agree upon a Production and Delivery Plan for the following

         Calendar Year will be referred to herein as the "API Order Date."



(d)      Based on various considerations, including its obligations to Third

         Parties and to its own drug development efforts, ISIS' Annual Capacity

         will vary from year to year. ISIS'





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         annual capacity for the Manufacture of API for Calendar Years 2002 and

         2003 (the "Annual Capacity"), indicating the maximum amount of API

         that LILLY may order from ISIS during each such Calendar Year, is set

         forth in Exhibit 3.



(e)      ISIS will purchase the Raw Materials used in the Manufacture. At its

         sole discretion, LILLY will have the option to purchase some or all of

         the Raw Materials used in the Manufacture. If Lilly so decides, LILLY

         will notify ISIS, and the parties will work together to establish

         appropriate procedures for order and delivery of and payment for such

         Raw Materials to be purchased by LILLY.



3.2      COMMERCIAL MANUFACTURING .



         LILLY and ISIS will work together to complete a plan for commercial

         supply of API. LILLY and ISIS will work together to identify and

         investigate other sources for the manufacture of API to be utilized for

         Commercial Product. LILLY will inform ISIS in writing by July 1, 2002

         of LILLY's decision, at its sole discretion, regarding whether LILLY,

         ISIS and/or a third party will manufacture API to be utilized for

         Commercial Product, and which of them shall be the primary source and

         the back-up source of API to be utilized for Commercial Product. If, in

         such notice, LILLY elects to have ISIS manufacture API to be utilized

         for Commercial Product, LILLY and ISIS will negotiate in good faith,

         and ISIS hereby commits, for ISIS to manufacture API to be utilized for

         Commercial Product on substantially the terms set forth in Exhibit 8.

         In such notice, LILLY will also provide LILLY's API order estimates for

         Calendar Years 2003, 2004 and 2005.



3.3      LIMITATIONS OF SUPPLY.



         In the event that at any time ISIS anticipates that it will be unable

         to supply in whole or in part the quantities of API set forth in an

         agreed-upon Production and Delivery Plan for any reason, including

         without limitation force majeure, ISIS will notify LILLY in writing as

         soon as possible of such anticipated shortfall. ISIS will also notify

         LILLY of the underlying reason for the shortfall, proposed remedial

         measures, the date such inability to supply the full order of API is

         expected to end, and a proposed amount of API to be Delivered to LILLY.

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