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1 LAIDLAW & COMPANY London New York San Francisco Boston EQUITY RESEARCH Company Report January 6, 2017 Ionis Pharmaceuticals (IONS - $ 49.69) A NVS New Year Gift That Could Exceed $1.6 Billion This morning IONS announced that they and Akcea formed a collaboration with Novartis for the development and commercialization of AKCEA-APO(a)-L Rx and AKCEA-APOCIII-L Rx with near term payments of $225MM and a potential total value exceeding $1.6 billion. Details. The terms of the deal include a $75MM up-front payment and equity investments by NVS in two tranches: $100MM now and another $50MM in the next 18 months. IONS is eligible to receive regulatory and commercialization milestone payments with a total value of $580MM and $550MM, respectively. NVS will also pay a $150MM license fee for each product should they decide to opt-in for Phase III development. Akcea is responsible for conducting a Phase II dose-finding study for each drug to identify the optimal dose and dosing schedules (possibly monthly). Upon opt-in, NVS will pay for and be fully responsible for global Phase III cardiovascular outcome studies in highrisk population plus subsequent development and commercialization. Akcea retains co-commercialization rights and plans to leverage its specialty sales force with focus on lipid specialists. IONS is entitled to a sales-based tiered royalty with a rate estimated between mid-teens to low twenties. Instead of the more niche indications, such as hyper-lipoproteinemia with calcific aortic valve stenosis, NVS will target a broader population of patients with high Lp(a) and triglycerides as driving risk factor despite well controlled LDL levels. We estimate the AKCEA-APO(a)-L Rx Phase II study to start in mid-2017 (data in 2018), followed by AKCEA-APOCIII-L Rx trial possibly in late 2H17 (data in late 2018 or 2019). Implications. We view the news very positively not only because of the substantial economics to IONS but also as a strong endorsement to the ApoCIII and Lp(a)-targeted therapies and the next gen. LICA antisense platform. This collaboration also enables IONS to explore a greater market of much larger high-risk CV patient population, while avoiding internal expenses for high cost CV outcome studies. Together with positive COMPASS results, we also view the NVS deal validates ApoCIII antisense approach and further bodes well for a potential success of APPROACH (in FCS) study for volanesorsen. Action. We are reiterating our Buy rating and $65 target price from to reflect our bullish view on progress in IONS s pipeline, especially volanesorsen, Spinraza and IONIS-TTR Rx. Our valuation is based on our DCF and probability-adjusted-npv-driven, sum-of-the-parts analyses. Earnings Estimates: (per share) (Dec) 1Q 2Q 3Q 4Q FY P/E FY-17E NM FY-16E -0.52A -0.47A 0.06A NM FY-15A NM FY-14A NM Source: estimates Healthcare/Biotechnology Ticker: IONS Rating: Buy Price Target: $ Trading Data: Last Price (01/06/2017) $ Week High (1/6/2016) $ Week Low (5/27/2016) $ Market Cap. (MM) $ 6,023 Shares Out. (MM) 121 Yale Jen, Ph.D. Managing Director / Senior Biotechnology Analyst (212) FOR ANALYST CERTIFICATION AND DISCLOSURES, PLEASE SEE DISCLOSURES SECTION AT THE END OF THIS REPORT. This report has been prepared by Laidlaw & Co (UK), Ltd. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices and consensus estimates are sourced from a reliable market source

2 Detailed economics of the deal. Figure 1 illustrates various payments and royalties of the NVS- Akcea deal regarding AKCEA-APO(a)-L Rx and AKCEA-APOCIII-L Rx. For the equity investment, the initial $100MM is priced at $61.30 per share (a 30% premium of 1/5/2017 $47.09 closing price) for 1.6MM shares. The second $50MM will be priced at either the same premium as the initial investment to IONS or investing in Akcea. The total deal value could potentially exceed $1.6 billion. Besides the upfront payment, IONS and Akcea will evenly share the proceeds from license fees, milestone and royalties payments. Figure 1: Breakdowns of various payments Up-Front ($MM) Equity Investment ($MM) License fee ($MM) Regulatory milestone ($MM) Commercialization milestone ($MM) Sales-based Royalties $75 $100 $50 AKCEA-APO(a)-L Rx $150 $315 $285 AKCEA-APOCIII-L Rx $150 $265 $265 Mid-teens - low twenties Source: Company presentation and Laidlaw Equity Research Earlier AKCEA-APO(a)-L Rx clinical results. AKCEA-APO(a)-L Rx intends to reduce Lp(a), a lipoprotein particle comprised of apolipoprotein(a) protein covalently linked to LDL-cholesterol. Elevation of Lp(a) is a genetically determined risk factor that could induce multiple cardiovascular diseases despite LDL or triglyceride levels in some patients potentially already being under control. From an earlier Phase I/II trial, IONS demonstrated that AKCEA-APO(a)-L Rx could reduce mean Lp(a) by 79% (20 mg) and 92% (40 mg) in the single and multiple dosing study. Figure 2: AKCEA-APO(a)-L Rx Phase I/II trial results Source: Company presentation Ionis Pharmaceuticals Page 2 of 8 Yale Jen, Ph.D.

3 Anticipated milestones in 2017 and beyond Product Indication Event Timing Importance IONIS-APOCIII Rx (Volanesorsen) Spinraza (Nusinersen) Familiar chylomicronemia syndrome (FCS) Familiar partial lipodystrophy (FPL) Spinal muscular atrophy (infant) Spinal muscular atrophy (children) Report of Phase III study top-line results 1Q17 **** Potential approval Late 2017/2018 **** Completion of patient recuritment of Phase III study 2H17 *** Report of Phase III study top-line results 2019 **** Report ENDEAR trial results (British Paediatric Neurology Association) Jan. '17 *** Potential EU approval Mid-17 **** Report of Phase III study results 1H17 **** Report of Phase II/III study top-line results 2Q17 **** IONIS-TTR Rx Familiar amyloidosis polyneuropathy (FAP) Filing of NDA 2H17 *** Report of top-line analysis of Patisiran APOLLO Phase III study by ALNY Sep *** Potential approval 2018 **** IONIS-FXI Rx Familiar amyloidosis GSK to examine cardiac substudy of NEURO-TTR cardiomyopathy (FAC)/wt-TTR 1H17 *** Atrial fibrillation of end-stage renal disease Report Phase II ESRD study results at medical meeting 2017 *** Potential to start Phase III study 2H17 *** ACKEA-APOCIII-L Rx High risk CV patients with elevated triglyceride as major risk factor Start Phase II dose optimization study 2H17 *** Report Phase II dose optimization study results 4Q18/2019 **** NVS start Phase III CV outcome study 2019 **** IONIS-DMPK-2.5 Rx Myotonic dystrophy 1 Develop the next gen. product 2017 *** IONIS-PKK Rx Hereditary angioedema Possibly to start Phase II study 2017 *** Potentially report Phase II study top-line results 2017 **** IONIS-DGAT2 Rx NASH Possibly to start Phase II study 2Q17 *** IONIS-HTT Rx Huntington disease Report Phase I/II study top-line results 2H17 **** ACKEA-ANGPTL3-L Rx Mixed dyslipidemia Report Phase IIa study results 2017/2018 *** IONIS-TMPRSS6-L Rx β-thalassemia Start Phase I study 2017 *** ACKEA-APO(a)-L Rx High risk CV patients with elevated Lp(a) as major risk factor Start Phase II dose optimization study Mid-2017 *** Report Phase II dose optimization study results 2018 **** NVS start Phase III CV outcome study 2018 **** IONIS-BIIB4-6 Rx Neurodegenerative disease Start Phase I study 2017 ** IONIS-GHR-L Rx Acromegaly Start Phase I study 2017 ** IONIS-AGT-L Rx Treatment-resistant hypertension Start Phase I study 2017 ** IONIS-RHO-2.5 Rx Autosomal dominant retinitis pigmentosa Start Phase I/II study 2017 ** IONIS-HBV Rx HBV Potentially report Phase II study top-line results 2017 **** IONIS-STAT3-2.5 Rx DLBCL Potentially report PD1 (MEDI4736) combination Phase II study results 2017 *** RG-101 HCV Report combo Phase II study results 2017 *** **** / ***** Major catalyst event that could impact share price very significantly while *** event is more informative Source: estimates and company presentation. Ionis Pharmaceuticals Page 3 of 8 Yale Jen, Ph.D.

4 Major risks Clinical risks of study failure could have significant impacts on IONS share value. Although many ongoing studies have provided encouraging clinical outcomes following prior studies; risks remain that some current trials might not meet study endpoints in order to advance forward. As such, the value of any such clinical asset could be significantly impaired and therefore IONS shareholder value could diminish. Such a negative impact could be more pronounced if the clinical program is in very advanced development stages or with high investor expectations. Regulatory risks are part of the clinical risks as even if a drug met its endpoints for pivotal studies. The regulatory agency might not grant approval and therefore, the drug cannot be commercialized. Commercial risk even if a therapeutic is approved, sales could be substantially below expectations. Even it is approved; the commercial sales of any drug could fall below expectations, resulting in diminishing IONS shareholder value. Factors that could impact on the commercial outlook of a drug could include execution of marketing and sales; competition from other drugs; potential change of the treatment paradigm; and unrealistic expectations or projections. Continued consummations of partnerships could be important. Given that partnerships are a critical part of IONS product development and commercialization strategy; failure to consummate future product development or product commercialization partnerships could put share value at risk. The alternative approach could require that the company raise capital from financial markets to support its operation if the company cannot generate profits from product revenues. Future capital raises could potentially dilute value of current shareholders. If it is not profitable, the company may need to raise capital from financial markets to support its operations; even if the company already has partners to provide milestone and other types of payments and/or product revenue. As such, the company might not always be able to raise capital from financial markets at favorable terms. Share dilution under this scenario could reduce the value of the investment to current shareholders of the company Although antisense drugs have been approved, this modality might not be broadly accepted and therefore limit its commercial potential. Although two antisense drugs are already approved and commercialized in the U.S. and other part of the world; this treatment modality remains with limited exposure to the medical world. As such, it is possible that going forward, antisense or other RNA-based medication could have limited use due to market acceptance. Such a scenario could reduce the market potential of antisense drugs and have negative impact on IONS shareholder value. Ionis Pharmaceuticals Page 4 of 8 Yale Jen, Ph.D.

5 Ionis Pharmaceuticals Page 5 of 8 Yale Jen, Ph.D. Figure 1: Income Statement Ionis Pharmaceuticals Income Statement ($'MM) Q16 2Q16 3Q16 4Q16E Revenue 2016E 2017E 2018E 2019E 2020E IONIS-TTR Rx revenue IONIS-APOCIII Rx (Volanesorsen) revenue Spinraza (Nusinersen) revenue Pipeline products - Prob. Adj R&D revenue under collaborative agreements Licensing and royalty revenue Total revenue , ,555.8 Research and development General and administrative Total Operating Expenses Operating Incomes (losses) (47.7) (75.8) (54.7) (48.9) 16.1 (1.9) (89.4) (44.4) ,108.4 Equity in net loss of Regulus Therapeutics Inc. Investment income Interest expense (22.2) (36.7) (9.5) (9.6) (9.7) (9.4) (38.3) (39.2) (43.1) (47.4) (47.4) Gain on investments, net (0.0) (0.0) (27.0) (27.0) Gain on investment in Regulus Therapeutics Inc Total Other Income, net (6.7) (12.1) (8.0) (8.2) (8.8) (8.1) (33.1) (33.7) (13.1) (67.8) (67.1) Income before tax (54.4) (87.9) (62.7) (57.1) 7.4 (10.0) (122.4) (78.1) ,041.3 Tax 15.4 (0.4) (0.2) (0.0) 0.0 (94.7) (233.4) (385.3) Net Income (Loss) GAAP (39.0) (88.3) (62.9) (56.9) 7.4 (10.0) (122.4) (78.1) Net Income (Loss) Applicable to Common Shareholders (39.0) (88.3) (62.9) (56.9) 7.4 (10.0) (122.4) (78.1) Net Earnings (Losses) Per Share Basic and Diluted ($0.33) ($0.74) ($0.52) ($0.47) $0.06 ($0.08) ($1.01) ($0.64) $1.30 $3.15 $5.12 Shares outstanding basic and diluted Margin Analysis (% of Sales/Revenue) Costs of goods 0% 0% 0% 0% 0% R&D 113% 114% 220% 202% 76% 91% 117% 99% 52% 33% 25% MG&A 9% 13% 29% 26% 9% 11% 15% 14% 8% 5% 4% Operating Income (loss) -22% -27% -148% -127% 15% -2% -32% -13% 40% 62% 71% Net Income -18% -31% -171% -148% 7% -11% -44% -22% 24% 35% 42% Financial Indicator Growth Analysis (YoY%) R&D revenue under collaborative agreements 40% 39% -43% -81% 123% 83% -8% 11% 2% -2% -4% Licensing and royalty revenue 277% -80% 140% 1980% -1% 18% 774% -62% 1% 0% 0% Total Revenue 45% 32% -41% -68% 126% 82% -1% 24% 95% 66% 38% R&D 31% 33% 26% 14% -4% -16% 2% 5% 2% 4% 4% SG&A 35% 85% 41% 26% 16% -22% 10% 16% 17% 9% 8% Operating Loss -8% 59% 486% -210% -133% -97% 18% -50% -706% 160% 59% Total Other Income, net -55% 82% -2% 0% -171% 0% 172% 2% -61% 419% -1% Pretax Income -18% 62% 258% -257% -121% -86% 39% -36% -428% 146% 65% Net Income -36% 126% 276% -260% -121% -86% 39% -36% -307% 146% 65% EPS -40% 123% 271% -258% -120% -86% 37% -37% -303% 142% 62% Source: Roth Capital Partners Research and NovaBay's SEC filings Source: Bloomberg LP; Company reports; estimates. Yale Jen, Ph.D January 6, 2017

6 DISCLOSURES: ANALYST CERTIFICATION The analyst responsible for the content of this report hereby certifies that the views expressed regarding the company or companies and their securities accurately represent his personal views and that no direct or indirect compensation is to be received by the analyst for any specific recommendation or views contained in this report. Neither the author of this report nor any member of his immediate family or household maintains a position in the securities mentioned in this report. EQUITY DISCLOSURES For the purpose of ratings distributions, regulatory rules require the firm to assign ratings to one of three rating categories (i.e. Strong Buy/Buy-Overweight, Hold, or Underweight/Sell) regardless of a firm's own rating categories. Although the firm s ratings of Buy/Overweight, Hold, or Underweight/Sell most closely correspond to Buy, Hold and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis against the analyst sector universe of stocks. An analyst's coverage sector is comprised of companies that are engaged in similar business or share similar operating characteristics as the subject company. The analysis sector universe is a sub-sector to the analyst's coverage sector, and is compiled to assist the analyst in determining relative valuations of subject companies. The composition of an analyst's sector universe is subject to change over time as various factors, including changing market conditions occur. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12-months relative to the analyst's sector universe. Additional information available upon request. # Laidlaw & Co (UK) Ltd. has not provided any investment banking services for the company (ies) mentioned in this report over the last 12 months. RATINGS INFORMATION Rating and Price Target Change History 3 Year Rating Change History 3 Year Price Change History Source: Created by: Blue-Compass.net 3 Year Rating Change History 3 Year Price Change History Source: Created by: Blue-Compass.net Note: Company changed its ticker symbol to IONS from ISIS on 12/22/2105. Rating System* Strong Buy (SB) Expected to significantly outperform the sector over 12 months. % of Companies Under Coverage With This Rating % of Companies for which has performed services for in the last 12 months Investment Banking Brokerage 2.44% 2.44% 0.00% Buy (B) Expected to outperform the sector average over 12 months % 26.83% 2.44% Ionis Pharmaceuticals Page 6 of 8 Yale Jen, Ph.D.

7 Hold (H) Sell (S) Expected returns to be in line with the sector average over 12 months. Returns expected to significantly underperform the sector average over 12 months. 4.88% 0.00% 0.00% 4.88% 0.00% 0.00% ADDITIONAL COMPANIES MENTIONED Novartis AG (NVS Not Rated) ADDITIONAL DISCLOSURES As of the date of this report, neither the author of this report nor any member of his immediate family or household maintains an ownership position in the securities of the company (ies) mentioned in this report. This report does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Laidlaw & Co (UK), Ltd. recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in this report may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. This report is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. Associated persons of Laidlaw & Co (UK), Ltd not involved in the preparation of this report may have invest ments in securities/instruments or derivatives of securities/instruments of companies mentioned herein and may trade them in ways different from those discussed in this report. While Laidlaw & Co (UK), Ltd., prohibits analysts from receiving any compensation. Bonus or incentive based on specific recommendations for, or view of, a particular company, investors should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. With the exception of information regarding Laidlaw & Co (UK), Ltd. this report is based on public information. Laidlaw & Co (UK), Ltd makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete and it should not be relied upon as such. Any opinions expressed are subject to change and Laidlaw & Co (UK), Ltd disclaims any obligation to advise you of changes in opinions or information or any discontinuation of coverage of a subject company. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Laidlaw & Co (UK), Ltd business areas. Laidlaw & Co (UK), Ltd associated persons conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices. market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject company's securities/instruments. Any trademarks and service marks contained in this report are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This report or any portion thereof may not be reprinted, sold or redistributed without the written consent of Laidlaw & Co (UK), Ltd. This report is disseminated and available primarily electronically, and, in some cases, in printed form. The information and opinions in this report were prepared by Laidlaw & Co (UK), Ltd. For important disclosures, please see Laidlaw & Co (UK), Ltd. s disclosure website at or contact your investment representative or Laidlaw & Co (UK), Ltd at 546 Fifth Ave, 5th Floor, New York, NY USA Laidlaw & Co. (UK), Ltd. Ionis Pharmaceuticals Page 7 of 8 Yale Jen, Ph.D.

8 NOTES: Ionis Pharmaceuticals Page 8 of 8 Yale Jen, Ph.D.