ISIS » Topics » Symphony GenIsis, Inc.

These excerpts taken from the ISIS 10-K filed Feb 26, 2009.

Symphony GenIsis, Inc.

 

In April 2006, Symphony Capital formed Symphony GenIsis, capitalized with $75 million, to provide funding for the development of our cholesterol-lowering drug, mipomersen, and two drugs from our metabolic disease program. In this transaction, we licensed to Symphony GenIsis the intellectual property related to these three drug programs. In return, we received an exclusive purchase option from Symphony GenIsis’ investors that allowed us to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity.

 

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Table of Contents

 

In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of our common stock at an exercise price of $8.93 per share, a 25% premium over our 60-day average trading price at the time of the issuance, which was $7.14. As of December 31, 2008, warrants to purchase 479,401 shares remained outstanding.  To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, we paid structuring and legal fees of $4.1 million.

 

In September 2007, we exercised our option and purchased the equity of Symphony GenIsis for $120 million, $80.4 million in cash and the remaining amount in approximately 3.4 million shares of our common stock. Subsequent to the acquisition of Symphony GenIsis, we granted OMJP, as part of the collaboration agreement with them, worldwide development and commercialization rights to the two diabetes programs previously licensed to Symphony GenIsis, plus up to four additional antisense drugs. In addition, we reacquired full ownership of mipomersen, our cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008. The $125.3 million on our Consolidated Statement of Operations in a line item called Excess Purchase Price over Carrying Value of Noncontrolling Interest in Symphony GenIsis represents a deemed dividend to the previous owners of Symphony GenIsis, a portion of which was non-cash. A portion of the $125.3 million reflects the significant increase in our stock price used to calculate the value of the shares issued to Symphony Capital. This deemed dividend only impacts our net loss applicable to common stock and our net loss per share applicable to common stock calculations for 2007 and does not affect our net loss from continuing operations.

 

Symphony GenIsis, Inc.

 

In April 2006, Symphony Capital formed Symphony GenIsis, capitalized with $75 million, to provide funding for the development of our cholesterol-lowering drug, mipomersen, and two drugs from our metabolic disease program. In this transaction, we licensed to Symphony GenIsis the intellectual property related to these three drug programs. In return, we received an exclusive purchase option from Symphony GenIsis’ investors that allowed us to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity.

 

F-31



Table of Contents

 

In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of our common stock at an exercise price of $8.93 per share, a 25% premium over our 60-day average trading price at the time of the issuance, which was $7.14. As of December 31, 2008, warrants to purchase 479,401 shares remained outstanding.  To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, we paid structuring and legal fees of $4.1 million.

 

In September 2007, we exercised our option and purchased the equity of Symphony GenIsis for $120 million, $80.4 million in cash and the remaining amount in approximately 3.4 million shares of our common stock. Subsequent to the acquisition of Symphony GenIsis, we granted OMJP, as part of the collaboration agreement with them, worldwide development and commercialization rights to the two diabetes programs previously licensed to Symphony GenIsis, plus up to four additional antisense drugs. In addition, we reacquired full ownership of mipomersen, our cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008. The $125.3 million on our Consolidated Statement of Operations in a line item called Excess Purchase Price over Carrying Value of Noncontrolling Interest in Symphony GenIsis represents a deemed dividend to the previous owners of Symphony GenIsis, a portion of which was non-cash. A portion of the $125.3 million reflects the significant increase in our stock price used to calculate the value of the shares issued to Symphony Capital. This deemed dividend only impacts our net loss applicable to common stock and our net loss per share applicable to common stock calculations for 2007 and does not affect our net loss from continuing operations.

 

Symphony
GenIsis, Inc.



 



In April 2006, Symphony Capital formed
Symphony GenIsis, capitalized with $75 million, to provide funding for the
development of our cholesterol-lowering drug, mipomersen, and two drugs from
our metabolic disease program. In this transaction, we licensed to Symphony
GenIsis the intellectual property related to these three drug programs. In return,
we received an exclusive purchase option from Symphony GenIsis’ investors that
allowed us to reacquire the intellectual property by purchasing all of Symphony
GenIsis’ equity.



 



F-31
















Table
of Contents



 



In exchange for the purchase option, we
granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25
million shares of our common stock at an exercise price of $8.93 per share, a
25% premium over our 60-day average trading price at the time of the issuance,
which was $7.14. As of December 31, 2008, warrants to purchase 479,401
shares remained outstanding.  To
compensate Symphony Capital for structuring the transaction and to pay a
portion of its expenses, we paid structuring and legal fees of $4.1 million.



 



In September 2007, we
exercised our option and purchased the equity of Symphony GenIsis for $120
million, $80.4 million in cash and the remaining amount in approximately 3.4
million shares of our common stock. Subsequent to the acquisition of Symphony
GenIsis, we granted OMJP, as part of the collaboration agreement with them,
worldwide development and commercialization rights to the two diabetes programs
previously licensed to Symphony GenIsis, plus up to four additional antisense
drugs. In addition, we reacquired full ownership of mipomersen, our
cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008.
The $125.3 million on our Consolidated Statement of Operations in a
line item called Excess Purchase Price over Carrying Value of Noncontrolling
Interest in Symphony GenIsis represents a deemed dividend to the previous
owners of Symphony GenIsis, a portion of which was non-cash. A portion of the
$125.3 million reflects the significant increase in our stock price used
to calculate the value of the shares issued to Symphony Capital. This deemed
dividend only impacts our net loss applicable to common stock and our net loss
per share applicable to common stock calculations for 2007 and does not affect
our net loss from continuing operations.



 



Symphony
GenIsis, Inc.



 



In April 2006, Symphony Capital formed
Symphony GenIsis, capitalized with $75 million, to provide funding for the
development of our cholesterol-lowering drug, mipomersen, and two drugs from
our metabolic disease program. In this transaction, we licensed to Symphony
GenIsis the intellectual property related to these three drug programs. In return,
we received an exclusive purchase option from Symphony GenIsis’ investors that
allowed us to reacquire the intellectual property by purchasing all of Symphony
GenIsis’ equity.



 



F-31
















Table
of Contents



 



In exchange for the purchase option, we
granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25
million shares of our common stock at an exercise price of $8.93 per share, a
25% premium over our 60-day average trading price at the time of the issuance,
which was $7.14. As of December 31, 2008, warrants to purchase 479,401
shares remained outstanding.  To
compensate Symphony Capital for structuring the transaction and to pay a
portion of its expenses, we paid structuring and legal fees of $4.1 million.



 



In September 2007, we
exercised our option and purchased the equity of Symphony GenIsis for $120
million, $80.4 million in cash and the remaining amount in approximately 3.4
million shares of our common stock. Subsequent to the acquisition of Symphony
GenIsis, we granted OMJP, as part of the collaboration agreement with them,
worldwide development and commercialization rights to the two diabetes programs
previously licensed to Symphony GenIsis, plus up to four additional antisense
drugs. In addition, we reacquired full ownership of mipomersen, our
cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008.
The $125.3 million on our Consolidated Statement of Operations in a
line item called Excess Purchase Price over Carrying Value of Noncontrolling
Interest in Symphony GenIsis represents a deemed dividend to the previous
owners of Symphony GenIsis, a portion of which was non-cash. A portion of the
$125.3 million reflects the significant increase in our stock price used
to calculate the value of the shares issued to Symphony Capital. This deemed
dividend only impacts our net loss applicable to common stock and our net loss
per share applicable to common stock calculations for 2007 and does not affect
our net loss from continuing operations.



 



Symphony
GenIsis, Inc.



 



In April 2006, Symphony Capital formed
Symphony GenIsis, capitalized with $75 million, to provide funding for the
development of our cholesterol-lowering drug, mipomersen, and two drugs from
our metabolic disease program. In this transaction, we licensed to Symphony
GenIsis the intellectual property related to these three drug programs. In return,
we received an exclusive purchase option from Symphony GenIsis’ investors that
allowed us to reacquire the intellectual property by purchasing all of Symphony
GenIsis’ equity.



 



F-31
















Table
of Contents



 



In exchange for the purchase option, we
granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25
million shares of our common stock at an exercise price of $8.93 per share, a
25% premium over our 60-day average trading price at the time of the issuance,
which was $7.14. As of December 31, 2008, warrants to purchase 479,401
shares remained outstanding.  To
compensate Symphony Capital for structuring the transaction and to pay a
portion of its expenses, we paid structuring and legal fees of $4.1 million.



 



In September 2007, we
exercised our option and purchased the equity of Symphony GenIsis for $120
million, $80.4 million in cash and the remaining amount in approximately 3.4
million shares of our common stock. Subsequent to the acquisition of Symphony
GenIsis, we granted OMJP, as part of the collaboration agreement with them,
worldwide development and commercialization rights to the two diabetes programs
previously licensed to Symphony GenIsis, plus up to four additional antisense
drugs. In addition, we reacquired full ownership of mipomersen, our
cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008.
The $125.3 million on our Consolidated Statement of Operations in a
line item called Excess Purchase Price over Carrying Value of Noncontrolling
Interest in Symphony GenIsis represents a deemed dividend to the previous
owners of Symphony GenIsis, a portion of which was non-cash. A portion of the
$125.3 million reflects the significant increase in our stock price used
to calculate the value of the shares issued to Symphony Capital. This deemed
dividend only impacts our net loss applicable to common stock and our net loss
per share applicable to common stock calculations for 2007 and does not affect
our net loss from continuing operations.



 



These excerpts taken from the ISIS 10-K filed Mar 13, 2008.

Symphony GenIsis, Inc.

        In April 2006, Symphony Capital formed Symphony GenIsis, capitalized with $75 million, to provide funding for the development of our cholesterol-lowering drug, mipomersen, and two drugs from our metabolic disease program, ISIS 325568 and ISIS 377131. In this transaction, we licensed to Symphony GenIsis the intellectual property related to our three drug programs, apoB-100, GCGR and GCCR. In return, we received an exclusive purchase option from Symphony GenIsis' investors that allowed us to reacquire the intellectual property by purchasing all of Symphony GenIsis' equity.

F-40


ISIS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Collaborative Arrangements and Licensing Agreements (Continued)

        In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over our 60-day average trading price at the time of issuance, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, we paid structuring and legal fees of $4.1 million. Using a Black-Scholes option-pricing model, we estimated the fair value of the warrant, at the grant date, to be $18.6 million. Our determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management's opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

        In September 2007, we exercised our option and purchased the equity of Symphony GenIsis for $120 million, $80.4 million in cash and the remaining amount in approximately 3.4 million shares of our common stock. Subsequent to the acquisition of Symphony GenIsis, we granted OMI, as part of the collaboration agreement with them, worldwide development and commercialization rights to the two diabetes drugs, ISIS 325568 and ISIS 377131, previously licensed to Symphony GenIsis, plus up to four additional antisense drugs. In addition, we reacquired full ownership of mipomersen, our cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008. The $125.3 million on our Consolidated Statement of Operations in a line item called Excess Purchase Price over Carrying Value of Noncontrolling Interest in Symphony GenIsis represents a deemed dividend to the previous owners of Symphony GenIsis, a portion of which was non-cash. A portion of the $125.3 million reflects the significant increase in our stock price used to calculate the value of the shares issued to Symphony Capital. This deemed dividend only impacts our net loss applicable to common stock and our net loss per share calculations and does not affect our net loss.

        In accordance with FIN 46R, we determined that prior to the acquisition in September 2007, Symphony GenIsis was a variable interest entity for which we were the primary beneficiary. As a result, we included the financial condition and results of operations of Symphony GenIsis in our consolidated financial statements. Our consolidated financial statements include the cash and cash equivalents held by Symphony GenIsis. Additionally, the consolidated financial statements include line items called "Noncontrolling interest in Symphony GenIsis." On the Consolidated Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis, less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by us to Symphony Capital. From the inception of the collaboration to the acquisition of Symphony GenIsis on September 27, 2007, this line item was reduced by Symphony GenIsis' expenditures, which were $46.2 million. The reductions to the "Noncontrolling Interest in Symphony GenIsis" on the Consolidated Balance Sheets are also recognized in our Consolidated Statements of Operations using a similar caption and reduce our net loss. For the years ended December 31, 2007 and 2006, our net loss was reduced by $23.2 million and $23.0 million, respectively.

F-41


ISIS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Collaborative Arrangements and Licensing Agreements (Continued)

Symphony GenIsis, Inc.





        In April 2006, Symphony Capital formed Symphony GenIsis, capitalized with $75 million, to provide funding for the development of our cholesterol-lowering
drug, mipomersen, and two drugs from our metabolic disease program, ISIS 325568 and ISIS 377131. In this transaction, we licensed to Symphony GenIsis the intellectual property related to our three
drug programs, apoB-100, GCGR and GCCR. In return, we received an exclusive purchase option from Symphony GenIsis' investors that allowed us to reacquire the intellectual property by
purchasing all of Symphony GenIsis' equity.



F-40








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ISIS PHARMACEUTICALS, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




6. Collaborative Arrangements and Licensing Agreements (Continued)



        In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of
common stock at an exercise price of $8.93 per share, a 25% premium over our 60-day average trading price at the time of issuance, which was $7.14. To compensate Symphony Capital for
structuring the transaction and to pay a portion of its expenses, we paid structuring and legal fees of $4.1 million. Using a Black-Scholes option-pricing model, we estimated the fair value of
the warrant, at the grant date, to be $18.6 million. Our determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by our stock price, as
well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility
over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because
the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in
management's opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.



        In
September 2007, we exercised our option and purchased the equity of Symphony GenIsis for $120 million, $80.4 million in cash and the remaining amount in approximately
3.4 million shares of our common stock. Subsequent to the acquisition of Symphony GenIsis, we granted OMI, as part of the collaboration agreement with them, worldwide development and
commercialization rights to the two diabetes drugs, ISIS 325568 and ISIS 377131, previously licensed to Symphony GenIsis, plus up to four additional antisense drugs. In addition, we reacquired full
ownership of mipomersen, our cholesterol-lowering drug targeting apoB-100, which we licensed to Genzyme in January 2008. The $125.3 million on our Consolidated Statement of
Operations in a line item called Excess Purchase Price over Carrying Value of Noncontrolling Interest in Symphony GenIsis represents a deemed dividend to the previous owners of Symphony GenIsis, a
portion of which was non-cash. A portion of the $125.3 million reflects the significant increase in our stock price used to calculate the value of the shares issued to Symphony
Capital. This deemed dividend only impacts our net loss applicable to common stock and our net loss per share calculations and does not affect our net loss.



        In
accordance with FIN 46R, we determined that prior to the acquisition in September 2007, Symphony GenIsis was a variable interest entity for which we were the primary
beneficiary. As a result, we included the financial condition and results of operations of Symphony GenIsis in our consolidated financial statements. Our consolidated financial statements include the
cash and cash equivalents held by Symphony GenIsis. Additionally, the consolidated financial statements include line items called "Noncontrolling interest in Symphony GenIsis." On the Consolidated
Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis, less $4.1 million of structuring and legal fees and the
$18.6 million fair value of the warrant issued by us to Symphony Capital. From the inception of the collaboration to the acquisition of Symphony GenIsis on September 27, 2007, this line
item was reduced by Symphony GenIsis' expenditures, which were $46.2 million. The reductions to the "Noncontrolling Interest in Symphony GenIsis" on the Consolidated Balance Sheets are also
recognized in our Consolidated Statements of Operations using a similar caption and reduce our net loss. For the years ended December 31, 2007 and 2006, our net loss was reduced by
$23.2 million and $23.0 million, respectively.



F-41








ISIS PHARMACEUTICALS, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6. Collaborative Arrangements and Licensing Agreements (Continued)





This excerpt taken from the ISIS 10-Q filed Nov 9, 2007.

Symphony GenIsis, Inc.

 

In April 2006, Isis entered into a series of related agreements in connection with a transaction with Symphony Capital and a group of co-investors to provide $75 million to fund the development of Isis’ cholesterol-lowering drug, mipomersen, and two novel drugs from Isis’ metabolic disease program ISIS 325568 and ISIS 377131.  In addition to providing the financial support to move these three drugs forward, the transaction allowed Isis to continue to control and manage the development of these drugs through key development milestones.

 

Symphony Capital formed Symphony GenIsis, capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with Isis. Isis licensed to Symphony GenIsis the intellectual property for its apoB-100, GCGR and GCCR programs. Isis received an exclusive purchase option from Symphony GenIsis’ investors that allowed it to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price.

 

In September 2007, Isis purchased the equity of Symphony GenIsis for $120 million, $80.4 million in cash and the remaining amount in approximately 3.4 million shares of Isis’ common stock.  Isis granted OMI, as part of the collaboration agreement, worldwide development and commercialization rights to two of its diabetes drugs, ISIS 325568 and ISIS 377131 plus up to four antisense drugs.  ISIS 325568 and ISIS 377131 were previously held by Symphony GenIsis.  In addition, Isis has reaquired full ownership of mipomersen, its cholesterol-lowering drug targeting apolipoprotein B-100.  The $125.3 million on Isis’ Condensed Consolidated Statement of Operations in a line item called Excess Purchase Price over Carrying Value of Noncontrolling Interest in Symphony GenIsis, Inc. represents a deemed dividend to the previous owners of Symphony GenIsis.  A portion of the $125.3 million reflects the significant increase in Isis’ stock price used to calculate the value of the shares issued to Symphony Capital.  This deemed dividend only impacts Isis’ net loss applicable to common stock and its net loss per share calculations and does not affect Isis’ net income (loss).

 

In exchange for the purchase option, Isis granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over Isis’ prior 60-day average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, Isis paid structuring and legal fees of $4.1 million. Using a Black-Scholes option-pricing model, Isis estimated the fair value of the warrant, at the grant date, to be $18.6 million. Isis’ determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by Isis’ stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, Isis’ expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

In accordance with FIN 46R, Isis has determined that prior to the acquisition in September 2007, Symphony GenIsis was a variable interest entity for which Isis was the primary beneficiary. As a result, Isis included the financial condition and results of operations of Symphony GenIsis in Isis’ condensed consolidated financial statements. Isis’ condensed consolidated financial statements include the cash and cash equivalents held by Symphony GenIsis. Additionally, the condensed consolidated financial statements include line items called “Noncontrolling interest in Symphony GenIsis.” On the Condensed Consolidated Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by Isis to Symphony Capital. From the inception of the collaboration to the acquisition of Symphony GenIsis on September 27, 2007, this line item was reduced by Symphony GenIsis’ expenditures, which were $46.2 million.  The reductions to the “Noncontrolling Interest in Symphony GenIsis” on the Condensed Consolidated Balance Sheets are also recognized in Isis’ Condensed Consolidated Statements of Operations using a similar caption and reduce Isis’ net loss applicable to common stock.  For the three and nine months ended September 30, 2007, Isis’ net loss was reduced by $8.7 million and $23.2 million, respectively, compared to $6.7 million and $20.3 million for the same periods in 2006.

 

13



 

This excerpt taken from the ISIS 10-Q filed Aug 9, 2007.

Symphony GenIsis, Inc.

In April 2006, Isis entered into a series of related agreements in connection with a transaction with Symphony Capital and a group of co-investors to provide $75 million to fund the development of Isis’ cholesterol-lowering drug, ISIS 301012, and two novel drugs from Isis’ metabolic disease program ISIS 325568, targeting glucagon receptor (“GCGR”), and ISIS 377131, targeting glucocorticoid receptor (“GCCR”). The financing supports ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing also supports the development of ISIS 325568 and ISIS 377131 through initial proof-of-concept in human clinical trials. In addition to providing the financial support to move these three drugs forward, the transaction allows Isis to continue to control and manage the development of these drugs through key development milestones.

Symphony Capital formed Symphony GenIsis Inc., capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with Isis. Isis licensed to Symphony GenIsis the intellectual property for its apoB-100, GCGR and GCCR programs. Isis has received an exclusive purchase option from Symphony GenIsis’ investors that will allow it to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price that reflects a compounded annual rate of return that averages 32% and is 27% at the end of the anticipated four-year collaborative development period. The purchase option exercise price may be paid in cash or a combination of cash and Isis common stock (up to 33% of the purchase price), at Isis’ discretion.

In exchange for the purchase option, Isis granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over Isis’ prior 60-day

11




average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, Isis paid structuring and legal fees of $4.1 million. Using a Black-Scholes option-pricing model, Isis estimated the fair value of the warrant, at the grant date, to be $18.6 million. Isis’ determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by Isis’ stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, Isis’ expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

In accordance with FIN 46R, Isis has determined that Symphony GenIsis is a variable interest entity for which Isis is the primary beneficiary. As a result, Isis includes the financial condition and results of operations of Symphony GenIsis in Isis’ condensed consolidated financial statements. Isis’ condensed consolidated financial statements include the cash and cash equivalents held by Symphony GenIsis. Additionally, the condensed consolidated financial statements include line items called “Noncontrolling interest in Symphony GenIsis.” On the Condensed Consolidated Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by Isis to Symphony Capital. As Isis and Symphony GenIsis progress through their collaboration, this line item is being reduced by Symphony GenIsis’ expenditures, which were $37.4 million from the inception of the collaboration to June 30, 2007, until the balance becomes zero.  The reductions to the “Noncontrolling Interest in Symphony GenIsis” on the Condensed Consolidated Balance Sheets are also recognized in Isis’ Condensed Consolidated Statements of Operations using a similar caption and reduce Isis’ net loss applicable to common stock. For the three and six months ended June 30, 2007, Isis’ net loss was reduced by $7.6 million and $14.4 million, respectively, compared to $13.6 million for the same periods in 2006.

This excerpt taken from the ISIS 10-K filed Mar 16, 2007.

Symphony GenIsis, Inc.

On April 7, 2006, Isis entered into a series of related agreements in connection with a transaction with Symphony Capital and a group of co-investors to provide $75 million to fund the development of Isis’ cholesterol-lowering drug, ISIS 301012, and two novel drugs from Isis’ metabolic disease program ISIS 325568, targeting glucagon receptor (“GCGR”), and ISIS 377131, targeting glucocorticoid receptor (“GCCR”). The financing supports ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing also supports the development of ISIS 325568 and ISIS 377131 through initial proof-of-concept in human clinical trials. In addition to providing the financial support to move these three drugs forward, the transaction allows Isis to continue to control and manage the development of these drugs through key development milestones.

Symphony Capital formed Symphony GenIsis Inc., capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with Isis. Isis licensed to Symphony GenIsis the intellectual property for its apoB-100, GCGR and GCCR programs. Isis has received an exclusive purchase option from Symphony GenIsis’ investors that will allow it to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price that reflects a compounded annual rate of return that averages 32% and is 27% at the end of the anticipated four-year collaborative development period. The purchase option exercise price may be paid in cash or a combination of cash and Isis common stock (up to 33% of the purchase price), at Isis’ discretion.

In exchange for the purchase option, Isis granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over Isis’ prior 60-day average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, Isis paid structuring and legal fees of $4.1 million. Using a Black-Scholes option-pricing model, Isis estimated the fair value of the warrant, at the grant date, to be $18.6 million. Isis’ determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by Isis’ stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, Isis’ expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion,

F-28




ISIS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

In accordance with FIN 46R, Isis has determined that Symphony GenIsis is a variable interest entity for which Isis is the primary beneficiary. As a result, Isis includes the financial condition and results of operations of Symphony GenIsis in Isis’ consolidated financial statements. Isis’ consolidated financial statements include the cash and cash equivalents held by Symphony GenIsis. Additionally, the consolidated financial statements include line items called “Noncontrolling interest in Symphony GenIsis.” On the Consolidated Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by Isis to Symphony Capital. As Isis and Symphony GenIsis progress through their collaboration, this line item will be reduced by Symphony GenIsis’ expenditures, which was $23.0 million for the year ended December 31, 2006, until the balance becomes zero. The reductions to the “Noncontrolling Interest in Symphony GenIsis” on the Consolidated Balance Sheet  are also recognized in Isis’ Consolidated Statements of Operations using a similar caption and reduces Isis’ net loss applicable to common stock. For the year ended December 31, 2006, Isis’ net loss was reduced by $23.0 million.

This excerpt taken from the ISIS 10-Q filed Nov 7, 2006.

Symphony GenIsis, Inc.

 

In April 2006, we entered into a series of related agreements in connection with a transaction with Symphony Capital and a group of co-investors to provide $75 million to fund the development of our cholesterol-lowering drug, ISIS 301012, and two novel drugs from our metabolic disease program. The financing supports ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing also supports development of the two novel diabetes drugs through initial proof of concept in human clinical trials. In addition to providing the financial support to move these drugs forward aggressively, the transaction allows us to continue to control and manage the development of these three drugs through key development milestones.

 

Symphony Capital formed Symphony GenIsis, Inc., capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with us. We licensed to Symphony GenIsis the intellectual property for our apoB-100, glucagon receptor (GCGR) and glucocorticoid receptor (GCCR) programs. We have received an exclusive purchase option from Symphony GenIsis’ investors that will allow us to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price that reflects a compounded annual rate of return that averages 32% and is 27% at the end of the anticipated four-year collaborative development period. The purchase option exercise price may be paid in cash or a combination of cash and our common stock (up to 33% of the purchase price), at our discretion.

 

In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over our prior 60-day average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, we paid a structuring fee of $3.75 million. Using a Black-Scholes option-pricing model, the fair value of the warrant, at the grant date, was estimated to be $18.6 million. Our determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant,

 

21



 

specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

In accordance with FIN 46R, we have determined that Symphony GenIsis is a variable interest entity for which we are the primary beneficiary. As a result, we include the financial condition and results of operations of Symphony GenIsis in our condensed consolidated financial statements. Our condensed consolidated financial statements include the cash and cash equivalents held by Symphony GenIsis. Additionally, the condensed consolidated financial statements include line items called “Noncontrolling interest in Symphony GenIsis.” On the Condensed Consolidated Balance Sheets, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by us to Symphony Capital. As we and Symphony GenIsis progress through our collaboration, this line item will be reduced by Symphony GenIsis’ expenditures, which were $6.7 million and $20.3 million in the three and nine months ended September 30, 2006, respectively, until the balance becomes zero. The reductions to the “Noncontrolling Interest in Symphony GenIsis” will be reflected in our Condensed Consolidated Statements of Operations using a similar caption and will improve our reported net loss.

 

Consistent with our expectations, the $6.7 million recognized as a benefit in the Noncontrolling Interest in Symphony GenIsis in the third quarter of 2006 was lower than the $13.6 million that was recognized in the second quarter of 2006. In the second quarter of 2006, the amount recognized in the Noncontrolling Interest in Symphony GenIsis included various one-time items that will not occur again during the last half of 2006. In the fourth quarter of 2006, we anticipate the Noncontrolling Interest in Symphony GenIsis to slightly increase from the amount recognized in the third quarter. In 2007, as the development of the compounds under the Symphony collaboration continue to progress, we anticipate Symphony GenIsis’ expenditures to increase, and therefore the benefit to our net loss applicable to common stock to increase accordingly.

 

This excerpt taken from the ISIS 10-Q filed Aug 9, 2006.

Symphony GenIsis, Inc.

In April 2006, we entered into a series of related agreements in connection with a transaction with Symphony Capital and a group of co-investors to provide $75 million to fund the development of our cholesterol-lowering drug, ISIS 301012, and two novel drugs from our metabolic disease program. The financing will support ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing will also support development of the two novel diabetes drugs through initial proof of concept in human clinical trials. In addition to providing the financial support to move these drugs forward aggressively, the transaction allows us to continue to control and manage the development of these three drugs through key development milestones.

Symphony Capital formed Symphony GenIsis, Inc., capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with us. We licensed to Symphony GenIsis the intellectual property for our apoB-100, glucagon receptor (GCGR) and glucocorticoid receptor (GCCR) programs. We have received an exclusive purchase option from Symphony GenIsis’ investors that will allow us to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price that reflects a compounded annual rate of return that averages 32% and is 27% at the end of the anticipated four-year collaborative development period. The purchase option exercise price may be paid in cash or a combination of cash and our common stock (up to 33% of the purchase price), at our discretion.

In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over our prior 60 day average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay a portion of its expenses, we paid a structuring fee of $3.75 million. Using a Black-Scholes option pricing model, the fair value of the warrant, at the grant date, was estimated to be $18.6 million. Our determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

In accordance with FIN 46R, we have determined that Symphony GenIsis is a variable interest entity for which we are the primary beneficiary. As a result, we include the financial condition and results of operations of Symphony GenIsis in our consolidated financial statements. Our consolidated financial statements now include the cash and cash equivalents held by Symphony GenIsis. Additionally, the consolidated financial statements include line items called “Noncontrolling interest in Symphony GenIsis.” On the Consolidated Balance Sheet, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by us to Symphony Capital. As we and Symphony GenIsis progress through our collaboration, this line item will be reduced by Symphony GenIsis’ expenditures, which were $13.6 in the second quarter of 2006, until the balance becomes zero. The reductions to the “Noncontrolling Interest in Symphony GenIsis” will be reflected in our Consolidated Statement of Operations using a similar caption and will improve our reported net loss.

We anticipate that the amount recognized as a benefit in the Non-controlling Interest in Symphony GenIsis will be lower in the remaining quarters of 2006.  In the second quarter of 2006, the amount recognized in the Non-controlling Interest in Symphony GenIsis included various one-time items that will not occur again during the last half of 2006.  In 2007, as the development of the compounds under the Symphony collaboration continue to progress, we anticipate Symphony

19




GenIsis’ expenditures to increase, and therefore the benefit to our net loss applicable to common stock to increase accordingly.

This excerpt taken from the ISIS 8-K filed Aug 3, 2006.

Symphony GenIsis, Inc.

In April 2006, Isis entered into a $75 million product development collaboration with Symphony GenIsis, Inc. The collaboration supports ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing also supports development of two novel diabetes drugs through initial proof of concept in human clinical trials. Isis has granted a license to the intellectual property for the three programs to Symphony GenIsis, but retains the exclusive right to reacquire the intellectual property at any time by acquiring all of Symphony GenIsis’ equity. This collaboration will assure the most rapid and effective development of ISIS 301012 through the next crucial phases of development while limiting dilution to Isis’ shareholders.

 

In exchange for Isis’ exclusive purchase option of Symphony GenIsis’ equity, Isis granted to Symphony Capital a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over Isis’ prior 60 day average trading price. To compensate Symphony

 

2



 

Capital for structuring the transaction and the payment of certain of its expenses, Isis paid a structuring fee of $3.75 million. Using a Black-Scholes option pricing model, the fair value of the warrant, at the grant date, was estimated to be $18.6 million. Isis’ determination of the fair value of the warrant on the date of grant using an option-pricing model is affected by Isis’ stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, Isis’ expected stock price volatility over the term of the warrant. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the warrant has certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the warrant, specifically the value determined may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

Under the terms of the collaboration, Isis maintains control of the development activities of ISIS 301012 and the two diabetes projects and has the exclusive right to purchase the common stock of Symphony GenIsis. Therefore, under current accounting rules, specifically Financial Accounting Standards Board Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, Isis is considered the primary beneficiary of Symphony GenIsis and is required to consolidate the financial results of Symphony GenIsis. As a result, Isis’ consolidated financial statements now include the cash and cash equivalents held by Symphony GenIsis. Additionally, the consolidated financial statements include line items called “Noncontrolling Interest in Symphony GenIsis.”  On the Consolidated Balance Sheet, this line item initially reflected the $75 million proceeds contributed into Symphony GenIsis less $4.1 million of structuring and legal fees and the $18.6 million fair value of the warrant issued by Isis to Symphony Capital. As Isis and Symphony GenIsis progress through their collaboration, this line item will be reduced by Symphony GenIsis’ expenditures, which were $13.6 million in the second quarter, until the balance becomes zero. The reductions to the Noncontrolling Interest in Symphony GenIsis will be reflected in Isis’ Consolidated Statement of Operations using a similar caption and will improve Isis’ reported net loss.

 

This excerpt taken from the ISIS 10-Q filed May 10, 2006.

Symphony GenIsis, Inc.

 

In April 2006, we entered into a series of related agreements in connection with a transaction with Symphony Capital Partners, L.P. and a group of co-investors to provide $75 million to fund the development of our cholesterol-lowering drug, ISIS 301012, and two novel drugs from our metabolic disease program. The financing will support ISIS 301012 through the completion of registration-supporting clinical studies in patients with familial hypercholesterolemia and the completion of Phase 2b clinical trials in patients with high cholesterol. The financing will also support development of the two novel diabetes drugs through initial proof of concept in human clinical trials. In addition to providing the financial support to move these drugs forward aggressively, the transaction allows us to continue to control and manage the development of these three drugs through key development milestones.

 

Symphony Capital formed Symphony GenIsis, Inc., capitalized with $75 million, to provide funding for the development of these three drugs in collaboration with us. We licensed to Symphony GenIsis the intellectual property for its apoB-100, glucagon receptor (GCGR) and glucocorticoid receptor (GCCR) programs. We have received an exclusive purchase option from Symphony GenIsis’ investors that will allow us to reacquire the intellectual property by purchasing all of Symphony GenIsis’ equity at a predetermined price that reflects a compounded annual rate of return that averages 32% and is 27% at the end of the anticipated four-year collaborative development period. The purchase option exercise price may be paid in cash or a combination of cash and our common stock (up to 33% of the purchase price), at our discretion.

 

In exchange for the purchase option, we granted to Symphony GenIsis Holdings LLC a five-year warrant to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share, a 25% premium over our prior 60 day average trading price, which was $7.14. To compensate Symphony Capital for structuring the transaction and to pay certain of its expenses, we paid a structuring fee of $3.75 million.

 

In accordance with FIN 46, we have determined that Symphony GenIsis is a variable interest entity for which we are the primary beneficiary. As a result, beginning in the second quarter of 2006, we will include the financial condition and results of operations of Symphony GenIsis in our consolidated financial statements.

 

This excerpt taken from the ISIS 8-K filed Apr 10, 2006.

ABOUT SYMPHONY GENISIS, INC.

Symphony GenIsis has been capitalized with $75 million from Symphony Capital and a select group of co-investors, and will be used exclusively for the development of ISIS 301012 and drugs from the GCGR and GCCR projects. Symphony GenIsis will be governed by a Board of Directors consisting of Isis, Symphony Capital and independent Board members. The Isis designee will be Dr. Stanley T. Crooke, President and CEO of Isis. The initial Symphony Capital designees will be Neil J. Sandler and

 



 

Mark Kessel, Managing Directors of Symphony Capital. Symphony GenIsis has selected as its first independent Board member Dr. John Kastelein of the University of Amsterdam, a leading academic clinician in the cardiovascular community. Dr. Kastelein, a professor of medicine and chairman of the department of Vascular Medicine at the University of Amsterdam, is an expert in lipid and protein metabolism, founded the Lipid Research Clinic at the University of Amsterdam, and set up a foundation to identify patients with familial hypercholesterolemia. Symphony GenIsis has retained RRD International, LLC, whose senior executives will serve as Symphony GenIsis’ management and will collaborate with Isis to conduct the clinical trials.

 

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