UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

(Mark one)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-24207

ABGENIX, INC.

(Exact name of registrant as specified in its charter)

Delaware		94-3248826
(State or other jurisdiction of		(IRS employer
incorporation or organization)		Identification number)

6701 Kaiser Drive, Fremont, CA		94555
(Address of principal executive office)		(Zip Code)

(510) ~~284~~608-6500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding in 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes ý No o

As of ~~October~~July 29, ~~2004~~2005, there were 89,~~072~~834,~~158~~537 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS

PART I. Financial Information
		Page No.
	ITEM 1. Financial Statements
PART I. Financial Information
		Condensed Consolidated Balance Sheets at September 30, 2004 and December 31, 2003
ITEM 1. Financial Statements
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003
	Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004	3
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004	4
		Notes to Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004	5
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Notes to Condensed Consolidated Financial Statements	6
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	ITEM 4. Controls and Procedures
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		51
PART II. Other Information
ITEM 4. Controls and Procedures		51
	ITEM 1. Legal Proceedings
PART II. Other Information
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 1. Legal Proceedings		52
	ITEM 3. Defaults upon Senior Securities
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		52
	ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 3. Defaults upon Senior Securities		52
	ITEM 5. Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders		52
	ITEM 6. Exhibits
ITEM 5. Other Information		53
SIGNATURES
ITEM 6. Exhibits		53
CERTIFICATIONS
SIGNATURES		54

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ABGENIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	September 30, 2004			December 31, 2003
	June 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	1445,~~963~~869		$	19148,~~141~~929
Marketable securities	~~215~~332,~~705~~134			~~328~~267,~~622~~400
Interest receivable	13,~~436~~094			32,~~096~~370
Accounts receivable, net	~~835~~357			25,~~174~~729
Inventories	370			—
Prepaid expenses and other current assets	8,725			11,088
Prepaid expenses and other current assets	11,144			12,546
Total current assets	390,179			435,516
Total current assets	244,453			365,579
Property and equipment, net	204,535			223,004
Property and equipment, net	229,914			246,277
Long-term investments	16,287			23,300
Long-term investments	16,524			20,695
Goodwill	34,780			34,780
Identified intangible assets, net	6132,~~451~~128			8360,~~716~~010
Deposits and other assets	2835,~~268~~073			2936,~~146~~108
	$	~~615~~712,~~390~~982		$	~~780~~812,~~193~~718
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	105,~~994~~461		$	116,~~584~~635
Deferred revenue	78,~~662~~900			1011,~~919~~692
Accrued liabilities	1714,~~013~~240			1316,~~974~~622
Contract cancellation obligation	—			22,749
Accrued restructuring charges	3,637			—
Accrued interest payable	311			2,061
Total current liabilities	32,238			34,949
Total current liabilities	35,980			61,287
Deferred rent	7,354			7,519
Deferred rent	7,203			6,153
Convertible notes	463,636			463,630
Convertible subordinated notes	249,876			200,000
Non-current portion of accrued restructuring charges	5,576			—
Other long-term liabilities	652,~~370~~813			—25,626
Redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized
Redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized; Series A-1 50,000 shares issued and outstanding; liquidation preference $50,000	49,869			49,869
Series A-1 50,000 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively; liquidation preference $50,000 at September 30, 2004 and December 31, 2003, respectively	49,869			49,869
Series A-2 50,000 shares issued and outstanding at December 31, 2003; liquidation preference $50,000 at December 31, 2003; no shares outstanding at September 30, 2004	—			49,868
Commitments
Stockholders’ equity:
Common stock, $0.0001 par value; 220,000,000 shares authorized; 88,858,422 and 88,262,457 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively	9			9
Common stock, $0.0001 par value; 220,000,000 shares authorized; 89,782,695 and 89,146,380 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively	9			9
Additional paid-in capital	~~972~~978,~~240~~637			~~968~~973,~~922~~979
Accumulated other comprehensive income	31,~~228~~854			89,~~861~~391
Accumulated deficit	(~~709~~879,~~385~~004		)	(~~564~~752,~~776~~254		)
Total stockholders’ equity	~~266~~101,~~092~~496			~~413~~231,~~016~~125
	$	~~615~~712,~~390~~982		$	~~780~~812,~~193~~718

See accompanying notes

ABGENIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	2005			2004			2005			2004
Revenues:
Contract revenue	$	3,~~434~~403		$	14,~~957~~189		$	106,~~513~~061		$	107,~~463~~079
Contract manufacturing revenue	—			—1,325			~~1,325~~—			—1,325
Total revenue	3,434			1,957			11,838			10,463
Total revenues	3,403			5,514			6,061			8,404
Operating expenses:
Cost of goods manufactured	—			—1,857			~~1,857~~—			—1,857
Research and development	2935,~~978~~545			2636,~~008~~148			9471,~~583~~329			6664,~~500~~605
Manufacturing start-up costs	64,~~351~~807			102,~~282~~790			166,~~487~~784			6310,~~127~~136
Amortization of identified intangible assets, related to research and development	1,441			1,~~792~~791			52,~~024~~882			53,~~398~~583
General and administrative	75,~~673~~264			76,~~828~~477			2110,~~038~~967			2113,~~182~~365
Impairment of intangible assets	—			—			17,241			1,443
Impairment of identified intangible assets	25,000			17,241			25,000			17,241
Total operating expenses	45,443			45,910			156,230			157,650
Restructuring and other	14,740			—			14,740			—
Loss from operations	(42,009		)	(43,953		)	(144,392		)	(147,187		)
Total operating expenses	86,797			66,304			131,702			110,787
Other income (expense):
Loss from operations	(83,394		)	(60,790		)	(125,641		)	(102,383		)
Interest and other income	1,347			2,036			4,831			8,010
Other income (expenses):
Interest expense	(1,758		)	(1,652		)	(5,048		)	(4,133		)
Interest and other income, net	3,002			1,814			5,958			3,484
Total other income (expense)	(411		)	384			(217		)	3,877
Interest expense	(3,725		)	(1,647		)	(7,067		)	(3,290		)
Loss before income tax expense	(42,420		)	(43,569		)	(144,609		)	(143,310		)
Total other income (expenses)	(723		)	167			(1,109		)	194
Foreign income tax expense	—			—			—			84
Net loss	$	(84,117	)	$	(60,623	)	$	(126,750	)	$	(102,189	)
Net loss	$	(42,420	)	$	(43,569	)	$	(144,609	)	$	(143,394	)
Basic and diluted net loss per share	$	(0.94	)	$	(0.68	)	$	(1.42	)	$	(1.15	)
Basic and diluted net loss per share	$	(0.48	)	$	(0.50	)	$	(1.63	)	$	(1.63	)
Shares used in computing basic and diluted net loss per share	89,658			88,673			89,456			88,490
Shares used in computing basic and diluted net loss per share	88,845			87,962			88,609			87,865

See accompanying notes

ABGENIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	Six Months Ended June 30,
	2004			2003
	2005			2004
Operating activities
Net loss	$	(~~144~~126,~~609~~750	)	$	(~~143~~102,~~394~~189	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	22,961			20,489
Non-cash portion of restructuring and other	5,527			—
Amortization of identified intangible assets	5,024			5,398
Depreciation	14,600			15,422
Impairment of identified intangible assets	17,241			1,443
Amortization of identified intangible assets	2,882			3,583
Amortization of debt issuance costs	943			896
Impairment of identified intangible assets	25,000			17,241
Loss on sale and disposal of equipment	57			29
Amortization of debt issuance costs	1,004			624
Other	117			(2		)
Changes for certain assets and liabilities:
Interest receivable	~~1,660~~(724		)	~~(132~~795		)
Accounts receivable	15,~~339~~372			~~1,499~~398
Inventories	~~(370~~—		)	—(370		)
Prepaid expenses and other current assets	12,~~402~~311			(53,~~854~~772		)
Deposits and other assets	~~(74~~43		)	~~1,358~~(50		)
Accounts payable	(~~590~~1,174		)	(~~15,167~~803		)
Deferred revenue	(32,~~257~~792		)	3(2,~~827~~777		)
Accrued liabilities	3(1,~~266~~778		)	~~7,832~~82
Contract cancellation obligation	(22,749		)	21,191
Accrued restructuring charges	9,213			—
Accrued interest payable	(1,750		)	(1,765		)
Contract cancellation obligation	—			(15,045		)
Deferred rent	~~1,050~~504			~~1,297~~725
Other long-term liabilities	627,~~370~~187			—3,051
Net cash used in operating activities	(~~112~~39,~~086~~458		)	(~~101~~75,~~053~~543		)
Investing activities
Purchases of marketable securities	(~~200~~102,~~955~~720		)	(~~255~~110,~~087~~878		)
Maturities of marketable securities	4622,~~719~~292			4037,~~533~~210
Sales of marketable securities	~~265~~15,~~708~~164			~~153~~140,~~361~~911
Purchases of property and equipment	(62,~~885~~264		)	(274,~~636~~573		)
Sale of equipment	3—			113
Net cash provided by (used in) investing activities	104,590			(88,818		)
Net cash (used in) provided by investing activities	(67,528		)	62,673
Financing activities
Net proceeds from issuances of common stock	3,318			1,728
Net proceeds from issuance of common stock	3,926			3,238
Net cash provided by financing activities	3,~~318~~926			13,~~728~~238
Net decrease in cash and cash equivalents	(4103,~~178~~060		)	(~~188~~9,~~143~~632		)
Cash and cash equivalents at beginning of period	19148,~~141~~929			~~207~~19,~~974~~141
Cash and cash equivalents at end of period	$	1445,~~963~~869		$	199,~~831~~509

See accompanying notes

ABGENIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~ June 30, ~~2004~~ 2005

(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation - The unaudited condensed consolidated financial statements of Abgenix, Inc. (the “Company” or “Abgenix”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information or footnote disclosure normally included in ~~annual~~ financial statements prepared in accordance with U.S. generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, ~~2003~~2004 and accompanying notes included in the Company’s annual report as filed on Form 10-K with the Securities and Exchange Commission. The results of operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2004~~ 2005 are not necessarily indicative of the results to be expected for the full year or for any other future period.

~~Foreign~~Recent Accounting Pronouncements - In December 2004, the ~~Exchange~~Financial –Accounting ~~Accounts~~Standards ~~denominated~~Board inissued ~~foreign~~Statement ~~currency~~of ~~have~~Financial ~~been~~Accounting ~~remeasured~~Standards ~~using~~(SFAS) ~~the U~~No.S. ~~dollar~~123(R), as“Share-Based ~~the~~Payment”, ~~functional~~which ~~currency~~is a revision of SFAS No. ~~The~~ ~~aggregate~~123 ~~exchange~~and ~~gain/loss~~supersedes ~~included~~APB inOpinion No. 25. ~~determining~~SFAS ~~net~~No. ~~loss~~123(R) ~~was~~requires anthat ~~exchange~~all ~~loss~~share-based ofpayments ~~$304~~to employees,~~000~~ including ~~and~~grants ~~$758~~of employee stock options,~~000, respectively,~~ be recognized in the ~~three~~financial statements ~~and~~based ~~nine~~on ~~months~~their ~~ended~~fair ~~September~~values. Pro ~~30,~~forma ~~2004~~disclosure ~~compared~~previously topermitted under SFAS No. 123 will no longer be an ~~exchange~~alternative. SFAS ~~loss~~No. 123(R) ofdoes ~~$256,000~~not ~~and~~change ~~$82,000,~~the ~~respectively,~~accounting guidance for share-based payment transactions with parties other than employees provided in ~~the~~SFAS ~~three~~No. 123 as originally issued and ~~nine~~EITF Issue No. 96-18, “Accounting for Equity Instruments ~~months~~That ~~ended~~Are ~~September~~Issued 30to Other Than Employees for Acquiring, ~~2003~~or in Conjunction with Selling, Goods or Services.”

~~Consolidation~~SFAS ~~- In January 2003, the FASB issued Interpretation~~ No. ~~46, “Consolidation of Variable Interest Entities”~~ 123(~~the “Interpretation”~~R)~~. The Interpretation~~, ~~requires the consolidation of entities in~~ which anis ~~enterprise absorbs~~effective afor ~~majority~~the ofCompany ~~the~~on ~~entity’s~~January ~~expected~~1, ~~losses~~2006, ~~receives~~permits ~~a majority of the~~public ~~entity’s~~companies ~~expected~~to ~~residual~~adopt ~~returns,~~its orrequirements ~~both,~~using aseither athe ~~result~~modified ofprospective ~~ownership,~~or ~~contractual~~modified orretrospective ~~other~~transition ~~financial interests in the entity~~method. The ~~Interpretation~~Company ~~was~~expects ~~effective~~to ~~immediately for~~use ~~variable~~the ~~interests~~modified ~~created~~prospective ~~after~~transition ~~January 31~~method, ~~2003. The Company adopted the remaining provision~~ ofwhich ~~the~~requires ~~Interpretation,~~that ~~pertaining~~compensation tocost ~~variable~~is ~~interests~~recognized ~~existing~~for ~~prior~~all ~~to January~~awards 31granted, modified ~~2003,~~or insettled after the ~~quarter~~effective ~~ended~~date ~~March~~as ~~31,~~well ~~2004. The~~as ~~adoption~~for ofall ~~the~~awards ~~Interpretation did not~~granted ~~have~~to aemployees ~~material~~prior ~~impact~~to on the ~~results~~effective ofdate ~~operations~~that ~~and~~remain ~~the~~unvested ~~financial~~as ~~position~~ of the ~~Company. Significant intercompany accounts~~ ~~and~~effective ~~transactions have been eliminated~~date.

~~Revenue~~As permitted ~~Recognition~~by –SFAS ~~The~~No. 123, the Company ~~receives~~currently accounts for its share-based payments ~~from~~to ~~customers~~employees ~~for~~using ~~license,~~APB ~~option,~~Opinion ~~service~~No. ~~and~~25’s ~~milestone~~intrinsic ~~fees,~~value asmethod and ~~well~~does asnot recognize compensation costs for ~~contract~~its ~~manufacturing~~employee stock options. Accordingly, the Company ~~performs~~expects that the adoption of the SFAS No. ~~These~~ ~~payments,~~123(R) ~~which~~fair ~~are~~value ~~generally~~method will have a significant ~~non-refundable,~~impact ~~are~~on ~~recognized~~the asCompany’s ~~revenue~~results orof ~~reported~~operations, asalthough ~~deferred~~it ~~revenue~~will ~~until they~~have ~~meet~~no impact on the ~~criteria~~Company’s ~~for~~overall ~~revenue~~financial ~~recognition~~position. The ~~Company~~impact ~~recognizes~~of ~~revenue~~adopting ~~when~~SFAS No. 123(1R) ~~persuasive~~cannot ~~evidence~~be ofpredicted ~~the~~at this time ~~arrangement~~because ~~exists;~~it ~~(2)~~will ~~delivery~~depend ~~has~~on ~~occurred~~levels orof ~~services~~share-based ~~have~~payments ~~been~~granted ~~rendered; (3)~~in the future. However, ~~price~~had isthe ~~fixed~~Company oradopted SFAS ~~determinable~~No. ~~and~~ 123(4R) ~~the~~in ~~collectibility~~prior ~~is reasonably assured~~periods, inthe ~~accordance~~impact ~~with~~would ~~Securities~~approximate ~~and~~the ~~Exchange~~impact ~~Commission Staff Accounting~~of ~~Bulletin~~SFAS No. ~~104,~~123 ~~“Revenue~~as ~~Recognition”. In~~shown ~~addition,~~in the ~~Company~~table ~~has~~below ~~followed~~under the ~~following~~heading ~~principles~~of in“Stock-Based ~~recognizing revenue:~~Compensation.”

~~• Abgenix~~Revenue ~~enters~~Recognition ~~into~~– ~~revenue~~The ~~arrangements~~Company ~~with~~receives ~~multiple~~payments ~~deliverables~~from incustomers ~~order~~for tolicense, ~~meet~~option, ~~its~~service ~~customer’s~~and ~~needs. For~~milestone ~~example~~fees, ~~the~~as well ~~arrangements~~as ~~may~~for ~~include~~contract ~~a combination~~manufacturing ofthe ~~up-front~~Company ~~fees,~~performs. These ~~license~~ payments, ~~joint~~which ~~development~~are ~~revenue,~~generally ~~research services~~non-refundable, ~~milestone~~are ~~payments,~~recognized ~~future~~as ~~royalties~~revenue ~~and~~or ~~manufacturing arrangements. Multiple~~reported ~~element~~as deferred revenue until ~~agreements~~they ~~entered~~meet ~~into~~the oncriteria orfor ~~July~~revenue 1,recognition. The ~~2003~~Company ~~are~~recognizes ~~evaluated~~revenue ~~under~~when ~~Emerging~~(1) ~~Issues~~persuasive evidence of the ~~Task~~arrangement ~~Force~~exists; ~~No.~~(2) ~~00-21,~~delivery ~~“Revenue~~has ~~Arrangements~~occurred ~~with~~or ~~Multiple~~services ~~Deliverables,”~~have tobeen rendered; ~~determine~~(3) ~~whether~~the price is fixed or determinable and (4) the ~~delivered~~collectibility is reasonably assured, in accordance with

~~item~~Securities ~~has~~and ~~value to the customer on a stand-alone~~Exchange ~~basis~~Commission ~~and~~Staff ~~whether~~Accounting ~~objective~~Bulletin ~~and reliable evidence of the fair value of the undelivered item exists~~No. ~~Deliverables~~ ~~in an~~104, ~~arrangement~~“Revenue ~~that do not meet the separation criteria in Issue 00-21 must be treated as one unit of accounting for purposes of revenue recognition~~Recognition”. ~~Generally~~In addition, the ~~revenue~~Company ~~recognition~~has ~~guidance applicable to the last deliverable is~~ followed ~~for~~ the ~~combined unit of~~ ~~accounting. For~~following ~~certain~~principles arrangements, the period of time over which certain deliverables will be provided is not contractually defined. Accordingly, management is required to make estimates and assumptions that affect the amounts reported in ~~the~~recognizing ~~financial statements and accompanying notes.~~revenue:

• Abgenix ~~has~~enters ~~joint~~into revenue ~~development~~ arrangements ~~under~~ ~~which~~with ~~Abgenix~~multiple ~~and~~deliverables ~~its~~in ~~collaborative~~order ~~partners~~to ~~share~~meet its customer’s needs. For example, the ~~costs~~arrangements ofmay ~~developing~~include ~~and~~a ~~commercializing~~combination ~~antibody~~of ~~therapeutic~~up-front ~~product~~fees, ~~candidates~~license payments, research services, ~~equally~~milestone payments, future royalties and manufacturing arrangements. InMultiple ~~periods~~element ~~where~~revenue ~~Abgenix~~agreements ~~incurs~~entered ~~more~~into ~~costs~~on or after July 1, 2003 are evaluated under Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple Deliverables,” to determine whether the ~~arrangement~~delivered ~~than~~item has value to the ~~collaborative~~customer ~~partner,~~on ~~Abgenix~~a stand-alone basis and ~~records~~whether ~~contract~~objective ~~revenue~~and ~~for~~reliable evidence of the ~~services~~fair ~~rendered~~value of the undelivered item exists. InDeliverables ~~periods~~in ~~where~~an arrangement that do not meet the ~~collaborative~~separation ~~partner~~criteria in Issue 00-21 must be ~~incurs~~treated ~~more~~as ~~costs~~one ~~under~~unit ~~the~~of ~~arrangement~~accounting ~~than~~for ~~Abgenix~~purposes of revenue recognition. Generally, ~~Abgenix~~the ~~records~~revenue ~~expense~~recognition guidance applicable to the last deliverable is followed for the ~~services~~combined ~~received~~unit of accounting.

• Research and product license fees are ~~generally~~ recognized only after both the license period has commenced and the technology has been delivered.

• Option fees for granting options to obtain product licenses to develop a product are recognized when the option is exercised or when the option period expires, whichever occurs first. Option fees are paid in cash, are non-refundable, and require the Company to reserve rights to the therapeutic target during the option period for the customer.

• Fees the Company receives for research services the Company performs under its technology out-licensing agreements are generally recognized ratably over the entire period the Company performs these services. Research services include process sciences services the Company performs under its production services agreements, such as cell line development.

• Incentive milestone payments are recognized as revenue when the specified milestone is achieved. Incentive milestone payments are triggered either by the results of the Company’s research efforts or by events external to Abgenix, such as regulatory approval to market a product. Incentive milestone payments are substantially at risk at the inception of the contract, and the values assigned thereto are commensurate with the type of milestone achieved. The Company has no future performance obligations related to an incentive milestone that has been achieved.

• Contract manufacturing fees the Company receives under its production services agreements are recognized when the manufacture of an antibody product candidate is complete, and the antibody product candidate is released and delivered, as defined in the relevant agreement.

Stock-Based Compensation - The Company accounts for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company does not recognize compensation expense for employee stock options granted at or above fair market value. For purposes of disclosures pursuant to ~~Statement~~SFAS ~~of Financial Accounting Standards~~ No. 123, ~~“Accounting for Stock-Based Compensation” (“SFAS 123”),~~ as amended by SFAS No. 148, the estimated fair value of options is amortized to expense ~~on a~~ straight-line ~~basis~~ over the options’ vesting period. The following table illustrates what ~~the~~ net loss would have been had the Company accounted for its stock-based awards under the provisions of SFAS No. 123. Pro forma amounts may not be representative of future periods.

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended						Six Months Ended
	2004			2003			2004			2003
	June 30,						June 30,
	2005			2004			2005			2004
	(in thousands, except per share amounts)
Net loss	$	(4284,~~420~~117	)	$	(4360,~~569~~623	)	$	(~~144~~126,~~609~~750	)	$	(~~143~~102,~~394~~189	)
Stock-based employee compensation costs that would have been included in the determination of net loss if the fair value based method had been applied to all awards	(10,368		)	(15,058		)	(34,778		)	(46,950		)
Stock-based employee compensation costs included in the determination of net loss	615			—			615			—
Pro forma net loss as if the fair value based method had been applied to all awards	$	(52,788	)	$	(58,627	)	$	(179,387	)	$	(190,344	)
Stock-based employee compensation costs that would have been included in the determination of net loss if the fair value based method had been applied to all awards	(4,469		)	(12,055		)	(8,933		)	(24,410		)
Basic and diluted net loss per share as reported	$	(0.48	)	$	(0.50	)	$	(1.63	)	$	(1.63	)
Pro forma net loss as if the fair value based method had been applied to all awards	$	(87,971	)	$	(72,678	)	$	(135,068	)	$	(126,599	)
Pro forma basic and diluted loss per share	$	(0.59	)	$	(0.67	)	$	(2.02	)	$	(2.17	)
Basic and diluted net loss per share as reported	$	(0.94	)	$	(0.68	)	$	(1.42	)	$	(1.15	)
Pro forma basic and diluted loss per share	$	(0.98	)	$	(0.82	)	$	(1.51	)	$	(1.43	)

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2004~~2005 and ~~2003~~2004:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended				Six Months Ended
	2004		2003		2004		2003
	June 30,				June 30,
Risk-free interest rate	3.59	%	3.13	%	3.39	%	2.98	%
	2005		2004		2005		2004
Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Risk-free interest rate	3.72	%	4.03	%	4.11	%	3.26	%
Volatility factors of the expected market price of our Common Stock	0.90		0.96		0.90		1.01
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%
Weighted-average expected life of option (years)	5.71		5.55		5.63		5.53
Volatility factors of the expected market price of our Common Stock	0.55		0.90		0.55		0.90
Weighted-average expected life of option (years)	4.75		5.67		5.12		5.57

These same assumptions above were also applied in the determination of the option values related to stock options granted to non-employees, except that the ~~option~~term ~~life,~~of the consulting contracts (ranging from six months to five years) was used for ~~which~~the expected life of the ~~term~~option. For ofthe three months ended June 30, 2005, the ~~consulting~~Company ~~contracts~~recorded an expense of $102,000 1related to ~~5 years~~non-employee stock options, of which $96,000 was ~~used~~included in manufacturing start-up costs and $6,000 in general and administrative expenses. For ~~The~~the ~~value~~six ~~has~~months ended June 30, 2005, the ~~been~~Company recorded an expense of $108,000 related to non-employee stock options, of which $96,000 was included in manufacturing start-up costs and $12,000 in general and administrative expenses. The Company did not incur such expense in the ~~financial~~three ~~statements~~and six months ended June 30, 2004.

~~Net Loss~~For ~~Per~~the ~~Share~~three -and ~~Basic~~six ~~net~~months ~~loss~~ended ~~per~~June ~~share~~30, is2005, ~~calculated based~~the onCompany ~~the~~also ~~weighted-average~~recorded ~~number~~a ofstock-based ~~shares~~compensation ~~outstanding~~expense ~~during the period. The impact~~ of ~~common stock options~~$615,000 ~~warrants~~related ~~and shares issuable upon the~~to ~~conversion~~employees ofthat ~~convertible~~were ~~subordinated~~affected ~~notes~~by ~~and~~ the ~~redeemable~~restructuring ~~convertible preferred~~plan ~~stock~~described ~~was~~in ~~excluded~~Note ~~from the computation of diluted net loss per~~4 ~~share~~below, asand ~~their~~this ~~effect~~stock-based iscompensation ~~antidilutive~~expense ~~for~~was ~~the~~included ~~periods~~in ~~presented~~restructuring and other expenses.

~~Reclassifications~~Restructuring -Charges ~~Certain~~– ~~prior~~The Company records costs and liabilities associated with exit and disposal activities, as defined in SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” at fair value in the period ~~balances~~the ~~may~~liability ~~have~~is ~~been~~incurred. SFAS No. ~~reclassified~~146 requires that the estimated future cash flows to be used in the fair ~~conform~~value tocalculation be discounted using a credit-adjusted risk-free interest rate and that such interest rate shall have a maturity date that approximates the expected ~~current~~timing ~~period~~of ~~presentation~~future cash flows. Future cash flows related to lease obligations shall include

2. Comprehensive Income (Loss)

Other comprehensive income/(losses) consist of unrealized gains or losses on available-for-sale securities. The components of comprehensive loss, net of tax, were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Net loss	$	(42,420	)	$	(43,569	)	$	(144,609	)	$	(143,394	)
Other comprehensive income (loss):
Unrealized holding losses arising during period	(1,648		)	(1,231		)	(5,633		)	(303		)
Comprehensive loss	$	(44,068	)	$	(44,800	)	$	(150,242	)	$	(143,697	)

the effect of sublease rental income and other lease operating expenses. In periods subsequent to initial measurement, changes to a liability are measured using the same credit-adjusted risk-free rate that was applied in the initial period. In the quarter ended June 30, 2005, the Company recorded costs and liabilities in accordance with SFAS No.146 for exit activities related to a restructuring plan described in Note 4 below. The Company will evaluate and adjust the liability on a quarterly basis as appropriate for changes in sublease assumptions due to changes in market conditions.

~~3. Impairment~~ Net Loss Per Share - Basic net loss per share is calculated based on the weighted-average number of ~~Identified~~shares ~~Intangible~~outstanding ~~Assets~~during the period. The impact of common stock options, warrants and ~~Balances~~shares issuable upon the conversion of the convertible notes and the redeemable convertible preferred stock was excluded from the computation of diluted net loss per share, as their effect is antidilutive for the periods presented.

~~In the~~Reclassification ~~quarter~~– ~~ended~~Certain ~~June~~prior ~~30, 2004, management determined that an impairment of the Company~~year’s ~~acquired~~balances ~~technology~~have inbeen ~~the~~reclassified ~~field of catalytic antibodies had occurred and that the estimated value had declined~~ to ~~zero. This technology, which includes intellectual~~ ~~property,~~conform ~~was acquired in 2001 through the acquisition of Hesed Biomed, Inc. The Company decided~~ to ~~focus its resources on other research and development projects and decided to wind down its catalytic antibody program. Additionally, after assessing~~ the ~~associated~~current ~~patent~~period’s position and the likelihood of sale or license of the technology to a third party, management further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows from the technology was remotepresentation. ~~As a result of this determination, the Company recorded an impairment charge of $17.2 million in the quarter ended June 30, 2004.~~

~~In the quarter ended March 31, 2003, the Company decided to discontinue the development of anti-properdin antibodies~~2. Comprehensive As a result, the Company recorded an impairment charge of $1.4 million for previously capitalized costs related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which the Company licensed from Gliatech, Inc. Such charge is included in the nine month period ended September 30, 2003.Loss

~~Identified~~The ~~intangible~~components ~~assets~~of ~~consisted~~comprehensive loss, net of ~~the~~tax, ~~following~~were as follows (in thousands):

	Gross Assets			Accumulated Amortization			Net
	Three Months Ended						Six Months Ended
As of September 30, 2004:
	June 30,						June 30,
Acquisition-related developed technology	$	85,143		$	24,847		$	60,296
	2005			2004			2005			2004
Other intangible assets	1,442			287			1,155
Net loss	$	(84,117	)	$	(60,623	)	$	(126,750	)	$	(102,189	)
Identified intangible assets	$	86,585		$	25,134		$	61,451
Other comprehensive income (loss):
As of December 31, 2003:
Unrealized holding gains (losses) arising during period	3,405			(2,880		)	(7,537		)	(3,985		)
Acquisition-related developed technology	$	106,183		$	23,689		$	82,494
Comprehensive loss	$	(80,712	)	$	(63,503	)	$	(134,287	)	$	(106,174	)
Other intangible assets	1,442			220			1,222
Identified intangible assets	$	107,625		$	23,909		$	83,716

~~Amortization of acquisition-related intangibles was approximately $1.4 million and $5.0 million, respectively, for the three and nine months ended September 30, 2004 and $1.8 million and $5.~~3 ~~million, respectively, for the three and nine months ended September 30, 2003~~. ~~Amortization~~ Impairment of ~~other~~Identified ~~intangible~~Intangible assets was approximately $22,000 and $67,000, respectively, for the three and nine months ended September 30, 2004 and $22,000 and $90,000, respectively, for the three and nine months ended September 30, 2003.Assets

In the quarter ended June 30, 2005, management determined that an impairment of the Company’s acquired Selected Lymphocyte Antibody Method (SLAM) technology had occurred and that the estimated fair value had declined to $2.0 million. This technology, which includes intellectual property, was acquired in 2000 through the acquisition of Abgenix Biopharma Inc., formerly known as ImmGenics Pharmaceuticals, Inc. In the second quarter of 2005, the Company completed a strategic planning process, which included an assessment of its technologies. After assessing the SLAM technology, the Company determined that its use of the SLAM technology had declined and would continue to decline substantially because of significant improvements in the use of other technologies and processes. Because of this impairment indicator, the Company tested the SLAM technology for recoverability and found that the undiscounted future cash flows estimated to be generated from the use of the SLAM technology were less than the carrying value of the SLAM technology. As a result, the Company determined that an impairment of the SLAM technology had occurred and recorded an impairment charge of $23.1 million in the second quarter of 2005 to adjust the carrying value of the SLAM technology to its estimated fair value, which is based on the estimated discounted future cash flows to be generated from the SLAM technology.

In the quarter ended June 30, 2005, management also determined that an impairment of the Company’s acquired technology in the field of intrabodies (antibodies that can access intracellular targets) had occurred and that the estimated value had declined to zero. This technology, which includes intellectual property, was acquired in 2000 through the acquisition of IntraImmune, Inc. The Company decided to discontinue the development of the intrabody program and performed an assessment of the associated patent position and the likelihood of sale or license of the technology to a third party. The

~~Expected amortization~~Company ~~expense~~determined ~~related~~that the topossibility ~~identified~~of ~~intangible~~generating ~~assets~~positive ~~for~~future ~~the three-month~~cash ~~period~~flows from ~~October~~the 1,technology was ~~2004~~remote. As toa ~~December 31~~result, ~~2004,~~the ~~and~~Company recorded ~~each~~an impairment charge of ~~the fiscal~~$1.9 ~~years~~million ~~thereafter~~in isthe assecond ~~follows~~quarter ~~(in~~of ~~thousands):~~2005.

	Periods Ending December 31,
	2004			2005			2006			2007			2008			Thereafter		Total
Acquisition-related intangibles	$	1,418		$	5,674		$	5,674		$	5,674		$	5,676		$	36,180	$	60,296
Other intangible assets	$		23	$		90	$		90	$		90	$		90	$	772	$	1,155

In the quarter ended June 30, 2004, management had determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero. This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc. The Company decided to focus its resources on other research and development projects and wind down its catalytic antibody program. Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party, management further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows from the technology was remote. As a result of this determination, the Company recorded an impairment charge of $17.2 million in the second quarter of 2004. Intangible assets held and used must be tested for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. As of December 31, 2004, the Company determined that no changes in circumstances had occurred that would indicate that a further impairment of an intangible asset had occurred.

~~4. Convertible~~Identified intangible ~~Subordinated~~assets ~~Note~~as of June 30, 2005 and December 31, 2004 consisted of the following (in thousands):

In October 2003, in connection with a collaboration agreement, the Company entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, the Company issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and $50.0 million of Series A-2 convertible preferred stock. The net proceeds from the securities were $99.7 million. Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca on February 19, 2004 and the Company issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013. No interest is payable on the note except in the event of a payment default by the Company.

	Gross Assets		Accumulated Amortization			Net Book Value
As of June 30, 2005:
Acquisition-related developed technology	$	48,590	$	(17,083	)	$	31,507
Other intangible assets	824		(203		)	621
	$	49,414	$	(17,286	)	$	32,128

As of December 31, 2004:
Acquisition-related developed technology	$	85,142	$	(26,264	)	$	58,878
Other intangible assets	1,442		(310		)	1,132
	$	86,584	$	(26,574	)	$	60,010

~~Conversion~~Amortization of ~~rights~~acquisition-related intangible assets was approximately $1.4 million and $2.8 million, respectively, for the three and six months ended June 30, 2005, and $1.8 million and $3.6 million, respectively, for the three and six months ended June 30, 2004.

~~The Company, subject to certain conditions, can convert~~Amortization ~~the convertible subordinated note into shares~~ of ~~common~~other ~~stock~~intangible atassets awas ~~conversion price~~$22,000 ~~equal~~and to$45,000, ~~the~~respectively, ~~lower of (a) the average market price~~ for ~~the~~each ~~10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101%~~ of ~~the market price~~ on the ~~trading~~three ~~day~~and ~~immediately~~six ~~preceding~~months ~~the~~ended ~~conversion~~June ~~date)~~30, or2005 ~~(b)~~and ~~$30~~2004.~~00 per share.~~

~~AstraZeneca may~~Estimated ~~convert~~amortization ~~the~~expense ~~convertible~~related ~~subordinated~~to ~~note~~identified ~~into~~intangible ~~shares~~assets offor ~~common~~the ~~stock~~six-month period atfrom ~~a conversion~~July ~~price~~1, of2005 ~~$30.00~~to ~~per~~December ~~share~~31, at2005 ~~any~~and ~~time~~for ~~prior~~each toof the ~~repayment~~fiscal ~~of the~~years ~~principal~~thereafter ~~amount~~is ofas ~~the~~follows ~~note.~~(in thousands):

Redemption rights and maturity

	Periods Ending December 31,
	2005		2006		2007		2008		2009		Thereafter		Total
Acquisition-related	$	1,666	$	3,332	$	3,332	$	3,332	$	3,332	$	16,513	$	31,507
Other	$	25	$	51	$	51	$	51	$	51	$	392	$	621

~~The convertible subordinated note matures on October 29, 2013, if still outstanding~~4. ~~The~~ Restructuring ~~Company~~and ~~can, upon 15 days notice to the holder repay the principal amount of the convertible subordinated note in cash.~~Other

~~AstraZeneca~~In ~~has~~ June 2005, the ~~right~~Company toimplemented ~~require~~a restructuring ~~Abgenix~~plan toin ~~repay~~which the ~~convertible~~Company ~~subordinated~~decided ~~note~~to atconsolidate its research and ~~face~~pre-clinical ~~amount,~~activities ~~upon~~into the ~~occurrence~~Company’s offacility alocated ~~change~~ in ~~control~~Burnaby, ofBritish Columbia, ~~Abgenix~~and ~~after~~reduce ~~the completion~~its ofworkforce aby ~~defined~~approximately ~~research period~~15%. At As ~~its~~a ~~option,~~result ~~and~~of ~~subject~~the toreduction ~~certain~~in ~~conditions,~~workforce ~~Abgenix may deliver~~and ~~shares~~an evaluation of its ~~common~~future ~~stock~~needs, inthe ~~lieu~~Company ofdetermined ~~cash~~that ~~upon~~it ~~such~~would annot occupy ~~event.~~and would sublease, to the

AstraZeneca has the right to require Abgenix to repay a specified portion of the convertible subordinated note upon the occurrence of (a) a material breach by Abgenix of a material obligation under the Collaboration Agreement between the Company and AstraZeneca or (b) a change in control of Abgenix or an acquisition by Abgenix in which the other party to the change in control or acquisition, as the case may be, is a competitor of AstraZeneca, in each case that occurs during a defined research period and results in AstraZeneca’s termination of all research programs and future programs under the collaboration agreement. The amount that AstraZeneca may require Abgenix to redeem will be based upon the extent of completion of the research programs that are the subject of the collaboration between the Company and AstraZeneca. At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such events.

Upon the occurrence of certain events of default, (1) the holder of the convertible subordinated note shall have the right to make the entire outstanding principal amount of the note due and payable and (2) if the event of default is a payment default, quarterly interest payments shall begin to accrue on the convertible subordinated note at a default rate equal to the 10-year U.S. treasury rate plus three

~~percent~~extent ~~(3%)~~possible, ~~compounded annually. Events~~certain of ~~default~~its ~~for purposes~~research offacilities. The ~~this~~restructuring ~~provision~~plan ~~include,~~was designed ~~but are not limited~~ to, ~~the~~focus ~~following~~resources ~~(i)~~on ~~a failure to make a required payment, or a breach by~~ the Company ~~of any of the Company~~’s ~~other~~ ~~obligations~~development ~~under,~~pipeline ~~the Series A-1 preferred stock, the convertible~~and ~~subordinated~~particularly ~~note or any subordinated promissory note that may be issued by~~ the ~~Company~~ inpotential ~~the~~commercial ~~circumstances~~opportunity ~~described below under “Aggregate ownership limitation”; (ii) a breach~~ of ~~the~~its ~~Company~~lead ~~of specified obligations under the~~product ~~securities purchase agreement with AstraZeneca; (iii) the securities purchase agreement~~candidate, or any other agreement or instrument contemplated by the securities purchase agreement, is asserted by the Company not to be a legal, valid and binding instrument; (iv) certain bankruptcy and insolvency events involving the Company; and (v) a cross-acceleration of $25 million or more of other indebtedness of the Companypanitumumab.

~~Liquidation~~In connection with the restructuring plan, the Company recorded in the second quarter of 2005 total restructuring charges of $14.7 million, including $2.7 million of one-time termination benefits, $6.5 million of lease obligations and ~~Voting~~$5.6 ~~rights~~million for the impairment of leasehold improvements, equipment and other assets. The one-time termination benefits primarily consisted of severance pay and non-cash, stock-based compensation expense. The substantial majority of the severance pay is expected to be paid in full by the end of 2005.

~~The~~Restructuring ~~convertible~~charges included lease obligations of ~~subordinated~~$6.5 ~~note~~million, ~~has~~which anrepresented ~~aggregate~~the ~~principal~~fair ~~amount~~value of ~~$50~~future ~~million. The~~lease commitment ~~convertible~~costs, ~~note~~net ~~does~~of ~~not~~projected ~~have~~sublease ~~any~~rental ~~voting~~income, ~~rights~~for ~~unless~~the itresearch ~~is converted into~~facilities ~~common~~that ~~stock~~the ~~and~~Company ~~will~~decided not ~~bear~~to ~~any~~occupy ~~interest~~as ~~unless~~a ~~there~~result isof anthe ~~occurrence~~restructuring plan. The ofestimated afuture cash flows ~~default~~used ~~that~~in isthe afair ~~payment~~value ~~default. Upon~~calculation are based on certain estimates and anassumptions ~~event~~by ofmanagement, ~~default~~including ~~that~~the isprojected asublease ~~payment~~rental ~~default~~income, the amount ~~convertible~~of ~~note~~time the space will ~~bear~~be unoccupied prior to sublease and the length of ~~interest~~any atsubleases. The aCompany ~~rate~~has ~~equal~~lease obligations related to the ~~10-~~facilities subject to its restructuring activities which extend to the year U2014.S Management will review the sublease assumptions on a quarterly basis, until the outcome is finalized. Accordingly, ~~treasury~~management ~~rate~~may ~~plus~~modify 3%these ~~compounded~~estimates to reflect any ~~annually~~changes in circumstances in future periods.

The ~~convertible subordinated~~Company’s ~~note~~decision isto ~~senior~~consolidate its research facilities was deemed to ~~the~~be ~~preferred~~an ~~stock~~impairment indicator for its equipment and leasehold improvements under SFAS No. 144, “Accounting for the ~~common~~Impairment ~~stock~~or ~~and~~Disposal isof Long-Lived Assets.” As a result of performing an impairment ~~junior~~evaluation, the Company recorded an impairment charge of $5.6 million to ~~all~~adjust the ~~senior~~carrying ~~indebtedness~~value ~~and~~of the related long-lived assets to their estimated fair values. The majority of the ~~Company’s~~impairment charge 3was related to leasehold improvements and the fair value of these leasehold improvements was estimated based upon anticipated future cash flows associated with the related facilities, discounted at an interest rate commensurate with the risks involved.5% A portion ~~convertible~~of the impairment charge was also related to certain lab and computer ~~subordinated~~equipment ~~notes~~and furniture and fixtures that currently do not have any anticipated future use due into ~~2007~~the restructuring plan.

~~Aggregate~~Activities ~~ownership~~related ~~limitation~~to the consolidation of the Company’s research facilities under the restructuring plan are expected to continue for the remainder of 2005. The Company may incur additional costs for the transfer or disposal of equipment, facility remediation and employee relocation expenses. These costs will be recorded in the period in which they are incurred in accordance with SFAS No. 146.

~~At no time may any~~The ~~holder of the convertible subordinated note beneficially own,~~ following ~~the conversion~~table ofis ~~the convertible subordinated note, more than 19.9% of the Company’s common stock then outstanding. If any shares of common stock are issuable to~~ a ~~holder~~summary ~~upon conversion~~ of ~~the convertible~~restructuring ~~subordinated~~activities ~~note that would result~~ in ~~any holder (together with its affiliates) owning common stock in excess of~~ the ~~ownership~~second ~~threshold~~quarter ~~described above, then the Company will be required to redeem the shares in excess~~ of ~~the~~2005 ~~ownership~~and ~~threshold for a price equal to (1)~~ the ~~number~~liability ofbalance ~~such excess~~as ~~shares times (2) the average market price~~ of ~~the~~June ~~common stock for the~~ 30 ~~consecutive days ending on the 15th trading day prior to the conversion date (such price~~, ~~the~~2005 “Excess Shares Redemption Price”). Upon such a redemption of the shares issuable upon conversion of the convertible subordinated note, the Company will have the right, upon delivery of notice to the holder, to receive a loan from the holder (in ~~the form of interest-free subordinated promissory note. The face amount of the promissory note shall be the Excess Shares Redemption Price.~~thousands):

5. Inventories

	Charges to			Non-Cash			Balance at
	Operations			Charges			June 30, 2005

Termination benefits, including stock-based compensation	$	2,694		$	(615	)	$	2,079
Lease obligations, net	6,464			670			7,134
Impairment of property and equipment	5,582			(5,582		)	—
	$	14,740		$	(5,527	)	$	9,213

			Classified as:
			Short-term liability				$	3,637
			Long-term liability				5,576
							$	9,213

Inventories consist of materials related to a production service agreement with a collaborator. Inventory cost is computed on a weighted-average cost basis and stated at lower of cost or market. Inventories at period end were as follows (in thousands):

	September 30, 2004		December 31, 2003
Raw material	$	42	$	—
Finished goods	328		—
	$	370	$	—

65. Other Long-Term Liabilities

In 2000, the Company entered into a joint development and commercialization agreement with Immunex Corporation, a wholly-owned subsidiary of Amgen, Inc., for the co-development of ABX-EGF, now known as panitumumab, a fully human antibody created by the Company and directed against epidermal growth factor receptor (EGFr) ~~the Company created~~. The parties amended this agreement in October 2003. Under the amended agreement, ~~Immunex~~ Amgen has decision-making authority for development and ~~commercialization~~ commercialization activities. As under the original agreement, the Company is obligated to pay 50% of the development ~~and~~ and commercialization costs and is entitled to receive 50% of any profits from sales of panitumumab. Under the amended agreement, ~~Immunex~~Amgen is required to make available in 2004 and 2005 up to $60.0 million in advances that the Company may use to fund a portion of its share of ~~development~~ development and commercialization costs for panitumumab after the Company has ~~contributed~~ contributed $20.0 million toward development costs in 2004. As of ~~September~~June 30, ~~2004~~2005, the Company ~~has~~had a carrying balance of $652.4 8 million under this facility consisting of $650.3 million in advances and $~~104,000~~ 2.5 million of interest accrued at the contract rate of 12% per annum. The Company has notified Amgen ~~Immunex~~ of its intent to draw a cash advance of an additional $132.37 million~~. The Company expects to continue to make use~~ ofsubsequent ~~this credit facility in 2004 and thereafter up~~ to ~~the~~June ~~$60.0~~30, ~~million limit~~2005. The amount ~~and timing of the use~~ of ~~the facility is dependent on the development and related activities directed by Immunex and their cost. The amount of~~ any such advances, plus interest, may be repaid out of profits resulting ~~from~~ from future product sales; however, the Company is generally not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization.

76. Segment Information

The operations of the Company and its wholly owned subsidiaries constitute one business segment.

Information about customers who provided 10% or more of contract revenues for the period is as follows:

Period		Number of Customers and Percentage of Contract Revenues for each of the Customers
Three months ended September 30, 2004		2 customers, 69% and 10%, respectively
Three months ended June 30, 2005		3 customers, 51%, 21% and 16%, respectively
Nine months ended September 30, 2004		4 customers, 26%, 26%, 24% and 14%, respectively
Six months ended June 30, 2005		4 customers, 42%, 25%, 13% and 10%, respectively
Three months ended September 30, 2003		2 customers, 71% and 13%, respectively
Three months ended June 30, 2004		3 customers, 42%, 26% and 24%, respectively
Nine months ended September 30, 2003		3 customers, 29%, 26% and 12%, respectively
Six months ended June 30, 2004		3 customers, 33%, 30% and 20%, respectively

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based upon current expectations that involve risks and uncertainties. In this quarterly report on Form 10-Q, the words “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” and similar expressions as they relate to Abgenix are included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and under the heading “~~Additional~~Risk Factors that Might Affect Future Results”. In this quarterly report on Form 10-Q, references to “Abgenix,” we,” “us,” and “our” are to Abgenix, Inc. and its subsidiaries.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our company.

Our Business

We are a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of diseases. We intend to use our proprietary technologies to build a ~~large and~~ diversified product portfolio that we expect to develop and commercialize ~~largely~~internally or through joint development and commercialization arrangements with pharmaceutical ~~companies~~ and ~~others~~biotechnology companies.

We are co-developing our most advanced proprietary product candidate, panitumumab ~~(formerly known as ABX-EGF)~~, with Immunex Corporation, a wholly- owned subsidiary of Amgen Inc. References in this quarterly report to Amgen are both to Amgen and Immunex. Panitumumab is in pivotal trials, and we have another ~~two~~ product ~~candidates~~candidate, ABX-10241, in early stage clinical trials. In addition, we have entered into a variety of contractual arrangements with multiple pharmaceutical, biotechnology and genomics companies to jointly develop and ~~genomics~~commercialize products or to enable these companies ~~involving~~to use our ~~technologies~~XenoMouse® technology in the development of their products. We may also use our XenoMax® technology on our customer’s behalf. Six of our licensing partners, Pfizer, Inc., Amgen, Chiron Corporation, CuraGen Corporation, Human Genome Sciences, Inc. and Agensys, Inc., have initiated clinical trials or submitted regulatory applications for such trials for antibodies generated from XenoMouse animals. We also use our closely integrated process sciences and manufacturing capabilities for the manufacture of our own proprietary product candidates and also offer these services to our collaborators and others.

We ~~intend~~have toentered ~~enter~~ into ~~co-~~joint development ~~agreements~~arrangements with incompanies ~~addition~~such toas ~~our~~Chugai ~~agreement~~Pharmaceuticals ~~for~~Co., ~~panitumumab~~Ltd., U3 Pharma AG and ~~our~~Dendreon ~~other~~Corporation, ~~co-development~~and ~~arrangements~~may ~~discussed~~enter ~~below~~into additional joint development agreements. We generally expect to self-fund preclinical and certain clinical activities to determine preliminary safety and efficacy before ~~entering~~ ~~into~~deciding ~~joint~~whether ~~development~~to ~~and commercialization agreements. In some cases we may~~ conduct further product development ~~entirely~~internally onor ~~our~~enter ~~own. We~~into ~~are implementing~~joint ~~our collaboration strategy through co-~~development ~~arrangements with companies such as Chugai Pharmaceuticals Co., Ltd., U3 Pharma AG~~ and ~~Dendreon~~commercialization ~~Corporation, and through a broad collaboration in oncology with AstraZeneca UK Limited~~agreements. Our strategy is designed to diversify the risks associated with our research and development spending and to continue to focus our activities on product development and commercialization.

~~Under~~We ~~our~~also have a broad collaboration ~~agreement~~in oncology with AstraZeneca, weUK ~~are~~Limited. Pursuant ~~obligated~~ to ~~provide~~this collaboration we are providing preclinical and clinical research support ~~for~~and ~~the~~process development offor therapeutic antibodies against up to 36 ~~product~~ ~~candidates~~targets to be developed by AstraZeneca , and have the opportunity to co-develop ~~products~~therapeutic antibodies against up to 18 additional targets with AstraZeneca. We also may conduct clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales for products arising out of our collaboration.

~~Our Financial Position and Liquidity~~13

WeOur ~~derive~~Financial ~~our~~Position ~~revenues from our technology out-licensing contracts, our proprietary product development agreements, our target sourcing contracts~~ and our production services contracts. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and similar arrangements and that payments we receive under these arrangements will continue to be subject to significant fluctuation in both timing and amount.Liquidity

We ~~have~~derive ~~incurred~~our revenues from our technology out-licensing contracts and our production services contracts. We expect tothat unless and until commercialization of panitumumab occurs, substantially all of our revenues for the foreseeable future will result from payments under these and similar arrangements, our joint development arrangements and our collaboration with AstraZeneca, and payments we receive under these arrangements will continue to ~~incur~~ ~~substantial~~be ~~expenses~~subject to significant fluctuation in ~~connection~~both ~~with~~timing ~~our~~and amount.

13We have incurred and expect to continue to incur substantial expenses in connection with our product development activities, both under contractual arrangements with third parties and related to our independent research and development efforts. Regulatory and business factors will require us to expend substantial funds in the course of completing required additional research, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources.

~~product~~We ~~development activities,~~have ~~both~~incurred ~~under~~net ~~contractual~~losses ~~arrangements~~since ~~with~~we ~~third~~were ~~parties~~organized ~~and related~~as toan ~~our~~ independent ~~research~~company, ~~and~~including ~~development~~a ~~efforts. Regulatory~~net ~~and~~loss ~~business~~of ~~factors~~$126.8 ~~will~~million ~~require~~for the six usmonths toended ~~expend~~June ~~substantial~~30, ~~funds~~2005. We inexpect to incur additional losses for the ~~course~~foreseeable offuture ~~completing~~as ~~required~~a ~~additional~~ result of our research and ondevelopment costs, ~~preclinical~~including ~~testing~~costs associated with conducting preclinical development and clinical trials of, ~~and~~manufacturing ~~attaining~~start-up ~~regulatory~~costs and costs ~~approvals~~associated ~~for,~~with ~~product~~preparations ~~candidates.~~for ~~The~~the ~~amounts~~potential commercialization of panitumumab, ~~the~~including ~~expenditures~~costs ~~that~~associated ~~will~~with ~~be necessary~~co-promotion toand ~~execute~~other ~~our~~commercial activities, ~~business~~and ~~plan~~charges ~~are~~related ~~subject~~ to ~~numerous~~purchases ~~uncertainties~~of technology or other assets. We expect that ~~may~~the ~~adversely~~amount ~~affect~~of our operating ~~liquidity~~losses ~~and~~will ~~capital~~fluctuate ~~resources~~significantly from quarter to quarter.

WeAs ~~have~~of ~~incurred~~June ~~net~~30, ~~losses~~2005, ~~since~~ we ~~were~~had ~~organized as an independent company~~cash, ~~including~~cash aequivalents ~~net~~and marketable ~~loss~~securities of $~~144~~378.60 million ~~for the nine~~. ~~months~~We ~~ended~~will ~~September~~continue ~~30, 2004. We expect~~ to ~~incur~~assess ~~additional~~our ~~losses~~cash ~~for~~position, ~~the~~and ~~foreseeable~~may ~~future~~repurchase as a portion ~~result~~ of our ~~research~~ ~~and~~outstanding ~~development~~convertible ~~costs~~subordinated ~~and~~notes ~~manufacturing~~due ~~start-up costs~~2007, ~~including costs associated with conducting preclinical development and clinical trials, and charges related to purchases~~ of ~~technology or other assets~~which $113. We7 ~~expect~~million ~~that~~were ~~the~~outstanding ~~amount~~at ofJune ~~our~~30, ~~operating losses will fluctuate significantly from quarter to quarter~~2005.

AsSummary of ~~September~~Product 30, 2004, we had cash, cash equivalents and marketable securities of $230.7 million. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent. We plan to continue to make significant expenditures to staff and operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials. These activities may result in increases in our operating expenses over the next few years.Development

~~Summary~~Proprietary Product ~~of Contractual Arrangements~~Development

WeTwo ~~have entered into a variety~~ of ~~contractual arrangements covering numerous antigens with more than thirty customers to use~~ our ~~XenoMouse® and XenoMax™ technologies to generate and/or develop the~~ ~~resulting~~antibody ~~fully~~therapeutic ~~human antibodies. Pursuant to our XenoMouse contracts, we and our customers intend to generate antibodies for development as~~ product candidates ~~for~~are ~~the~~in ~~treatment~~clinical ~~of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases~~trials. WeThe ~~have~~following ~~also~~is ~~entered~~an ~~into contracts~~overview ~~with two customers to provide process sciences and manufacturing services. We expect that substantially all~~ of ~~our revenues for the foreseeable future will result from payments under~~ these ~~and other contracts. We have also licensed technology from third parties~~ ~~for use in conjunction with our proprietary technologies~~programs. ~~The terms of our current contractual arrangements vary, but can generally be categorized as follows:~~

• ~~Proprietary Product~~ Panitumumab ~~Development—In 2000, we entered into a joint development and commercialization agreement with Immunex for the co-development of~~ (ABX-EGF~~, now known as panitumumab, a fully human antibody directed against EGFr we created~~). WeOur ~~amended~~leading ~~this~~proprietary ~~agreement~~antibody intherapeutic ~~October~~product ~~2003. Under~~candidate ~~the~~is ~~amended agreement, Immunex has decision-making authority for development and commercialization activities~~panitumumab. ~~As under~~ ~~the~~Generated ~~original~~using ~~agreement~~our technology, wepanitumumab ~~are~~is ~~obligated~~a tofully ~~pay~~human ~~50% of the development and~~antibody ~~commercialization~~therapeutic ~~costs~~product ~~and~~candidate ~~are~~directed ~~entitled~~against ~~to receive 50% of any profits from sales of panitumumab. Under~~ the ~~amended agreement,~~human ~~Immunex~~epidermal ~~is required to make available up to $60.0 million in~~growth ~~advances~~factor ~~that~~receptor we(EGFr) ~~may~~and ~~use to fund~~ a ~~portion~~candidate ~~of our share of development and commercialization costs~~ for ~~panitumumab~~the ~~after~~potential wetreatment ~~have contributed $20.0 million toward development costs in 2004. As~~ of ~~September~~ ~~30, 2004, we had~~ a ~~carrying balance of $6.4 million under this~~variety ~~facility consisting~~ of ~~$6.3~~solid ~~million in advances and $104,000 of interest accrued at the contract rate of 12% per annum~~tumors. We ~~have~~are ~~notified~~co-developing ~~Immunex~~panitumumab ofwith ~~our~~Amgen ~~intent~~under ~~to draw~~ a ~~cash advance of an~~joint ~~additional~~development ~~$13.3 million~~ and wecommercialization ~~intend~~agreement todescribed ~~continue~~under toSummary ~~make use~~ of ~~this~~Contractual ~~credit facility~~Arrangements ~~in 2004 and thereafter up to the $60~~below.~~0 million limit.~~ The ~~amount~~status ~~and timing~~ of ~~our~~clinical ~~use~~trials of ~~the~~panitumumab ~~facility~~ is ~~dependent~~as on the development and related activities directed by Immunex and their cost. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization. Under a separate agreement with Immunex, we are follows:

14• Colorectal cancer, single agent therapy with panitumumab: Pivotal studies – In January 2004, Amgen initiated two pivotal studies of panitumumab as monotherapy in patients with metastatic colorectal cancer refractory to standard irinotecan (Camptosar®)- and oxaliplatin (Eloxatin®)-containing chemotherapy treatment, one in the United States and one outside the United States. The initiation of the U.S. trial followed the receipt of a Special Protocol Assessment letter from the U.S. Food and Drug Administration, or FDA, endorsing the design of the trial to support a regulatory submission for potential accelerated approval. Enrollment in this trial, which began in the first quarter of 2004, is proceeding more slowly than originally anticipated. The second pivotal study, a randomized controlled study comparing best supportive care with best supportive care and panitumumab, is being conducted in Europe, Canada and Australia in support of the global registration program. Enrollment in this study is complete and the cut-off point for data

manufacturing clinical supplies for the collaboration and will manufacture commercial supplies for the first five years after commercial launch, with Immunex’s support and assistance. The costs of manufacturing clinical and commercial supplies are also shared. We have entered into co-development and commercialization arrangements for the development of proprietary products that are in various early stages with other collaborators, including U3 Pharma, Microscience Limited, Sosei Co., Ltd., Dendreon and Chugai. Development activities under these agreements are in various early stages.14

~~• Oncology Alliance—We~~collection ~~entered~~has ~~into~~been ~~a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer~~reached. ~~This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by AstraZeneca.~~ We ~~will~~ ~~conduct~~do ~~early~~not ~~stage~~expect ~~preclinical~~to ~~research~~receive onthe ~~behalf~~results of ~~AstraZeneca with~~ ~~respect~~the toanalysis ~~some or all~~ of ~~these~~this ~~targets,~~data ~~and~~before ~~have~~the ~~initiated~~end ~~research programs for several~~ of ~~them. To date, we and AstraZeneca have selected twelve targets for inclusion in~~ the ~~collaboration, including~~third ~~several~~quarter ~~for~~of ~~which we had pre-existing preclinical programs~~2005. ~~For~~In ~~any~~December ~~resulting products~~2004, we may receive milestone payments at various stages of development and royalties on future product sales. AstraZeneca may make milestone payments to us of up to $51 million per candidate drug that is developed under the ~~agreement,~~FDA ~~and~~indicated ~~for any drug we choose to develop to a target~~ that isdata ~~discontinued~~ from ~~the~~one ~~collaboration,~~pivotal ~~we may pay AstraZeneca up to $15 million. Under the agreement~~trial, weonce ~~also may conduct early clinical trials~~completed, ~~process~~could ~~development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, and would~~ be ~~compensated~~acceptable ~~for~~with ~~those activities at competitive market rates. The collaboration also gives us the right to select and develop an~~ additional ~~pool of antibodies against up to 18 targets,~~ ~~which~~data ~~the~~from ~~companies~~other ~~may~~pending ~~elect~~studies to ~~further~~support ~~develop on an equal cost and profit sharing basis. Subject to~~ a ~~number~~submission ~~of exceptions, we will work exclusively with AstraZeneca to generate and develop antibodies~~ for ~~therapeutic~~marketing ~~use~~ approval in the ~~field~~United ~~of oncology during a three-year target selection period~~States. ~~These exceptions~~The ~~include~~FDA ~~among others, work on antibodies directed at antigens that~~has ~~are~~granted orfast ~~become~~track ~~subject~~designation tofor ~~existing~~panitumumab ~~collaborations~~for ~~and~~patients ~~antigens~~with ~~that we and~~metastatic ~~AstraZeneca~~colorectal ~~decide~~cancer ~~not~~who tohave ~~pursue~~failed instandard ~~the~~irinotecan- ~~collaboration,~~ and ~~certain process~~ ~~development~~oxaliplatin-containing ~~and~~chemotherapy ~~manufacturing services~~treatment. InFast ~~connection~~track ~~with~~designation ~~this~~allows ~~collaboration, AstraZeneca made a $100.0 million investment in Abgenix securities. Upon~~ the ~~achievement~~FDA ofto ~~certain milestones~~accept, weon ~~may~~a ~~also~~rolling ~~require AstraZeneca to~~basis, ~~invest~~portions upof toa anmarketing ~~additional~~application ~~$60.0~~for ~~million~~review inprior ~~our convertible preferred stock. In addition, AstraZeneca has the first right~~ to ~~review~~ the ~~clinical~~completion ~~data from our Phase 1 clinical trial~~ of ~~ABX-MA1 and to~~the ~~negotiate~~final ~~terms~~registrational ~~for the development of this product candidate~~package.

• ~~Antigen Sourcing~~ Colorectal ~~Contracts—We~~cancer, ~~have~~single ~~entered~~agent ~~into~~therapy ~~several target sourcing contracts~~ with ~~genomics~~panitumumab: ~~and~~Phase ~~biopharmaceutical~~2 ~~companies~~studies ~~that~~— ~~may enable us to generate a~~Amgen ~~pipeline~~is ofconducting ~~proprietary~~Phase ~~fully~~2 ~~human~~studies ~~antibody~~evaluating ~~therapeutic~~panitumumab ~~product~~as ~~candidates. Typically,~~a ~~pursuant~~single toagent ~~these contracts we generate fully human antibodies to~~therapy in the ~~antigens~~treatment ~~provided~~of oradvanced ~~identified~~metastatic bycolorectal ~~our collaborators~~cancer. One ~~The~~Phase ~~contracts~~2 ~~typically contain~~clinical ~~provisions~~trial, ~~that~~which ~~allow~~was initiated ~~either~~in usDecember or2001, ~~our~~is ~~collaborator~~closed ~~to evaluate~~ and ~~select~~ ~~particular~~treatment ~~antibodies~~is ongoing. Data from ~~the~~this ~~pool~~study, ofwhich ~~generated~~demonstrated single ~~antibodies~~agent ~~for~~antitumor ~~further development~~activity and ~~commercialization.~~general ~~The~~tolerability ~~party~~of ~~selecting~~panitumumab anin ~~antibody for further~~this ~~development~~setting, orwas ~~commercialization~~reported ~~will~~at ~~generally~~the ~~pay~~annual tomeeting of the ~~other~~American ~~party~~Society ~~license~~of Clinical ~~fees~~Oncology, ~~milestone~~or ~~payments and royalty payments on any eventual product sales~~ASCO, in ~~exchange~~ ~~for~~May ~~rights to develop and commercialize the product~~2005. Amgen ~~In connection~~is ~~with~~also ~~these~~conducting ~~arrangements,~~a westudy ~~may also agree~~ to ~~make~~evaluate anpanitumumab ~~equity~~in ~~investment~~metastatic incolorectal cancer ~~collaborators~~patients ~~for~~with ~~strategic~~tumors ~~reasons.~~having ~~For~~low ~~example,~~or weundetectable ~~have~~levels ~~made~~of ~~equity investments~~EGFr. This intrial ~~CuraGen~~was ~~Corporation~~initiated in ~~connection~~2004 ~~with~~and enrollment ~~our~~is ~~collaboration with CuraGen~~ongoing.

• ~~Technology~~ Colorectal cancer, combination of panitumumab with ~~Out-Licensing~~chemotherapy —We ~~have~~Amgen ~~licensed~~is ~~our~~conducting ~~XenoMouse~~a ~~technology~~separate toPhase ~~third~~2 ~~parties~~clinical ~~for~~trial evaluating the ~~purpose~~effect of ~~generating~~panitumumab ~~antibody~~administered ~~product~~with ~~candidates~~irinotecan tocontaining regimens ~~one~~as orfirst-line ~~more~~treatment ~~specific antigens~~in ~~provided~~patients bywith ~~the~~metastatic ~~customer.~~ colorectal ~~Pursuant~~cancer. Enrollment toin ~~these~~this ~~contracts~~trial, wewhich was ~~and~~initiated ~~our~~in ~~customers~~January ~~intend~~2002, tois ~~generate~~closed ~~antibody product~~and ~~candidates for the~~ treatment ofis ~~cancer, inflammation, autoimmune~~ ongoing.

15• Colorectal cancer, combination of panitumumab with chemotherapy and other targeted therapy – In April 2005, we and Amgen announced the initiation of a randomized Phase 3 study in the first line treatment of patients with metastatic colorectal cancer, the “Panitumumab Advanced Colorectal Cancer Evaluation,” or PACCE study. This study evaluates the effect of chemotherapy consisting of oxaliplatin- or irinotecan-containing regimens and bevacizumab (Avastin®), with or without panitumumab. Enrollment in this study is ongoing.

~~diseases,~~• Non-small ~~cardiovascular~~cell ~~disease,~~lung ~~growth~~cancer— ~~factor~~Amgen is ~~modulation,~~conducting ~~neurological~~a ~~diseases,~~Phase ~~metabolic~~2 ~~diseases~~clinical ~~and~~trial ~~infectious diseases. In~~for ~~some~~panitumumab ~~cases~~ in ~~which we license XenoMouse technology, we provide our mice to~~ the ~~customer,~~first ~~which~~line ~~then~~treatment ~~carries~~of ~~out~~advanced ~~immunizations~~non-small ~~with~~cell ~~its~~lung ~~specific~~cancer ~~antigens.~~administered Inwith ~~other~~standard ~~cases~~chemotherapy, we ~~immunize~~compared ~~the~~to ~~mice~~standard ~~with~~chemotherapy ~~the customer’s antigens for additional compensation~~alone. ~~We may also use our XenoMax technology on the customer’s behalf.~~ ~~The~~Enrollment ~~customer~~in ~~generally~~this has an option for a period of time to acquire a product license for any antibody identified using XenoMouse technology that the customer wishes to develop and commercialize. The financial terms of these agreements may include license feestrial, ~~option~~which ~~fees~~was ~~and~~initiated ~~milestone~~in ~~payments paid to us by the customers. Based on our agreements~~July 2001, ~~these payments and fees would average from~~is ~~approximately~~closed ~~$7.0 million to $10.0 million per antigen if our customer takes the antibody into development~~ and ~~ultimately~~treatment tois ~~commercialization~~ongoing. A ~~Additionally,~~recently ~~our~~completed ~~license~~primary ~~agreements~~analysis ~~entitle~~of usthis tostudy ~~receive~~revealed ~~royalties~~that onwhen ~~any~~compared ~~future~~with ~~product~~chemotherapy ~~sales~~alone, by the ~~customer. We also~~panitumumab ~~have~~combination ~~the~~did ~~right~~not ofimprove ~~first~~time ~~offer with regard~~ to ~~production services for~~ ~~antibodies~~disease ~~developed~~progression, ~~pursuant~~the tostudy’s ~~certain~~primary ofefficacy ~~these agreements~~endpoint. WeSecondary ~~may~~efficacy ~~also~~endpoints ~~agree to make equity investments in some~~ of ~~our~~the ~~customers~~study, tumor orresponse ~~they~~rate ~~may~~and ~~agree~~overall ~~to make equity investments in us~~survival, in ~~connection~~were ~~with~~not ~~these licensing arrangements~~met. The Ascombination of ~~September~~panitumumab ~~30, 2004, we had entered into one agreement in which we licensed our SLAM technology to one party on a non-exclusive basis for the purpose of generating~~ and ~~using~~standard ~~antibodies~~chemotherapy ~~other~~was ~~than~~generally ~~antibodies~~well ~~derived from XenoMouse technology or other~~tolerated. ~~technology~~Further ~~that~~analysis ~~involves the use~~ of ~~non-human animals, and on a co-exclusive basis for~~ the ~~purpose~~data ofis ~~antigen discovery~~ongoing. We currently do not intend to license our SLAM technology for use by any other parties. We have also entered into an agreement in which we exclusively licensed to one party rights under patent applications and patents held by us to develop and commercialize therapeutic antibodies to parathyroid hormone-related protein.

• ~~Production~~ Renal ~~Services~~cell ~~Contracts~~cancer—We have entered into contracts with two customers for process sciences and manufacturing services. One of these contracts is related to an antibody product candidate that we developed with the customer pursuant to an existing antigen sourcing contract. Under this contract we are ~~delivering~~conducting a ~~variety~~Phase of2 ~~process~~clinical ~~development,~~trial ~~cell~~evaluating ~~banking and manufacturing services for selected antibody product candidates. The other contract related to an antibody~~ the ~~customer~~effect ~~developed under a XenoMouse license agreement. The agreements provide for the customer to pay us certain fees for production services. Under one~~ of ~~these~~panitumumab ~~agreements~~as wemonotherapy ~~will be entitled to royalties on the~~in ~~sale~~patients ofwith ~~products~~renal ~~subject~~cell ~~to the agreement~~cancer. WeEnrollment ~~also~~in ~~have~~this ~~the~~trial, ~~right~~which ofwas ~~first~~initiated ~~offer~~in ~~with~~April ~~regard~~2001, tois ~~production services~~closed ~~for additional antibodies developed by one of these customers. We are seeking to enter into agreements to provide process sciences~~ and ~~manufacturing~~treatment ~~services~~is to other existing and new customers to absorb production services capacity we are not using for our proprietary product candidates; however, we do not expect to enter into any such agreements in the near termongoing.

• ~~Technology In-Licensing—We~~ Various ~~also~~cancers ~~license~~— ~~technology~~We ~~from~~initiated ~~other~~a ~~parties~~Phase ~~that we use in~~1 ~~conjunction~~clinical ~~with~~trial ~~our~~for ~~proprietary~~panitumumab ~~technology~~in tovarious ~~develop,~~solid ~~manufacture~~tumors ~~and commercialize~~in ~~therapeutic antibody candidates~~1999. ~~The other party may also agree to produce antibody therapeutic candidates for us using its own technology.~~ ~~For~~In ~~example~~2003, we ~~have~~expanded ~~entered into~~enrollment ~~license and option agreements with ImmunoGen, Inc. pursuant~~ to ~~which we~~ ~~may~~investigate ~~develop~~additional ~~and~~panitumumab ~~commercialize~~dose ~~products~~levels ~~based~~and ~~upon~~schedules ~~certain proprietary~~of ~~immunotoxins~~administration. ~~These~~Enrollment ~~agreements~~is ~~often obligate~~closed ~~us to pay license fees,~~ and ~~milestone payments and royalty fees to the~~ ~~counterparty~~treatment ~~upon~~is ~~the~~complete. Data ~~occurrence~~from ~~of specified conditions, including upon our~~this ~~sale~~dose ofand ~~products~~schedule ~~derived~~study ~~from~~were ~~use~~presented ofat ~~the~~ASCO ~~licensed technology. We may also agree to make an equity investment~~ in ~~the~~May ~~other~~2005 ~~party~~and ~~for~~showed ~~strategic reasons in~~that ~~connection~~panitumumab ~~with~~was ~~these~~generally ~~arrangements.~~well ~~For~~tolerated ~~example~~at weekly, weevery ~~purchased~~other ~~shares~~week ofand ~~common~~every ~~stock~~third ofweek ~~ImmunoGen~~dosing ~~in connection with our agreement with that company~~regimens.

16• Further development – Additional Phase 1 and 2 clinical studies evaluating panitumumab in different tumor types either as a single agent or in combination with different chemotherapeutic

~~Summary of Product Development~~15

Asagents ofand ~~September 30~~targeting agents, ~~2004~~have been initiated or are expected to be initiated from time to time. For example, ~~three~~an evaluation of ~~our~~panitumumab ~~antibody~~in ~~therapeutic~~combination ~~product~~with chemotherapy ~~candidates~~and ~~were~~AMG in706, ~~ongoing~~an Amgen proprietary multi-kinase inhibitor, is ~~clinical~~currently ~~trials~~ongoing.

• ~~Panitumumab~~ ABX-10241 (ABX-~~EGF~~PTH). ~~Our leading proprietary~~ ~~antibody therapeutic product candidate is panitumumab.~~ Generated using our technology, ~~panitumumab~~ ABX-10241, or ABX-PTH, is a fully human antibody therapeutic product candidate directed against ~~EGFr~~parathyroid ~~and a~~hormone ~~candidate~~(PTH) for the potential treatment of secondary hyperparathyroidism. We filed an investigational new drug application, or IND, in December 2003 and initiated a ~~variety~~single dose Phase 1 clinical trial evaluating the safety and pharmacokinetics of ~~solid~~ABX-10241 ~~tumors~~in patients with secondary hyperparathyroidism in February 2004. Preliminary Weresults ~~are~~from ~~co-developing~~an interim analysis of this ~~candidate~~study ~~with~~were ~~Immunex~~presented ~~under~~at a ~~development~~scientific ~~and~~meeting ~~commercialization agreement~~in 2004. ~~The~~Enrollment ~~status~~in ofthis ~~clinical~~trial ~~trials~~is ongoing. In addition, patient screening has begun for a multiple dose Phase 1 trial of ~~panitumumab~~ABX-10241 isin aspatients ~~follows:~~with secondary hyperparathyroidism.

~~• Various~~Customer ~~cancers—We~~Product initiated a Phase 1 clinical trial for panitumumab in various solid tumors in July 1999. In 2003, we expanded enrollment to investigate additional panitumumab dose levels and schedules of administration. Enrollment is closed and treatment is ongoing.Development

~~• Renal~~We license our ~~cell~~XenoMouse ~~cancer—We~~technology ~~initiated~~to apharmaceutical, ~~Phase~~biotechnology 2and ~~clinical~~genomics ~~trial~~companies interested ~~evaluating~~in developing antibody-based products. Typically, our agreements with our customers provide for up-front and, upon the ~~effect~~occurrence of ~~panitumumab~~ ascertain ~~monotherapy~~events, inmilestone payments ~~patients~~to us, along with ~~renal~~royalty ~~cell~~payments ~~cancer~~to inus if the product reaches the ~~April 2001~~market. We ~~and~~do ~~enrollment~~not isparticipate ~~closed~~in ~~and~~the development ~~treatment~~or ismarketing ~~ongoing~~of these product candidates. Our customers have advanced nine antibodies generated with XenoMouse technology into the clinical phase as follows:

• ~~Non-small cell lung cancer~~ Pfizer— ~~Immunex initiated a Phase 2 clinical trial for panitumumab in~~We ~~advanced~~generated ~~non~~three XenoMouse-~~small~~derived ~~cell~~fully ~~lung~~human ~~cancer~~antibody intherapeutic ~~combination with standard chemotherapy,~~product ~~compared~~candidates tothat ~~standard~~Pfizer ~~chemotherapy~~has ~~alone,~~advanced ininto ~~July 2001. Enrollment~~clinical ~~is closed and treatment is ongoing. Interim data from Part 1 of this Phase 2 study were presented at the conference of the American Society of Clinical Oncology on June 5~~trials, ~~2004~~including ~~and~~one ~~demonstrated~~ that ~~frontline therapy with~~ ~~panitumumab~~targets ~~was~~cytotoxic ~~generally~~T ~~well~~lymphocyte-~~tolerated~~associated inantigen ~~combination~~4 ~~with paclitaxel and carboplatin in patients with advanced non~~(CTLA-~~small~~4) ~~cell lung cancer. Nineteen patients were enrolled into three groups~~ and ~~were~~one ~~administered panitumumab weekly for up to eight 6-week cycles,~~that intargets ~~combination~~the ~~with~~type ~~paclitaxel~~1 ~~and carboplatin administered every three weeks, for up to six 3~~insulin-~~week~~like ~~cycles: six~~growth ~~subjects were~~factor ~~administered~~receptor ~~panitumumab at a dose of 1~~(IGF-1R).~~0 mg/kg/week, seven subjects were administered panitumumab at a dose of 2.0 mg/kg/week, and six subjects were administered panitumumab at a dose of 2.5 mg/kg/week.~~ ~~Five~~The oftarget 19for ~~patients~~the ~~had~~third ~~objective~~product ~~responses~~candidate ~~(one~~has ~~complete,~~not ~~four~~been ~~partial)~~disclosed. InTwo ~~this small study~~ of ~~19 patients,~~ the ~~observed median time to progression was six~~ ~~months~~product ~~and~~candidates ~~the~~are ~~observed~~currently ~~median overall survival was 17 months. The most common adverse event seen~~ in ~~this study~~Phase ~~was~~1 ~~skin~~evaluation ~~rash,~~and ~~but~~one ~~the~~has ~~incidence~~advanced ~~of grade 3 skin rash did not appear~~ to ~~increase~~Phase ~~with panitumumab dose. Part~~ 2 of this study, which is fully enrolled with 175 patients, compares time to progression for patients receiving panitumumab plus chemotherapy to that for patients receiving chemotherapy alone as frontline therapy for advanced non-small cell lung cancerevaluation.

• ~~Colorectal cancer~~ Amgen—We generated ~~Immunex initiated~~ a ~~Phase~~XenoMouse-derived 2fully ~~clinical~~human ~~trial~~antibody ~~evaluating~~therapeutic ~~the effect of~~product ~~panitumumab~~candidate as monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy in December 2001. Enrollment is closed and treatment is ongoing. Interim data from this Phase 2 study were presented at the annual conference of the American Society for Clinical Oncology on June 6, 2004 and demonstrated that ~~panitumumab~~Amgen has ~~antitumor~~ ~~activity~~advanced ~~when~~into ~~administered as~~ a ~~single-agent~~pivotal ~~treatment~~trial toas ~~patients with~~AMG ~~metastatic~~162 ~~colorectal~~as ~~cancer who have failed chemotherapy. The interim analysis, which was an update of~~a ~~results~~potential ~~announced~~treatment infor ~~June~~bone ~~2003, showed that patients with measurable metastatic colorectal cancer which expressed the epidermal growth factor receptor experienced partial responses~~loss. ~~The study~~Amgen ~~included~~has ~~148~~advanced ~~patients~~an ~~who~~additional were previously treated with fluoropyrimidine (with or without leucovorin), and either irinotecan or oxaliplatin, or both. Patients received 2.5 mg/kg of panitumumab by weekly intravenous infusion in 8XenoMouse-~~week~~derived ~~treatment~~fully ~~cycles~~human ~~until~~antibody ~~disease~~therapeutic ~~progression~~product orcandidate ~~unacceptable~~to ~~toxicity. Tumor~~an ~~responses~~undisclosed ~~were~~target ~~confirmed~~to atPhase ~~least~~1 ~~four~~clinical ~~weeks after the initial response was observed~~trials.

~~Treatment~~• Chiron–We generated ~~with~~a ~~panitumumab~~XenoMouse-derived ~~resulted~~fully inhuman aantibody ~~partial~~therapeutic product ~~response~~candidate inthat 15binds ofto ~~the~~and ~~148~~neutralizes ~~patients~~CD40, ~~(10%) with~~ a ~~median~~receptor ~~duration~~expressed ofon ~~response of~~immune 5cells.2 Chiron ~~months,~~has ~~and~~advanced nothis candidate, ~~complete responses~~CHIR-12. ~~Stabilization~~12, ofinto ~~disease~~a ~~was~~Phase ~~observed~~1 inclinical 56trial ofin ~~the 148~~ patients ~~(38%)~~ with aB ~~median duration of stable disease of 3~~cell malignancies.~~8 months. Median overall~~

17• CuraGen–We generated a XenoMouse-derived fully human antibody therapeutic product candidate that binds to platelet derived growth factor D (PDGF-D) that CuraGen has advanced to Phase 1 clinical trials as CR002 as a potential treatment for inflammatory kidney disease.

~~time~~• Human Genome toSciences—CCR5 ~~progression~~mAb ~~was~~is ~~two~~a ~~months~~XenoMouse-derived ~~and~~fully ~~median~~human ~~overall~~antibody ~~survival~~therapeutic ~~time~~product ~~was~~candidate ~~7.9~~that ~~months. Exploratory~~binds ~~subgroup~~to ~~analyses~~the ~~comparing~~chemokine ~~patients~~receptor ~~who~~CCR5 ~~had~~that allows ~~received~~entry ~~two prior~~of ~~chemotherapy~~the ~~agents,~~HIV-1 ~~(80~~virus ~~patients),~~into ~~versus~~immune ~~those~~cells. Human ~~who~~Genome ~~had~~Sciences ~~received~~has ~~three prior~~initiated ~~chemotherapy~~a ~~agents~~Phase ~~(68~~1 clinical ~~patients),~~trial ~~demonstrated~~of ~~similar~~CCR5 ~~response~~mAb ~~rates~~in ~~of 11%~~patients ~~and~~infected ~~9%,~~with ~~respectively~~HIV-1.

~~In the interim analysis, panitumumab was generally well-tolerated,~~• Agensys– ~~with~~AGS-PSCA ~~skin~~is ~~rash as the most common side effect: 95% experienced~~ a ~~skin~~XenoMouse-derived ~~rash~~fully ~~and~~human ~~4% experienced~~antibody atherapeutic ~~grade 3 skin rash. Other~~product ~~side~~candidate ~~effects~~that ~~experienced~~selectively bybinds ~~some~~to ~~patients~~prostate ~~were~~stem ~~fatigue,~~cell ~~nausea~~antigen ~~and diarrhea~~(PSCA). ~~One~~Agensys ~~patient~~has ~~had~~filed aan ~~grade~~IND ~~3 infusion-related reaction related~~ to ~~panitumumab,~~initiate ~~which~~a ~~did not result in~~Phase ~~discontinuation~~1 ofclinical ~~panitumumab. There were~~trial ~~no instances~~ of ~~anaphylaxis. In~~this ~~the 110~~candidate in patients ~~for~~with ~~which~~advanced ~~samples~~prostate ~~were available for testing, no human antihuman antibodies (HAHAs) were observed~~cancer.

• Immunex initiated a separate Phase 2 clinical trial in January 2002 evaluating the effect of panitumumab in combination with irinotecan-containing regimens, as first-line treatment in patients with metastatic colorectal cancer. Enrollment is closed and treatment is ongoing.16

InSummary ~~January 2004, Immunex initiated a pivotal study~~ of ~~panitumumab~~ asContractual third-line monotherapy in patients with metastatic colorectal cancer. The trial initiation followed the receipt of a Special Protocol Assessment letter from the U.S. Food and Drug Administration, or FDA, endorsing the design of the trial to support a regulatory submission for potential accelerated approval. Enrollment in this trial, which has begun, is proceeding more slowly than originally anticipated. Immunex also initiated a second pivotal study in Europe in support of a global registration program. Enrollment in this study is proceeding as anticipated.Arrangements

• Prostate cancer—We initiated a Phase 2 clinical trial evaluating the effect of panitumumab in patients with hormone resistant prostate cancer in January 2002, in which treatment is ongoing. Based on a preliminary analysis, we have closed enrollment in this trial. The preliminary findings did not meet our planned threshold to support pursuing the drug as a monotherapy in this indication.Overview

~~• Immunex has~~We ~~initiated~~have anentered ~~additional~~into ~~study~~a tovariety ~~evaluate~~of ~~panitumumab~~contractual arrangements into ~~various sub-populations,~~use ~~including~~our ~~metastatic~~XenoMouse ~~colorectal~~and ~~cancer~~XenoMax ~~patients~~technologies ~~with~~to ~~tumors~~generate and/or ~~having~~develop ~~low~~fully human antibodies against numerous antigens or ~~undetectable~~to ~~levels~~manufacture fully ofhuman ~~EGFr~~antibodies. ~~Enrollment~~ The following is a ~~ongoing~~summary of these relationships.

~~• ABX-MA1. Generated~~Amgen using our technology, ABX-MA1 is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers. We filed an investigational new drug application, or IND, in December 2001 and initiated a Phase 1 clinical trial evaluating the safety and pharmacokinetics of ABX-MA1 in patients with metastatic melanoma in February 2002. Enrollment is closed and treatment is complete.Collaboration

• In 2000, we entered into a joint development and commercialization agreement with Immunex, now a wholly-owned subsidiary of Amgen, for the co-development of ABX-~~PTH~~EGF, now known as panitumumab. ~~Generated~~We ~~using~~amended ~~our~~this ~~technology~~agreement in October 2003. Under the amended agreement, ~~ABX~~Amgen has decision-~~PTH,~~making orauthority for development and ~~ABX~~commercialization activities and we have the right to co-~~10241,~~promote ispanitumumab ain the ~~fully~~United ~~human~~States. We ~~antibody~~have ~~therapeutic~~decided ~~product~~to pursue ~~candidate~~the ~~for~~co-promotion of panitumumab with Amgen in the United States. We are obligated to pay 50% of the ~~treatment~~development and commercialization costs and we are entitled to receive 50% of any aprofits ~~secondary~~from ~~hyperparathyroidism~~sales of panitumumab. WeIn ~~filed~~addition, anAmgen ~~IND~~is required to make available in ~~December~~2004 ~~2003~~and 2005 up to $60.0 million in advances that we may use to fund a portion of our share of development and ~~initiated~~commercialization costs for panitumumab. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are generally not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization. Under a ~~Phase~~separate agreement 1with Amgen, we are manufacturing clinical ~~trial evaluating~~supplies of panitumumab for the ~~safety~~collaboration and ~~pharmacokinetics~~will ofmanufacture ~~ABX-PTH~~commercial insupplies ~~patients~~for ~~with~~the first five ~~secondary~~years ~~hyperparathyroidism~~after incommercial ~~February~~launch, ~~2004~~with Amgen’s support and assistance. The costs of manufacturing clinical and ~~Enrollment~~commercial issupplies ~~ongoing~~are also shared equally.

~~Preliminary~~AstraZeneca results from an interim analysis of this ongoing study were presented during a poster presentation at the 26th Annual Meeting of the American Society for Bone and Mineral Research on October 3, 2004. In the Phase 1 study, five patients received a single dose of placebo, four patients received 30 mg of ABX-PTH and eight patients received 100 mg of ABX-PTH by intravenous bolus injection. At the 100 mg dose, suppression of parathyroid hormone was sustained below 300 pg/mL in 88 percent of patients one week after dosing. ABX-PTH treatment resulted in dose dependent suppression of parathyroid Collaboration

We entered into a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer. This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized worldwide by AstraZeneca exclusively. We will conduct early stage preclinical research on behalf of AstraZeneca with respect to some or all of these targets, and have initiated research programs for numerous targets. To date, we and AstraZeneca have selected 22 targets for inclusion in the collaboration, including several for which we had pre-existing preclinical programs. For any resulting products, we may receive milestone payments at various stages of development and royalties on future product sales. AstraZeneca may make milestone payments to us of up to $51 million per candidate that is developed under the agreement, and for any antibody we choose to develop to a target that is discontinued from the collaboration, we may pay AstraZeneca up to $15 million. In addition, we may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, and would be compensated for those activities at competitive market rates. The collaboration also gives us the right to select and develop an additional pool of antibodies against up to 18 targets, which the companies may elect to further codevelop on an equal cost and profit sharing basis. Subject to a number of exceptions, we will work exclusively with AstraZeneca to generate and develop antibodies for therapeutic use in the field of oncology during a three-year target selection period. These exceptions include, among others, work on antibodies directed at antigens that are or become subject to existing collaborations and antigens that we and AstraZeneca decide not to pursue in the collaboration, and certain process development and manufacturing services. In connection with this collaboration, AstraZeneca made a $100.0 million investment in Abgenix securities. Upon the achievement of certain milestones, we may also require AstraZeneca to invest up to an additional $60.0 million in our convertible preferred stock.

hormone and a dose dependent reduction in serum calcium. Intravenous bolus administration was well tolerated and no drug-related adverse events were reported. We expect to launch a multiple dose phase 1 study of ABX-PTH by the first quarter of 2005.17

~~“Phase~~Joint 1”Development indicates safety and pharmacokinetics testing in a limited patient population. “Phase 2” indicates safety, dosing and efficacy testing in a limited patient population. “Phase 3” indicates efficacy and safety testing in a larger patient population. A “pivotal study” is designed to meet registration requirements. Phase 3 studies designed for registration purposes are considered pivotal studies. Certain Phase 2 studies can be pivotal studies.Collaborations

We have entered into ajoint ~~broad~~development ~~collaboration~~and ~~with~~commercialization ~~AstraZeneca~~arrangements for the development of ~~antibody~~fully ~~therapeutics~~human ~~for~~antibody ~~the~~therapeutic ~~treatment of~~products ~~oncology~~with ~~pursuant~~a tonumber ~~which~~of wecollaborators, ~~have~~including anU3 ~~opportunity~~Pharma, toMicroscience, ~~co-develop products with AstraZeneca~~Sosei, Dendreon ~~as well as provide preclinical~~ and ~~clinical~~Chugai. Development activities ~~research~~under ~~support~~these ~~for the~~agreements ~~development~~are ofin ~~product~~various ~~candidates~~early ~~by AstraZeneca~~stages. InPursuant ~~addition,~~to wethese ~~have~~arrangements ~~entered~~we ~~into~~and our ~~co-development~~collaborators ~~agreements~~typically ~~for~~share equally the ~~joint~~costs ~~development~~ of ~~antibody~~development ~~product~~and ~~candidates~~commercialization ~~with~~as awell ~~variety~~as ofany ~~companies~~profits ~~including~~from ~~U3,~~the ~~Microscience, Dendreon, Chugai and Sosei~~collaboration. We intend to enter into additional joint development agreements for other product candidates.

WeTechnology will expend significant capital to conduct clinical trials or share in the costs of conducting clinical trials for our proprietary product candidates. These activities may result in increases in our operating expenses over the next few years.Out-Licensing

InWe ~~addition~~have tolicensed our ~~proprietary~~XenoMouse technology to third parties for the purpose of generating antibody ~~therapeutic~~product candidates to one or more specific antigens provided by the customer. We may also use our XenoMax technology on the customer’s behalf. Pursuant to these contracts, we and our customers intend to generate antibodies for development as product candidates infor ~~clinical~~the ~~trials~~treatment of cancer, ~~there~~inflammation, ~~are~~autoimmune diseases, ~~four~~cardiovascular disease, neurological diseases, metabolic diseases and infectious diseases, and other diseases. The customer~~-developed~~ generally has an option for a period of time to acquire a ~~antibodies~~product ~~generated~~license ~~with~~for any antibody identified using XenoMouse technology inthat ~~clinical~~the customer ~~trials~~wishes asto ~~follows:~~develop and commercialize. The financial terms of these agreements may include license fees, option fees and milestone payments paid to us by the customers. Based on our agreements, these payments and fees would average from approximately $7.0 million to $10.0 million per antigen if our customer takes the antibody into development and ultimately to commercialization. Generally, under these agreements, our collaborators are responsible for the costs of product development, manufacturing and commercialization. Additionally, these license agreements entitle us to receive royalties on any future product sales by the customer.

~~• Pfizer Inc.—We~~Production generated three XenoMouse-derived fully human antibody therapeutic product candidates that Pfizer has advanced into clinical trials, including one that targets cytotoxic T lymphocyte-associated antigen 4 (CTLA-4) and one that targets activated type 1 insulin-like growth factor receptors (IGF-1R). The indication for the third product candidate has not been disclosed. Two of the product candidates are currently in phase 1 evaluation and one has advanced to phase 2 evaluation.Services

~~• Amgen—~~We have entered into a limited ~~generated~~number of contracts for process sciences and manufacturing services. We may offer a ~~XenoMouse-derived~~variety ~~fully~~of ~~human~~process development, ~~antibody~~cell ~~therapeutic~~banking ~~product~~and clinical and commercial scale manufacturing ~~candidate~~services ~~that~~for ~~binds~~antibody product candidates to ~~the~~existing ~~receptor~~and ~~activator~~new ofcustomers ~~nuclear~~to absorb ~~factor~~production ~~kappa~~services Bcapacity ~~ligand~~we are not using for our proprietary ~~(RANKL)~~product ~~that~~candidates. Pursuant ~~Amgen~~to ~~has~~such arrangements ~~advanced~~we ~~into~~may areceive ~~pivotal~~fees ~~clinical~~and, ~~trial~~in assome ~~AMG162~~circumstances, asroyalties afrom ~~potential~~future ~~treatment~~product ~~for~~sales. We ~~bone~~continue ~~loss~~to assess opportunities and may enter into additional production service contracts.

Results of Operations

Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2004~~2005 and ~~2003~~2004

Contract Revenues.

Contract revenues totaled $3.4 million and $106.5 1 million, respectively, in the three ~~months~~ and six ~~nine~~ months ended ~~September~~June 30, ~~2004~~ 2005, compared to $24.02 million and $107.51 million, respectively, in the comparable ~~2003~~2004 periods. Because contract revenues depend to a large extent on the success or failure of research and development efforts undertaken by our collaborators and licensees, our period-to-period contract revenues can fluctuate significantly and are inherently difficult to predict.

The primary components of contract revenues for both periods were as follows:

• Technology Licensing

19We recognized a total of $3.4 million and $6.1 million, respectively, in the three and six months ended June 30, 2005, compared to $3.6 million and $6.0 million, respectively, in the comparable 2004 periods, from licensing our proprietary technologies. Revenues in these

We recognized a total of $2.8 million and $8.8 million, respectively, in the three and nine months ended September 30, 2004, compared to $2.0 million and $9.7 million, respectively, in the comparable 2003 periods, from licensing our proprietary technologies. Technology licensing included various fees, such as research license and service fees, product license fees, product development and research milestone payments and option fees. Revenue consisted primarily of the following:18

~~• Chugai~~periods consisted primarily of various fees, such as –research Inlicense ~~the~~and ~~nine~~service ~~months~~fees, ~~ended~~product ~~September~~license 30fees, ~~2003~~product development and research milestone payments and option fees, weunder ~~recognized~~agreements $3related to the licensing of our XenoMouse technology.0 These ~~million~~revenues ~~under~~were generated from several collaborators, but primarily anfrom ~~agreement~~Pfizer, ~~with~~Amgen ~~Chugai~~and Genentech in ~~which~~the wethree ~~exclusively~~and ~~licensed~~six tomonths ~~Chugai~~ended ~~rights~~June to30, ~~methods~~2005 ofand ~~treatment~~from ofAbbott, ~~certain~~Pfizer, ~~diseases~~and ~~with~~CuraGen anin ~~antibody~~the three and six months ended June 30, 2004.

• ~~Additionally,~~ Production in the three and nine months ended September 30, 2004 and 2003, we recognized various fees, such as research milestone payments, research license and services fees, product license fees, product development and option fees, under technology license agreements. We recognized fees from several collaborators, primarily from: Amgen and Pfizer in the three months ended September 30, 2004; Pfizer, Amgen and Abbott in the nine months ended September 30, 2004; and Pfizer and Amgen in the three and nine months ended September 30, 2003.Services

~~• Proprietary~~We recognized no revenue in the three and six months ~~Product~~ended ~~Development~~June 30, 2005 and approximately $0.6 million and $1.1 million, respectively, in the three and six months ended June 30, 2004 for production services. These revenues consisted primarily of process sciences services and were generated from a customer under a production services agreement.

WeContract ~~recognized~~Manufacturing $318,000 in the three and nine months ended September 30, 2004, compared to $38,000 and $723,000, respectively, in the comparable 2003 periods, pursuant to our joint development and commercialization agreementsRevenues. In the three and nine months ended September 30, 2004, the revenues consisted of reimbursement of development costs for the panitumumab program. The revenue increase in the three months ended September 30, 2004 as compared to the same period in 2003, was due to our development costs exceeding the development costs of our collaborator, Immunex. In the three and nine months ended September 30, 2003, the revenues consisted of reimbursement of development costs from the development of ABX-CBL. Revenue decreased in the nine months ended September 30, 2004 as compared to the same period in 2003 primarily due to the discontinuation of the ABX-CBL program in 2003. We expect revenues pursuant to our joint development and commercialization agreements will continue to be less in 2004 as compared to 2003 as we expect our collaborator’s costs for the panitumumab development program to exceed our costs and because of the discontinuance of the ABX-CBL development program.

~~• Non-~~In the three and six months ended June 30, 2005, we did not recognize any revenues from manufacturing services. Contract ~~Production~~manufacturing ~~Services~~revenues totaled $1.3 million in the three and six months ended June 30, 2004 and were related to the manufacture of an antibody product for a customer under a production services agreement.

~~We recognized a total of $326,000 and $1.4 million,~~Cost ~~respectively, in revenues during the three and nine months ended September 30, 2004 for production services. These revenues consisted primarily~~ of ~~process~~Goods ~~sciences services and were generated from one of our product services agreements~~Manufactured. ~~We did not recognize any revenues from production services during the three and nine months ended September 30, 2003.~~

~~Contract~~Costs ~~Manufacturing~~incurred ~~Revenues~~by the Company for contract manufacturing pursuant to production service contracts are reported as cost of goods manufactured. In the three and six months ended June 30, 2005, we did not manufacture any products under a production services agreement and, therefore, did not incur any cost of goods manufactured. In the three and six months ended June 30, 2004, we incurred $1.9 million in cost of goods manufactured associated with manufacturing an antibody product for a customer under a production services agreement. Cost of goods manufactured included material, direct labor, outside testing and overhead costs associated with manufacturing an antibody product for a customer under a production services agreement.

~~Contract manufacturing~~Research ~~revenues totaled zero~~ and ~~$1.3~~Development ~~million, respectively, in the three and nine months ended September 30, 2004~~Expenses. These revenues consisted primarily of manufacturing services for the manufacture of an antibody product for a customer under a production services agreement. In the three and nine months ended September 30, 2003, we did not recognize any revenues from manufacturing services.

20Research and development expenses were $35.5 million and $71.3 million, respectively, in the three and six months ended June 30, 2005, compared to $36.1 million and $64.6 million, respectively, in the same periods in 2004. The major components of research and development expenses were as follows (in thousands):

Cost of Goods Manufactured.

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Product development	$	27,946	$	26,087	$	55,448	$	45,365
Research	7,599		10,061		15,881		19,240
Total	$	35,545	$	36,148	$	71,329	$	64,605

~~Cost~~Product ofdevelopment ~~goods manufactured~~costs ~~was~~include ~~zero~~costs ~~and $1.9 million in the three and nine months ended September 30, 2004. Cost~~ of ~~goods~~preclinical ~~manufactured included material~~development, ~~direct~~cell ~~labor,~~line ~~outside~~development ~~testing~~ and ~~overhead costs~~conducting ~~associated~~clinical ~~with~~trials ~~manufacturing an antibody product~~ for ~~a customer under a~~our ~~production~~proprietary ~~services~~product ~~agreement~~candidates. InProduct ~~the~~development ~~three~~costs ~~and~~relate ~~nine~~both ~~months~~to ~~ended~~programs ~~September~~we ~~30,~~are ~~2003,~~developing wejointly ~~did~~with ~~not~~collaborators pursuant ~~have~~to ~~any~~joint ~~cost~~development ~~of goods~~arrangements ~~manufactured.~~and to

~~Research and Development Expenses.~~ 19

~~Research~~programs ~~and~~that ~~development~~we ~~expenses~~are developing ~~were $30~~independently.0 The ~~million~~costs of ~~and~~our ~~$94.6~~joint ~~million,~~development ~~respectively,~~programs represented the majority of our product development costs in both the three and ~~nine~~six months ended ~~September~~ June 30, ~~2004,~~2005. Product ~~compared~~development costs also include costs related to ~~$26~~cell line development in connection with production services arrangements.0 Typically, ~~million~~our joint development arrangements provide that we and ~~$66~~our collaborator share the costs of development and commercialization.5 We bear ~~million~~the entire cost of programs we are developing independently. In the three and six months ended June 30, 2005, ~~respectively~~our product development costs increased in comparison to the same periods in 2004, primarily due to a significant increase in costs associated with our joint development programs, the substantial majority of which was related to ~~comparable~~the ~~2003~~panitumumab ~~periods~~program. To ~~The~~a ~~major~~lesser extent, ~~components~~the ofincrease ~~research~~was ~~and~~due to an increase in product development costs ~~expenses~~related to one of our independent programs, ABX-10241. The increases were aspartially ~~follows~~offset (by a decrease in ~~thousands):~~product development costs in 2005 related to cell line development activities we performed under a production services contract.

~~Research~~The increase in product development costs for the panitumumab program in 2005 from 2004 was primarily attributed to an increase in the amount we reimbursed our joint development partner, Amgen. Under the joint development and ~~Development:~~commercialization agreement with Amgen, we are obligated to pay 50% of the total development and commercialization costs of panitumumab. We reimburse Amgen when we incur less than 50% of the total development costs incurred by both parties in the given period. In a period where we incur more than 50% of the total development costs, we would record such excess amount, which would be reimbursed to us by Amgen, as a reduction of our product development costs. In the three and six months ended June 30, 2005, the amount of our reimbursement to Amgen was $6.7 million and $12.4 million, respectively, compared to $3.1 million and $6.4 million, respectively, in the same periods in 2004. The increase in our reimbursements to Amgen in 2005 from 2004 reflected an increase in development activities performed by Amgen for panitumumab. Partially offsetting the increase in product development costs for panitumumab was a decrease in clinical research fees in 2005 from 2004 due to the completion of patient enrollment for all panitumumab clinical trials that we manage. Clinical research fees consist of clinical investigator site fees, monitoring costs and data management costs.

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Product development	$	21,961	$	18,223	$	67,112	$	39,534
Research	7,939		7,593		25,086		24,542
In-licensing	78		192		2,385		2,424
Total research and development costs	$	29,978	$	26,008	$	94,583	$	66,500

Product development costs for ABX-10241 increased by $0.6 million and $1.6 million, respectively, for the three and six months ended June 30, 2005, compared to the same periods in 2004. The increase in 2005 from 2004 was primarily due to increased spending in clinical research fees for the single dose Phase 1 clinical trial, of which patient enrollment is ongoing, and in preparation for a multiple dose Phase 1 study, of which patient screening has been initiated.

Product development costs ~~include costs of preclinical~~ ~~development,~~can ~~cell~~vary ~~line~~significantly ~~development,~~from ~~manufacturing~~period ~~and~~to ~~conducting~~period ~~clinical trials~~depending ~~for~~on ~~our~~the ~~proprietary~~progress ~~product~~of ~~candidates.~~ the ~~Additionally, product~~ development ~~includes costs related to cell line development~~ activities wein ~~perform~~the ~~under our production services contracts~~period. ~~The primary components of product development~~ ~~include the costs of Abgenix personnel~~Overall, ~~drug~~we ~~supply~~expect costs, ~~research~~associated ~~fees charged~~with byproduct ~~outside contractors, co-~~development ~~costs,~~in ~~and~~2005 ~~facility expenses,~~to ~~including~~be ~~depreciation. In~~higher ~~the~~than ~~three and nine months ended September 30,~~ 2004, ~~our~~as ~~product~~we ~~development~~and ~~costs~~Amgen ~~increased in~~continue ~~comparison~~ to ~~the~~expand ~~same~~our ~~periods~~development ~~in 2003, primarily due to a significant~~efforts ~~increase~~on in the ~~development costs for the~~ panitumumab program. ToIn aaddition, we ~~lesser~~expect ~~extent~~product ~~the~~development ~~increase was due to~~ costs related to ~~new preclinical and clinical product candidates including~~ ABX-~~PTH. Product~~10241 ~~development costs can vary from period~~ to ~~period~~increase ~~significantly depending on the development activities~~ in ~~the period. Overall, we~~2005 ~~expect~~compared ~~costs associated with product development in 2004~~ to ~~be higher than 2003 as we and our co-developer Immunex initiate new trials and add patients to our existing panitumumab clinical trials~~2004.

Research costs include ~~costs~~ costs associated with research and testing of antibodies we generate, whether ~~for~~ for ourselves or for our customers, prior to the development stage which begins with the commencement of preclinical activities. Research costs also include the costs of research relating to proprietary technologies, including enhancements to those technologies. The ~~primary~~decrease ~~components~~in of research costs ~~include~~in ~~the~~2005 ~~costs~~compared ofto ~~Abgenix~~2004 ~~personnel,~~was ~~facilities,~~primarily ~~including depreciation,~~due ~~and~~to ~~lab~~a ~~supplies. Our research~~reduction in costs associated ~~have~~with ~~generally~~licensing ~~remained~~charges atfrom ~~the~~arrangements ~~same~~with ~~levels~~research ~~in the three~~ institutions and ~~nine months ended September 30~~others, ~~2004~~as well as ~~compared~~decreased tospending ~~the~~in ~~same~~lab ~~periods~~supplies inand ~~2003~~reduced depreciation expense.

~~In-licensing costs~~Manufacturing ~~include costs to acquire licenses to develop and commercialize various technologies and molecules. In the three months ended September 30, 2004, in~~Start-~~licensing~~Up ~~costs decreased as compared to the same period in 2003~~Costs. ~~In-licensing cost can vary from period to period. In-licensing costs in the nine months ended September 30, 2004 were comparable to the same period in 2003.~~

~~Major~~Manufacturing ~~components~~start-up ~~of research~~costs were $4.8 million and $6.8 ~~development~~million, ~~costs~~respectively, ~~for~~in the three and ~~nine~~six months ended ~~September~~ June 30, 2005, compared to $2.8 million and $10.1 million, respectively, in the same periods in 2004. Manufacturing start-up costs include certain costs associated with our new manufacturing facility, including depreciation, outside contractor costs and ~~2003~~personnel ~~were~~costs asfor ~~follows:~~activities

2120

~~• Costs of~~such ~~Abgenix~~as ~~Personnel—Costs of Abgenix personnel to support research and~~quality ~~development~~assurance ~~activities increased 37%~~ and ~~24%,~~quality ~~respectively,~~control. The increase in the three ~~and nine~~ months ended ~~September~~June 30, ~~2004~~2005 as compared to the same ~~periods~~period in ~~2003. Personnel~~2004 was ~~costs~~ primarily ~~include~~due ~~salary,~~to an increase in personnel in production services in ~~fringe~~preparing ~~benefits,~~for ~~recruiting~~the ~~and~~possible ~~relocation~~submission ~~costs~~of Biologic License Application, or BLA, for panitumumab. The ~~increase~~decrease ~~was~~in ~~primarily~~the ~~due~~six months ended June 30, 2005 as compared to ~~increased personnel~~the ~~costs~~same ~~for~~period ~~process~~in ~~sciences~~2004 ~~and~~was ~~preclinical~~primarily due ~~research,~~to ~~and~~the increased use of our manufacturing facility for the manufacture of panitumumab and other development activities, including process validation ~~for~~ and the manufacture of our conformance lots. Manufacturing start-up costs will fluctuate from period to period depending on the level of these manufacturing and development activities.

~~• Consulting and~~Amortization ~~Outside Contractors—Costs~~ of ~~consulting and outside contractors to support~~Identified ~~research~~Intangible ~~and development activities decreased 36% and 12%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003~~Assets. The decrease was primarily due to a reduction of activities performed by outside contractors related to toxicology studies. The decrease was offset in part by increased clinical trial activities for panitumumab.

~~• Clinical~~Our identified ~~Research~~intangible ~~Fees—Clinical~~assets ~~research~~consist ~~fees,~~primarily of existing technology (including ~~clinical~~patents and ~~investigator~~certain ~~site~~royalty rights) we acquired through the acquisitions of Hesed ~~fees~~Biomed in 2001, ~~monitoring~~Abgenix ~~costs~~Biopharma Inc., formerly known as ImmGenics Pharmaceuticals, Inc., and ~~data~~IntraImmune ~~management~~in ~~costs~~2000, ~~increased~~and ~~27%~~JT America’s interest in Xenotech in 1999. Amortization of intangible assets totaled $1.4 million and ~~34%~~$2.9 million, respectively, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2004~~2005, as compared to $1.8 million and $3.6 million, respectively, in the same periods in ~~2003~~2004. The ~~increase~~ decrease in 2005 from 2004 was ~~primarily~~due to a reduction in intangible assets due to ~~increased~~the ~~clinical~~write-off ~~trial~~in ~~activities~~the second quarter of 2004 of the remaining value of the catalytic antibody technology that we acquired through the acquisition of Hesed Biomed. We expect the amortization of intangible assets to further decrease in future periods as we recorded impairment charges for certain intangible assets ~~panitumumab~~in ~~and~~the ~~ABX-PTH~~second quarter of 2005.

~~• Drug~~General ~~Supply Costs—Drug supply costs increased 53%~~ and ~~197%,~~Administrative ~~respectively, in the three and nine months ended September 30, 2004 as compared to the same period in 2003~~Expenses. ~~The increase was primarily due to the increased production of panitumumab resulting from the expansion of the panitumumab clinical program.~~

~~• Co-development~~General and ~~costs—Co-development~~administrative ~~costs,~~expenses ~~which~~include ~~primarily~~compensation, ~~consist~~professional ofservices, ~~reimbursement to Immunex~~consulting ~~for~~and ~~our~~other ~~share~~expenses ofrelated ~~panitumumab~~to ~~development~~information ~~costs~~systems, ~~decreased~~legal, ~~100%~~finance inand ~~the three~~an ~~months~~allocation ~~ended~~of ~~September~~facility ~~30, 2004~~ costs. General and ~~increased~~administrative ~~14%~~expenses intotaled ~~the~~$5.3 ~~nine~~million ~~months~~and ~~ended September~~$11.0 30million, respectively, ~~2004 as compared to the same periods~~ in ~~2003. In~~ the three and six months ended ~~September~~June 30, ~~2004~~2005, we ~~did~~compared ~~not incur co-development costs associated with reimbursement~~ to ~~Immunex~~$6.5 ~~because~~million ~~our~~and ~~costs~~$13.4 ~~related~~million, torespectively, ~~development~~in ~~of panitumumab exceeded~~ the ~~development~~ ~~costs~~same ~~incurred~~periods byin ~~Immunex~~2004. The ~~increase~~decrease in ~~the~~2005 ~~nine~~from ~~months ended September 30,~~ 2004 was primarily ~~related to cost sharing for activities performed by Immunex associated with the co-development of panitumumab. The increase was also~~ due to ~~our~~a ~~increased~~reduction ~~activities~~in ~~for~~legal, ~~clinical~~consulting ~~trials~~and ~~related to~~temporary ~~the~~personnel ~~development of panitumumab~~expenses.

~~• Facility~~Impairment ~~and Other Overhead Related Costs—These costs, which primarily consist~~ of ~~depreciation,~~ ~~rent~~Intangible ~~and other facility related costs, increased 50% and 52%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003~~Assets. The increase was primarily related to increased use of our manufacturing facility for development activities, including process validation activities related to the manufacture of panitumumab conformance lots.

~~The~~Impairment ~~clinical~~of ~~trial status~~intangible ofassets ~~product~~totaled ~~candidates~~$25.0 ~~included~~million in ~~product~~the ~~development~~three ~~costs is as~~and ~~follows~~six asmonths ofended ~~September~~June 30, ~~for~~2005, ~~each~~compared ofto $17.2 million in the ~~years~~same ~~indicated:~~periods in 2004.

Proprietary Product Candidate		Clinical Trial Status as of September 30,
	Indication	2004	2003
Panitumumab (ABX-EGF)	Various cancers	Phase 1	Phase 1
	Renal cell cancer	Phase 2	Phase 2
	Non-small cell lung cancer	Phase 2(1)	Phase 2(1)
	Metastatic Colorectal cancer	Phase 2(1)	Phase 2(1)
	Metastatic Colorectal cancer (with chemotherapy)	Phase 2(1)	Phase 2(1)
	Prostate cancer	Phase 2	Phase 2
	Metastatic Colorectal cancer (outside the US)	Pivotal(1)
	Metastatic Colorectal cancer	Pivotal(1)
ABX-MA1	Metastatic melanoma	Phase 1	Phase 1
ABX-PTH	Secondary hyperparathyroidism	Phase 1

In the quarter ended June 30, 2005, we determined that an impairment of our Selected Lymphocyte Antibody Method (SLAM) technology had occurred and that the estimated fair value had declined to $2.0 million. This technology, which includes intellectual property, was acquired in 2000 through the acquisition of Abgenix Biopharma, Inc., formerly known as ImmGenics Pharmaceuticals, Inc. In the second quarter of 2005, we completed a strategic review process, which included an assessment of our technologies. After assessing the SLAM technology, we determined that our use of the SLAM technology had declined and would continue to decline substantially because of significant improvements in the use of other technologies and processes. Because of this impairment indicator, we tested the SLAM technology for recoverability and found that the undiscounted future cash flows estimated to be generated from the use of the SLAM technology were less than the carrying value of the SLAM technology. As a result, we determined that an impairment of the SLAM technology had occurred and recorded an impairment charge of $23.1 million in the second quarter of 2005 to adjust the carrying value of SLAM technology to its estimated fair value, which is based on the estimated discounted future cash flows to be generated from the SLAM technology.

Also in the quarter ended June 30, 2005, we determined that an impairment of the acquired technology in the field of intrabodies (~~1) Clinical~~antibodies ~~trial~~that ~~managed~~can access intracellular targets) had byoccurred ~~Immunex~~and that the estimated value had declined to zero. This technology, which includes intellectual property, was

2221

~~Manufacturing~~acquired in 2000 through the acquisition of ~~Start-Up~~IntraImmune, ~~Costs~~Inc. We decided to discontinue the development of the intrabody program and performed an assessment of the associated patent position and the likelihood of sale or license of the technology to a third party. We determined that the possibility of generating positive future cash flows from the technology was remote. As a result, we recorded an impairment charge of $1.9 million in the second quarter of 2005.

~~Manufacturing~~During ~~start-up costs were $6.4 million and $16.5 million, respectively, in~~ the ~~three~~quarter ~~and nine months~~ ended ~~September~~June 30, 2004, ~~compared~~we tohad determined ~~the~~that ~~$10.3~~an ~~million~~impairment ~~and~~of ~~$63.1~~the ~~million,~~Company’s ~~respectively,~~acquired technology in the field ~~comparable~~of ~~2003~~catalytic ~~periods. Manufacturing start-up~~antibodies ~~costs~~had ~~include~~occurred ~~certain~~and ~~costs~~that ~~associated~~the ~~with~~estimated ~~our~~value ~~new~~had ~~manufacturing~~declined ~~facility,~~to ~~including~~zero. This ~~depreciation~~technology, ~~outside~~which ~~contractor~~includes intellectual ~~costs~~property, ~~and~~was ~~personnel~~acquired ~~costs for~~in ~~activities~~2001 ~~such~~through asthe ~~quality~~acquisition ~~assurance~~of ~~and~~Hesed Biomed, ~~quality control~~Inc. ~~The~~We ~~primary~~decided ~~component~~to offocus ~~this~~our resources ~~cost~~on inother ~~the~~research ~~three~~ and ~~nine~~development ~~months~~projects ~~ended~~and ~~September~~wind ~~30,~~down ~~2003~~our catalytic ~~was~~antibody ~~a fee of approximately $28~~program.0 ~~million~~Additionally, ~~for~~after assessing the ~~negotiated~~associated ~~cancellation~~patent ofposition aand ~~manufacturing supply agreement~~the ~~with~~likelihood anof ~~outside~~sale ~~contractor,~~or ~~Lonza~~license ~~Biologics~~of ~~plc. The~~the ~~manufacturing~~technology ~~agreement~~to ~~was for~~ a ~~production~~ ~~suite~~third ~~held exclusively for us~~party, ~~which~~ we ~~were not using. In addition to the absence of the~~further ~~cancellation~~determined ~~fee~~ in ~~2004,~~ the ~~decrease in the~~ three ~~and nine~~ months ended ~~September~~ June 30, 2004 asthat ~~compared to~~ the ~~same~~possibility ~~periods~~of generating inpositive ~~2003~~future ~~was~~cash ~~primarily~~flows ~~due~~from to the ~~increased~~technology ~~use~~was ofremote. As ~~our~~a ~~manufacturing~~result ~~facility~~of ~~for~~this ~~the~~determination, ~~manufacture of~~we ~~panitumumab~~recorded ~~and~~an ~~other~~impairment ~~development~~charge ~~activities,~~of ~~including~~$17.2 ~~process~~million ~~validation~~in ~~for~~ the ~~manufacture~~quarter ofended ~~panitumumab~~June ~~conformance lots~~30, 2004.

~~We expect to continue to incur manufacturing start-up~~Restructuring costs until the facility is operating closer to full utilization. For the year ending December 31, 2004, we expect manufacturing start-up costs to decrease compared to 2003 as a result of expensing the Lonza cancellation fee in 2003 and ~~the increased utilization of the facility in 2004~~Other.

~~Amortization~~In June 2005, we implemented a restructuring plan in which we decided to consolidate our research and pre-clinical activities into the facility located in Burnaby, British Columbia, and reduce our workforce by approximately 15%. As a result of ~~Identified~~the reduction ~~Intangible~~in ~~Assets~~workforce and an evaluation of our future needs, we determined that we would not occupy and would sublease, to the extent possible, certain of our research facilities. The restructuring plan was designed to focus resources on our development pipeline and particularly the potential commercial opportunity of our lead product candidate, panitumumab.

~~Our~~In ~~identified~~connection ~~intangible~~with ~~assets~~the ~~consist~~restructuring ~~primarily~~plan, ~~of existing technology (including patents and certain royalty rights)~~ we ~~acquired~~ ~~through~~recorded ~~the acquisitions of Abgenix Biopharma and IntraImmune~~ in ~~2000~~the ~~and~~second ~~JT America’s~~quarter ~~interest~~of in2005 ~~Xenotech~~total inrestructuring ~~1999. Amortization~~charges of ~~intangible assets totaled~~ $114.4 7 million, ~~and~~including $52.07 million~~, respectively,~~ ~~for~~of ~~the~~one-time ~~three~~termination ~~and nine months ended September 30~~benefits, ~~2004 and~~ $16.8 5 million of lease obligations and $5.46 million for the ~~three~~impairment ~~and~~of ~~nine~~leasehold improvements, ~~months~~equipment ~~ended~~and ~~September~~other ~~30, 2003~~assets. The ~~decrease~~one-time intermination ~~the~~benefits ~~three~~primarily ~~and~~consisted ~~nine months~~of ~~ended~~severance ~~September~~pay and 30non-cash, ~~2004~~stock-based ascompensation ~~compared to the same periods in 2003 was due~~expense. toThe asubstantial ~~reduction~~majority ~~in intangible assets due to the write-off in the second quarter~~ of ~~2004 of~~ the ~~remaining~~severance ~~value~~pay ofis ~~the~~expected ~~catalytic~~to ~~antibody~~be ~~technology~~paid ~~that we~~in ~~acquired~~full ~~through~~by the ~~acquisition~~end of ~~Hesed Biomed Inc~~2005. ~~in 2001.~~

~~General~~The $6.5 million of lease obligations represented the fair value of future lease commitment costs, net of projected sublease rental income, for the research facilities that we decided not to occupy as a result of the restructuring plan. Additionally, we recorded an impairment charge of $5.6 million to adjust the carrying value of the related long-lived assets to their estimated fair values based on our impairment evaluation in connection with the restructuring. The majority of the impairment charge was related to leasehold improvements, and ~~Administrative~~the ~~Expenses~~fair value of these leasehold improvements was estimated based upon anticipated future cash flows associated with the related facilities, discounted at an interest rate commensurate with the risks involved. A portion of the impairment charge was also related to certain lab and computer equipment and furniture and fixtures that currently do not have any anticipated future use due to the restructuring plan.

~~General~~Activities related ~~and~~to ~~administrative~~the ~~expenses~~consolidation ~~include compensation,~~of ~~professional~~our ~~services,~~research ~~consulting,~~ facilities, ~~including depreciation,~~under ~~and~~the ~~other~~restructuring plan ~~expenses~~are ~~related~~expected to ~~legal,~~continue ~~finance~~for ~~and~~the ~~information systems. General~~remainder ~~and~~of ~~administrative expenses totaled $7~~2005.7 We ~~million~~may ~~and~~incur ~~$21.0~~additional ~~million,~~costs ~~respectively,~~for in the ~~three and~~ ~~nine~~transfer ~~months~~or ~~ended~~disposal ~~September~~of 30equipment, ~~2004~~facility ~~and~~remediation ~~$7.8 million~~ and ~~$21.2~~employee ~~million,~~relocation ~~respectively, in the three and nine months ended September 30, 2003~~expenses. WeThese ~~expect~~costs ~~general~~will ~~and~~be ~~administrative costs in~~recorded in the ~~fourth~~period ~~quarter~~in ofwhich ~~2004~~they toare ~~remain~~incurred atin ~~similar~~accordance ~~levels~~with asSFAS ~~compared~~No. ~~to the first three quarters in 2004~~146.

~~Impairment~~As a result of the restructuring, we expect that certain research and development expenses, including compensation, facilities and depreciation of ~~Intangible~~property ~~Assets~~and equipment, will be lower than the current rate of spending starting in the third quarter of 2005. Compared to the amounts incurred in the first half of 2005, we expect these expenses to decrease by approximately $5 million in total in the second half of 2005. However, we also expect that the decrease in these expenses will be offset by an anticipated increase in product development expenses for the remainder of 2005, in particular joint development expenses as discussed above.

In the second quarter of 2004, we determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero. This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc. We decided to focus our resources on other research and 22

23Interest and Other Income, Net.

~~development~~Interest ~~projects~~ and other income, net, consist primarily of ~~decided~~interest tofrom ~~wind~~cash, ~~down~~cash ~~our~~equivalents ~~catalytic~~and ~~antibody~~marketable ~~program~~securities. ~~Additionally~~ Interest and other income, ~~after~~net, ~~assessing~~increased ~~the~~to ~~associated patent~~$3.0 ~~position~~million and $6.0 million, respectively, in the ~~likelihood~~three ofand ~~sale~~six ormonths ~~license~~ended ofJune ~~the~~30, ~~technology~~2005, compared to ~~a third~~$1.8 ~~party,~~million weand ~~further~~$3.5 million, ~~determined~~respectively, in the ~~quarter~~same ~~ended~~periods ~~June~~in ~~30,~~ 2004. The ~~that~~increase was primarily the ~~possibility~~ result of ~~generating~~higher interest ~~positive~~rates ~~future~~and ~~cash~~higher ~~flows~~average ~~from~~balance ~~the~~of ~~technology~~cash, ~~was~~cash equivalents and ~~remote. As~~marketable asecurities ~~result~~in the first six months of ~~this determination,~~2005 weas ~~recorded~~compared anto ~~impairment~~the ~~charge~~same period ofin ~~$17~~2004.~~2 million.~~

~~In the first quarter of 2003, we decided to~~Interest ~~discontinue the development of anti-properdin antibodies~~Expense. As a result, we recorded an impairment charge of $1.4 million for previously capitalized costs related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which we licensed from Gliatech, Inc.

Interest expense was primarily related to interest and amortization of issuance costs on our convertible notes and ~~Other~~interest ~~Income~~on the Amgen credit facility. In the three and six months ended June 30, 2005, interest expense increased to $3.7 million and $7.1 million, respectively, as compared to $1.6 million and $3.3 million, respectively, in the same periods in 2004. The increase in the three and six months ended June 30, 2005 as compared to the same periods in 2004 was primarily due to the interest related to the convertible senior notes due 2011 and the interest related to the credit facility with Amgen which was not available for advances in the first six months of 2004. A portion of the increase was offset by the reduction of interest related to the convertible subordinated notes due 2007, as $86.3 million principal amount of these notes was repurchased in December 2004. Interest expense of $0.3 and $0.5 million, respectively, was capitalized in the three and six months ended June 30, 2005, compared to $0.4 million and $0.8 million, respectively, in the same periods in 2004. In December 2004, we issued $300.0 million of convertible senior notes due 2011, which accrue interest at an annual rate of 1.75% payable semi-annually. In the three and six months ended June 30, 2005, we recorded an interest expense of $1.3 million and $2.6 million, respectively, related to the convertible senior notes due 2011 and an interest expense of $1.0 million and $2.0 million, respectively, related to the convertible subordinated notes due 2007. For each future quarterly period through March 2007, we expect to record approximately $2.3 million in interest expense related to our convertible notes, assuming that the outstanding principal amount remains unchanged at $113.8 million. We record interest at 12% on the amounts we draw on our credit facility with Amgen until we repay the balance in full. In the three and six months ended June 30, 2005, the amount of interest recorded under the Amgen arrangement was $1.2 million and $2.0 million, respectively. The amount of any such advances, plus interest, may be repaid out of profits from future product sales; however, we are generally not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization.

InterestLiquidity and otherCapital income consist primarily of interest from cash, cash equivalents and marketable securities. Interest and other income decreased to $1.3 million and $4.8 million, respectively, in the three and nine months ended September 30, 2004, compared to $2.0 million and $8.0 million, respectively, in the comparable 2003 periods. The decrease was primarily the result of lower interest rates, and lower average cash, marketable securities and cash equivalent balances.Resources

~~Interest~~At June 30, 2005, ~~Expense~~we had cash, cash equivalents and marketable securities of approximately $378.0 million. We invest our cash equivalents and marketable securities primarily in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. We have also invested in certain marketable equity securities of ImmunoGen and CuraGen for strategic reasons. These securities had an aggregate fair value of $16.3 million at June 30, 2005. We will continue to assess our cash position, and may repurchase a portion of our outstanding convertible subordinated notes due 2007.

~~Interest expense was primarily related to interest and~~Cash ~~amortization~~Used ofin ~~issuance~~Operating ~~costs on our convertible subordinated notes due 2007~~Activities. ~~In the three and nine months ended~~ ~~September~~Net ~~30,~~cash ~~2004,~~used ~~interest~~in ~~expense~~operating ~~increased~~activities towas $139.85 million and $575.05 million, ~~respectively, as compared to $1.7 million and $4.1 million~~ in the ~~same period~~six inmonths ~~2003~~ended June 30, as2005 aand ~~result~~2004, ~~of a decrease in the amount of capitalized interest~~respectively. The ~~amount of interest~~ ~~capitalized~~major ~~decreased~~components ~~in the three and nine months ended September 30, 2004 compared to the same periods in 2003 because we placed into service a portion~~ of ~~our manufacturing facility in~~ the ~~second~~changes ~~quarter of 2003 when we began manufacturing antibody therapeutic candidates~~ in ~~that~~cash ~~portion~~used ~~of the facility. Interest expense was capitalized~~ in ~~the amount~~operating ofactivities ~~$0.4 million and $1.3 million, respectively,~~ in the ~~three and nine~~six months ended ~~September~~June 30, ~~2004~~2005, compared to ~~$0.4 million and $2.1 million, respectively, in~~ the ~~comparable~~same ~~2003 periods. For each future quarterly~~ period, we expect to record approximately $1.8 million of interest expense related to our convertible subordinated notes due 2007 until the debt matures, until we redeem or repurchase the debt or until all or part of the debt is converted into shares of our common stock. Additionally, we will record interest at 12% on the amounts we draw on our credit facility with Immunex until we repay the balance in ~~full. For the quarter ended September 30,~~ 2004, ~~the~~were ~~amount of interest expense recorded was $104,000. The amount of any such advances, plus~~primarily ~~interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of~~ the ~~outstanding balance if panitumumab does not reach commercialization.~~following:

~~Foreign~~• An ~~Income~~increase ~~Tax~~of ~~Expense~~$24.1 million in our liability to Amgen under our joint development collaboration for panitumumab.

Foreign income tax expense was recorded reflecting an income tax provision on foreign contract research projects of zero in both the three and nine months ended September 30, 2004, compared to zero and $84,000, respectively, in comparable 2003 periods.23

~~Liquidity~~• Payments of ~~and~~approximately ~~Capital~~$14.0 ~~Resources~~million on the Lonza contract cancellation obligation in the first six months of 2004. This obligation was settled in the third quarter of 2004.

~~At September 30, 2004, we had cash, cash equivalents~~• An ~~and~~increase ~~marketable securities~~ of ~~approximately~~ $~~230~~3.79 million. Wein ~~invest~~research ~~our~~and ~~cash equivalents~~development and ~~marketable~~manufacturing ~~securities primarily in highly liquid, interest~~start-up ~~bearing~~costs, ~~investment~~not ~~grade~~including ~~and~~the ~~government~~Lonza ~~securities~~contract incancellation ~~order~~charge, toamortization ~~preserve~~of ~~principal.~~identified Weintangible ~~have~~assets ~~also invested in certain marketable equity securities of ImmunoGen~~ and ~~CuraGen~~depreciation ~~for~~related ~~strategic~~to ~~reasons.~~the ~~These~~development ~~securities had an aggregate fair value~~ of ~~$16~~new products.~~5 million at September 30, 2004.~~

24• An increase of $2.6 million in customer payments due primarily to the timing of payments received under our contracts.

~~Cash~~• A ~~Used~~decrease inof ~~Operating Activities. Net cash used in operating activities was~~ $~~112~~2.12 million ~~and $101.1 million~~ in the ~~nine months ended September 30, 2004, and 2003, respectively. The major components of the~~ change in ~~cash used~~ in ~~operating~~accounts ~~activities~~payable inand ~~the nine months ended September 30,~~accrued ~~2004~~liabilities, ~~compared to the same period in 2003, were primarily the following:~~net.

~~• An~~Cash ~~increase~~Used ofin and Provided by Investing Activities. Net cash used in investing activities was $1667.45 million in ~~payments~~the ~~pursuant~~six months ended June 30, 2005, compared to ~~the~~net ~~Lonza~~cash ~~contract cancellation~~provided ~~obligation. As~~by ofinvesting ~~September~~activities of $62.7 million in the six months ended June 30, 2004,. Net wecash ~~had~~used noin ~~remaining~~and ~~obligations~~provided toby ~~Lonza.~~investing activities primarily consisted of the following:

• AnCapital ~~increase~~expenditures of $62.3 million and $4.6 million in ~~research~~the ~~and~~six ~~development~~months ~~and~~ended ~~manufacturing~~June ~~start-up costs~~30, 2005 ~~not~~and ~~including~~2004, ~~the~~respectively. Capital expenditures ~~Lonza~~in ~~contract~~both ~~cancellation~~2005 ~~charge~~and in2004 ~~2003, amortization~~primarily consisted of ~~identified~~investments ~~intangible~~in construction ~~assets~~in progress and ~~depreciation~~equipment ~~related~~for toour ~~the~~manufacturing facility and ~~development~~investments ofin ~~new~~lab ~~products~~equipment and software.

• APurchases, ~~decrease~~net of maturities and sales, of marketable securities of $565.93 million in ~~customer~~the six ~~payments~~months ~~due~~ended ~~primarily~~June 30, 2005, compared to ~~the~~maturities ~~timing~~and sales, net of ~~payments~~purchases, ~~received~~of ~~under~~marketable ~~our~~securities ~~contracts~~of $67.2 million in the six months ended June 30, 2004.

~~• An~~Cash ~~increase~~Provided inby ~~our~~Financing ~~liability~~Activities. During tothe ~~Immunex~~six ofmonths ended June 30, 2005 and 2004, net cash provided by financing activities was $63.49 million ~~under~~and ~~the joint~~$3.2 ~~development~~million, ~~agreement.~~respectively, consisting of the following:

• ~~Accounts~~$1.7 ~~payable~~million ~~decreased~~from ~~$14.6~~the ~~million~~issuance ~~less~~of ~~during~~common ~~the~~stock ~~first~~in ~~nine~~connection ~~months~~with ofan ~~2004~~extension ~~than~~of a ~~during~~technology ~~the~~licensing ~~same~~agreement ~~period~~by Genentech in ~~2003~~the first quarter of 2005.

• ~~Prepaid~~$2.2 ~~expenses~~million and ~~other~~$3.2 ~~current~~million ~~assets,~~from ~~net~~the ~~decreased~~issuance ~~$7.3~~of ~~million~~common ~~more~~stock ~~during~~upon the ~~first~~exercise of ~~nine~~stock ~~months~~options ofand ~~2004~~under ~~than~~our ~~during~~employee ~~the~~stock ~~same~~purchase ~~period~~plan in ~~2003~~the first six months of 2005 and 2004, respectively.

~~Cash~~Financing ~~Provided~~Uncertainties byRelated ~~and~~to ~~Used~~Our inBusiness ~~Investing Activities~~Plan. ~~Net~~We ~~cash~~plan ~~provided~~to bycontinue ~~investing~~to ~~activities~~make ~~was~~significant ~~$104.6~~expenditures ~~million~~to instaff ~~the~~and ~~nine~~operate ~~months~~our ~~ended~~own ~~September~~manufacturing ~~30,~~facility ~~2004~~and support our research and development activities, ~~compared~~including topreclinical ~~$88.8~~product ~~million~~development ofand ~~net~~clinical ~~cash~~trials. ~~used~~We inalso ~~investing~~intend ~~activities~~to inlook ~~the~~for ~~nine~~opportunities ~~months~~to acquire ~~ended~~new ~~September~~technology 30through in-licensing, ~~2003.~~collaborations ~~Net~~or ~~cash~~acquisitions. We ~~provided~~may byspend ~~and used~~additional inamounts ~~investing~~to ~~activities~~support new ~~consisted~~production ~~primarily~~services ~~of the following:~~contracts.

~~• Capital~~We currently intend to use our available cash on hand ~~expenditures~~to offinance ~~$6.9~~these ~~million~~projects and ~~$27.6 million~~business indevelopments, ~~the~~but ~~nine~~we ~~months~~might ~~ended~~also pursue ~~September~~other 30financing alternatives, ~~2004~~such ~~and~~as ~~2003~~equity, ~~respectively.~~equity-linked ~~The~~debt ~~investments~~or indebt financing, ~~2004~~a ~~reflect~~bank line of credit, sale-lease back financing, asset sales, ~~primarily~~funding ~~investment~~by inone ~~construction~~or inmore ~~progress~~collaborators ~~and~~or ~~equipment~~a ~~for~~mortgage ~~our~~financing, that may become ~~manufacturing~~available ~~facility~~to us. We have filed with the Securities and ~~investments~~Exchange Commission a currently effective shelf registration through which we may offer for sale from time to time up to $250 million in ~~lab~~equity ~~equipment~~or debt securities. ~~The~~ ~~investments~~Whether inwe ~~2003~~use ~~reflect~~cash ~~primarily~~on hand or choose to obtain financing will ~~investment~~depend inon, ~~construction~~among inother ~~progress~~things, ~~and~~the ~~equipment~~future ~~for~~success of our ~~new~~business, ~~manufacturing~~the ~~facility~~prevailing interest rate environment and the condition of financial markets generally.

• Sales and maturities, net of purchases, of marketable securities of $111.5 million during the nine months ended September 30, 2004, compared to purchases, net of sales and maturities of marketable securities of $61.2 million during the same period in 2003.24

~~Cash~~In October 2003, we entered into an amendment of our ~~Provided~~joint bydevelopment ~~Financing~~and ~~Activities~~commercialization agreement with Amgen for the co-development of panitumumab. ~~During~~Under the agreement, ~~nine~~Amgen ~~months~~is ~~ended~~obligated ~~September~~to ~~30,~~ make available in 2004 and ~~2003,~~2005 ~~net~~up ~~cash~~to ~~provided~~$60.0 million byin ~~financing~~advances ~~activities~~that ~~was~~we may use to fund a portion of our share of development and commercialization costs after we have contributed $320.30 million toward ~~and~~development costs in 2004. As of June 30, 2005, we had a carrying balance of $152.78 million, ~~respectively,~~which ~~consisting~~consisted of $50.3 ~~proceeds~~million ~~from~~in ~~the~~advances ~~issuance~~and $2.5 million of ~~our~~accrued interest, and expect to ~~common~~draw ~~stock~~an ~~upon~~additional ~~exercise~~$2.7 ofmillion ~~stock~~under ~~options~~this ~~and~~facility ~~pursuant~~in August 2005. We expect to ~~our~~continue ~~employee~~to ~~stock~~make use of this ~~purchase~~credit ~~plan~~facility in 2005 up to the $60.0 million limit.

~~In October~~The ~~2003,~~amounts inof ~~connection~~the ~~with~~expenditures athat ~~collaboration~~will ~~agreement,~~be ~~we entered into a~~necessary ~~securities~~to ~~purchase~~execute ~~agreement~~our ~~with~~business ~~AstraZeneca.~~plan ~~Pursuant~~are tosubject ~~the agreement, we issued~~ to ~~AstraZeneca~~numerous ~~$50.0~~uncertainties ~~million~~that ofmay adversely ~~Series~~affect ~~A-1~~our ~~convertible~~liquidity ~~preferred stock~~ and ~~$50.0~~capital ~~million~~resources ofto ~~Series~~a ~~A-2~~significant ~~convertible preferred stock~~extent. ~~The~~ As ~~net~~of ~~proceeds~~June ~~from~~30, ~~the~~2005, ~~securities~~two ~~were $99.7~~of ~~million. Pursuant~~our toproprietary ~~its~~product ~~terms~~candidates, ~~the~~ ~~Series~~panitumumab Aand ABX-210241 ~~preferred~~were ~~stock~~in ~~was~~various ~~redeemed~~stages atof ~~the~~clinical ~~option~~trials. The ofclinical ~~AstraZeneca~~trials ~~in February~~of ~~2004~~panitumumab and ABX-10241 weare ~~issued~~expected ~~AstraZeneca~~to arequire ~~convertible~~significant ~~subordinated~~expenditures ~~note~~in ~~with~~the aforeseeable ~~principal~~future. Completion ~~amount~~ of ~~$50.0~~clinical ~~million,~~trials may ~~which~~take ~~matures~~several onyears ~~October~~or 29more, ~~2013. No~~but ~~interest is payable on~~ the ~~note~~length ~~except in the event~~ of atime ~~payment~~generally ~~default by us.~~ varies ~~The~~substantially ~~Series~~according ~~A-1 preferred stock matures seven years from the date of issuance. Due~~ to the ~~redemption~~type, ~~feature~~complexity, we donovelty ~~not~~and ~~record~~intended ~~the~~use ~~redeemable~~of ~~convertible preferred stock in stockholders’~~a ~~equity~~product ~~on our consolidated balance sheet~~candidate. ~~Subject~~ toWe ~~various~~estimate ~~terms~~that ~~and~~clinical ~~conditions,~~trials ifof athe ~~certain~~type ~~milestone~~we ~~event is~~generally ~~reached,~~conduct weare ~~will~~typically ~~have~~completed over the ~~option~~following ~~to issue to AstraZeneca up to $30.0 million of Series A-3 preferred~~timelines:

Clinical Phase		Estimated Completion Period

Phase 1		1-2 Years
Phase 2		1-2 Years
Phase 3		2-4 Years

~~stock~~Completion of clinical ~~and~~trials ifmay atake ~~further~~several ~~milestone~~years ~~event~~or ismore. The ~~reached,~~length weof ~~will~~time ~~have~~generally ~~the~~varies ~~option~~substantially toaccording ~~issue~~ to ~~AstraZeneca~~the uptype, complexity, tonovelty ~~$30.0~~and ~~million~~intended use of ~~Series~~the ~~A-4~~product ~~preferred stock~~candidate. ~~Each~~The ~~of the~~duration ~~Series A-3 preferred stock~~ and the ~~Series~~cost ~~A-4~~of ~~preferred~~clinical ~~stock will have a~~trials ~~maturity~~may ~~date~~vary ~~that~~significantly isover ~~five~~the ~~years~~life ~~from~~of ~~issuance~~a project.

~~Subject~~We totest ~~certain~~our ~~conditions,~~potential weproduct ~~can convert~~candidates ~~the~~in ~~preferred stock and can convert the convertible subordinated note~~numerous ~~into~~preclinical ~~shares~~studies ~~of our common stock at a conversion price equal~~ to ~~the~~identify ~~lower~~disease ofindications ~~(a) the average market price~~ for ~~the~~possible ~~10 days prior to the trading day immediately~~therapeutic ~~preceding~~application. ~~the~~We ~~conversion~~may ~~date~~conduct ~~(provided~~multiple ~~that~~clinical ~~the~~trials ~~average market price shall in no event be higher than 101% of the market price~~ on ~~the~~our ~~trading~~own ~~day immediately preceding the conversion date)~~ or ~~(b)~~with ~~$30.00 per share. AstraZeneca~~our ~~may~~collaborators ~~convert the preferred stock into shares of common stock at a conversion price of $30.00 per share, at any time prior~~ to ~~the~~cover ~~earlier of (~~a) ~~the redemption~~variety ~~date or (b) the maturity date. AstraZeneca may convert the convertible subordinated note into shares~~ of ~~common~~ ~~stock~~indications atfor aeach ~~conversion~~product ~~price of $30~~candidate.00 ~~per share, at any time prior to~~As ~~the~~we ~~repayment~~obtain ofresults ~~the~~from ~~principal amount of the note. We must redeem all outstanding shares of the Series A-1 preferred stock~~trials, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we ~~can,~~may ~~upon~~elect ~~at least 15 days’ notice~~ to ~~the~~discontinue ~~holder,~~clinical ~~redeem~~trials ~~the shares of Series A-1 preferred stock~~ for ~~cash~~ incertain anproduct ~~amount~~candidates ~~equal~~or tofor ~~its~~one ~~liquidation~~or ~~preference~~more atindications ~~any~~for ~~time~~a ~~prior~~given toproduct ~~maturity. We~~candidate ~~can, upon at least 15 days’ notice to the holder, repay the principal amount of the convertible subordinated note~~ in ~~cash,~~order ~~at any time prior~~ to ~~maturity. In~~focus ~~addition~~our toresources ~~the~~on ~~mandatory redemption~~more ~~and~~promising ~~maturity~~product ~~dates of these securities, certain events can give rise~~candidates toor ~~an earlier redemption~~indications. ~~In certain circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.~~

InAn ~~March 2002, we~~important ~~issued~~element ~~$200.0 million principal amount~~ of ~~convertible~~our ~~subordinated~~business ~~notes~~strategy inis ~~a private~~to ~~placement.~~pursue ~~The~~the ~~notes~~research ~~are~~and ~~convertible~~development ~~into shares~~ of ~~our common stock at~~ a diverse ~~conversion~~range ~~price~~ of ~~$27.58~~product ~~per~~candidates ~~share~~for ~~subject~~a tovariety ~~certain~~of ~~adjustments~~disease indications. ~~The~~ ~~notes accrue interest at an annual rate~~We ofmay ~~3.5%~~enter ~~and~~joint wedevelopment ~~are~~agreements, ~~obligated~~similar to ~~pay~~our ~~interest~~agreement onwith ~~March~~Amgen ~~15 and September 15 of~~for ~~each year. The notes will mature on March 15~~panitumumab, ~~2007~~ and ~~are~~may ~~redeemable~~enter atinto ~~our~~additional ~~option~~joint ondevelopment oragreements ~~after March 20, 2005, or~~ earlier in if the ~~price~~development oflife ~~our~~cycle ~~common~~of ~~stock~~product ~~exceeds specified levels~~candidates. In ~~addition,~~We ~~the~~have ~~holders~~begun ofto ~~the~~implement our ~~notes~~collaboration ~~may require~~strategy usthrough toco-development ~~repurchase~~arrangements ~~the~~with ~~notes~~companies such ifas weChugai, ~~undergo~~U3, aMicroscience, ~~change~~Sosei inand ~~control~~Dendreon. ~~Proceeds~~ ~~from~~Our ~~the~~strategy ~~sale~~is ~~of the notes, net of~~designed ~~commissions payable~~ to ~~the~~diversify ~~initial purchasers of~~ the ~~notes~~risks ~~but~~associated ~~before subtracting~~with ~~other~~our ~~offering~~research ~~expenses~~and ~~payable~~development ~~by us, were $194~~spending.~~0 million.~~

InOur ~~March 2000~~proprietary ~~and~~product candidates ~~February 2001~~also have not yet achieved FDA regulatory approval, wewhich ~~obtained~~is ~~stand-by~~required ~~letters~~before ofwe ~~credit~~can ~~for~~market ~~$2.0~~them ~~million~~as ~~and~~therapeutic $3products.~~0 million,~~ ~~respectively, from~~In aorder ~~commercial~~to ~~bank~~proceed to assubsequent ~~security~~clinical ~~for~~trial ~~our~~stages ~~obligations~~and ~~under~~to ~~two~~ultimately ~~facility~~achieve regulatory ~~leases.~~approval, ~~These~~the ~~were~~FDA ~~increased~~must inconclude ~~January~~that ~~2002~~our toclinical ~~$2.5~~data ~~and~~establish $3safety and efficacy.2 ~~million~~The number, ~~respectively,~~ insize ~~connection~~and ~~with~~type ~~amendments~~of toclinical ~~our~~trials ~~facility~~we ~~leases.~~conduct Infor ~~2003,~~a ~~the~~particular ~~$3.2~~product ~~million~~candidate ~~stand-~~are also affected by ~~letter~~the policies of ~~credit~~the ~~increased~~FDA toand European ~~$3.5~~regulatory ~~million. The~~agencies ~~outstanding~~regarding ~~stand-by~~the ~~letters~~availability of ~~credit~~possible expedited ~~are~~approval ~~secured~~procedures, bywhich anwe ~~investment~~may ~~account,~~seek into ~~which~~utilize. These wepolicies ~~must~~may ~~maintain~~change afrom ~~balance~~time ~~of approximately~~to $7time.~~0 million.~~

~~Financing Uncertainties~~Furthermore, ~~Related to Our Business Plan. We plan to continue to make significant expenditures to staff and operate~~ our ~~own manufacturing facility and support~~business ~~our~~strategy ~~research~~includes ~~and~~the ~~development~~option ~~activities,~~of ~~including~~entering ~~preclinical~~into ~~product development~~arrangements ~~and~~with ~~clinical~~third ~~trials. We also intend~~ parties to ~~look~~collaborate ~~for opportunities to acquire new technology through~~ in~~-licensing,~~ ~~collaborations or acquisitions. For~~ the ~~full~~development ~~year 2004 we estimate that we will spend no more than $12 million on leasehold improvements, equipment, computer hardware~~ and ~~software~~commercialization ~~for~~of our ~~new manufacturing and our research and development facilities~~products. ~~Additionally,~~ weIn ~~may spend additional amounts to support new production~~the ~~services~~event ~~contracts.~~that third

We currently intend to use our available cash on hand to finance these projects and business developments, but we might also pursue other financing alternatives, such as equity, equity-linked debt or debt financing, a bank line of credit, sale-lease back financing, asset sales, funding by one or more collaborators or a mortgage financing, that may become available to us. We have a currently effective shelf registration that allows us to issue from time to time up to $250 million in equity or debt securities. Whether we use cash on hand or choose to obtain financing will depend on, among other 25

26parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, or the extent to which third parties may control clinical trials pursuant to such arrangements, and how such arrangements would affect our capital requirements.

~~things~~As a result of the uncertainties discussed above, among others, the ~~future success~~duration and completion costs of our ~~business~~research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements when appropriate, ~~the~~could ~~prevailing~~significantly ~~interest~~increase ~~rate~~our capital ~~environment~~requirements and ~~the~~could adversely impact our liquidity. These ~~condition~~uncertainties could force us to seek additional sources of ~~financial~~financing ~~markets~~from ~~generally~~time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

~~The~~We ~~amounts~~also ofmay ~~the expenditures that will~~ be ~~necessary~~required to ~~execute~~make ~~our~~further ~~business~~substantial plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent. As of September 30, 2004, three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH were in various stages of clinical trials. The clinical trials of panitumumab, ABX-MA1 and ABX-PTH are expected to require significant expenditures ~~for~~if ~~the foreseeable~~unforeseen ~~future. In~~difficulties ~~October~~arise 2003, we entered into an amendment of our joint development and commercialization agreement with Immunex for the co-development of panitumumab. Under the amended agreement, Immunex is obligated to make available up to $60.0 million in ~~advances that we may use to~~ ~~fund~~other aparts ~~portion~~ of our ~~share of development and commercialization costs after we have contributed $20~~business.0 million toward development costs in 2004. We have drawn $6.3 million under this credit facility and have notified Immunex of our intent to draw a cash advance of an additional $13.3 million. We expect to continue to make use of this credit facility in 2004 and thereafter up to the $60.0 million limit. The amount and timing of our use of the facility is dependent on the development and related activities directed by Immunex and their cost.

~~Completion~~We ofbelieve ~~clinical~~that our ~~trials~~current ~~may~~cash ~~take~~balances, ~~several~~cash ~~years or~~equivalents, ~~more~~marketable securities, ~~but~~and the cash ~~length~~generated from our licensing and other agreements will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business discussed above, among others, we cannot assure you that this will be the case. In addition, we may choose to, or prevailing business conditions may require us to, obtain additional financing from time ~~generally~~to ~~varies~~time. ~~substantially~~We ~~according~~may choose to ~~the~~raise additional funds through public or ~~type~~private financing, ~~complexity~~licensing and other agreements or other arrangements. We cannot be sure that any additional funding, ~~novelty~~if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and ~~intended~~debt financing, ~~use~~if ofavailable, amay ~~product~~subject ~~candidate~~us to restrictive covenants. We ~~estimate~~may also ~~that~~choose ~~clinical~~to ~~trials~~obtain funding through collaborations, licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of ~~the~~our ~~type~~technologies, weproducts ~~generally~~or ~~conduct~~marketing ~~are~~territories. ~~typically~~Our failure ~~completed~~to raise capital when needed would harm our business, financial ~~over~~condition ~~the~~and ~~following~~results ~~timelines:~~of operations.

Clinical Phase		Estimated Completion Period
Phase 1		1-2 Years
Phase 2		1-2 Years
Phase 3		2-4 Years

History of Net Losses. We have incurred net losses since our organization as an independent company, including in the last five years net losses of $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $187.5 million in 2004, and $126.8 million in the six months ended June 30, 2005. As of June 30, 2005, our accumulated deficit was $879.0 million. Our losses to date have resulted principally from:

~~However, the~~• research ~~duration~~ and ~~the~~development ~~cost~~costs ofrelating ~~clinical~~to ~~trials may vary significantly over~~ the ~~life of~~development ~~a project as a result~~ of ~~differences~~our ~~arising~~XenoMouse ~~during~~and ~~the clinical trials,~~XenoMax ~~including,~~technologies ~~among~~and ~~others,~~antibody ~~the~~therapeutic ~~following:~~product candidates;

• ~~the~~ manufacturing ~~number~~start-up ofcosts ~~patients~~relating ~~that~~to ~~ultimately~~our ~~participate~~new inmanufacturing ~~the~~facility ~~trial~~including depreciation, ~~which~~costs ~~may~~of ~~be affected~~outside bycontractors ~~the~~and ~~availability~~personnel offor ~~competing~~quality ~~therapeutic~~assurance and ~~alternatives~~quality control activities;

• ~~the~~ general ~~duration~~and ofadministrative ~~patient~~costs ~~follow-up~~relating ~~that~~to ~~seems~~our ~~appropriate in view of the results~~operations;

• ~~the number~~ impairment ofcharges ~~clinical~~relating to ~~sites~~our ~~included~~strategic investments in ~~the~~CuraGen, ~~trials~~ImmunoGen and MDS Proteomics; and

• ~~the~~ impairment charges relating ~~length~~to ofacquired ~~time~~technologies, ~~required~~including toour ~~enroll~~SLAM ~~suitable~~technology ~~patient~~and ~~subjects~~technologies in the fields of intrabodies and catalytic antibodies.

We test our potential product candidates in numerous preclinical studies to identify disease indications for which they may be product candidates. We may conduct multiple clinical trials on our own or with our collaborators to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for one or more indications for a given product candidate in order to focus our resources on more promising product candidates or indications. For example, in January 2002 and May 2002, we announced that clinical trials of our proprietary product candidate ABX-IL8 as a treatment for rheumatoid arthritis and psoriasis, respectively, did not support further clinical studies of that product candidate. Additionally in February 2003, we announced that the clinical trial of our proprietary product candidate ABX-CBL as a treatment for graft versus host disease, did not support further clinical studies of that product candidate.26

27We expect to incur additional losses for the foreseeable future as a result of our research and development costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, charges related to purchases of technology or other assets, and costs associated with establishing and operating our manufacturing facilities. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing and other agreements, and the initiation, and success or failure, of clinical trials.

AnNet Operating ~~important~~Loss Carryforwards. ~~element~~As of ~~our~~December ~~business~~31, ~~strategy~~2004, iswe tohad ~~pursue~~net ~~the~~operating ~~research~~loss ~~and~~carryforwards ~~development of a~~for ~~diverse~~federal ~~range~~and ofstate ~~product~~income ~~candidates~~tax ~~for~~purposes ~~a variety~~ of ~~disease~~approximately ~~indications~~$670.0 million Weand ~~may~~$194.0 ~~enter co-development agreements~~million, ~~similar~~respectively. Our ~~to our agreement with Immunex for~~net ~~panitumumab,~~operating ~~and~~loss ~~may~~carryforwards ~~enter~~exclude ~~into~~losses ~~additional~~incurred ~~joint~~prior ~~development~~to ~~agreements~~our ~~earlier in~~formation ~~the development life cycle of product candidates~~in July 1996. WeFurther, ~~are~~we ~~implementing~~have ~~our collaboration~~capitalized ~~strategy~~the ~~through~~amounts ~~co-development~~associated ~~arrangements~~ with ~~companies such~~the as1997 ~~Chugai,~~patent U3cross-license and ~~Dendreon.~~settlement ~~Our~~agreement ~~strategy~~with isGenPharm, ~~designed~~which towe ~~diversify~~have expensed ~~the~~for ~~risks associated~~financial ~~with~~statement ~~our~~accounting ~~research~~purposes and ~~development~~we ~~spending.~~are ~~The decisions to~~amortizing ~~terminate~~those oramounts ~~wind~~over ~~down~~a ~~our~~period ~~clinical~~of ~~programs~~approximately 15 years for ~~developing~~tax ~~ABX-IL8 and ABX-CBL~~purposes. ~~have~~The ~~reduced~~federal ~~the~~and ~~diversity~~state ofnet ~~our~~operating ~~product~~loss ~~portfolio.~~and Wecredit ~~believe~~carryforwards ~~that~~will ~~this~~expire ~~effect~~in isthe ~~temporary~~years in2006 ~~view~~through of2024, ~~the~~if ~~number~~not ~~and~~utilized. ~~diversity~~Utilization of ~~potential~~the ~~product~~net ~~candidates~~operating welosses ~~have~~and incredits ~~preclinical~~may ~~development. For~~be ~~example,~~subject weto ~~advanced~~a ~~ABX-PTH~~substantial ~~from~~annual ~~the~~limitation due ~~preclinical~~to ~~stage~~the ~~into~~“change ~~a clinical study~~ in ~~patients~~ownership” ~~with~~provisions ~~secondary~~of ~~hyperparathyrodism. To~~ the ~~extent,~~Internal ~~however,~~Revenue ~~that~~Code ~~we are unable to~~of ~~maintain~~1986 ~~a diverse~~ and ~~broad~~similar ~~range~~state ofprovisions. ~~product~~The ~~candidates,~~annual ~~our~~limitation ~~success~~may ~~would depend~~result toin ~~a greater extent on~~ the expiration ~~success~~ of ~~one~~net oroperating alosses ~~few~~and ~~product~~credits ~~candidates~~before utilization.

~~Our~~Critical ~~proprietary~~Accounting product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. The number, size and type of clinical trials we conduct for a particular product candidate are also affected by the policies of the FDA and European regulatory agencies, including their policies regarding clinical trial design and the availability of possible expedited approval procedures, which we may seek to utilize. These policies may change from time to time. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. In addition, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.Estimates

~~Furthermore,~~Several ~~our business~~estimates ~~strategy~~and ~~includes~~judgments ~~the~~involved ~~option~~in ~~of entering into arrangements with third~~the ~~parties~~application toof ~~collaborate~~accounting inprinciples impact the ~~development~~financial ~~and~~results ~~commercialization~~that ~~of our~~we ~~products~~report. We Inare ~~the~~required ~~event~~to ~~that~~estimate ~~third parties take over~~ the ~~clinical trial process~~ ~~for~~effect ~~one~~ of ~~our~~matters ~~product~~that ~~candidates,~~are ~~the~~inherently ~~estimated~~uncertain. Changes ~~completion~~in ~~date~~our ~~would~~estimates ~~largely~~or judgments could bematerially ~~under~~impact ~~the~~our ~~control~~results of ~~that~~operations, ~~third~~financial ~~party~~condition ~~rather~~and ~~than~~cash ~~us. We cannot forecast~~flows ~~with~~in ~~any~~future ~~degree~~years. We ofbelieve ~~certainty~~our ~~which~~most critical ~~proprietary~~accounting ~~products~~estimates orinclude ~~indications~~revenue recognition, ifaccounting ~~any,~~for ~~will~~equity ~~be subject to future collaborative arrangements~~investments, ingoodwill ~~whole~~and oridentified inintangible ~~part~~assets, orrestructuring ~~the~~charges, ~~extent~~income totaxes ~~which third parties may control clinical trials pursuant to such arrangements,~~ and ~~how~~stock ~~such~~option ~~arrangements would affect our capital requirements~~valuation.

AsRevenue a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.Recognition

We ~~also~~derive ~~may~~our becontract revenue from license, option, ~~required~~service toand ~~make~~milestone ~~further~~fees ~~substantial~~received ~~expenditures~~from ifcustomers. ~~unforeseen~~Services ~~difficulties~~include those ~~arise~~performed inunder ~~other~~our ~~parts~~technology ofout-licensing ~~our~~and ~~business~~production services agreements. As Indescribed ~~particular~~below, ~~our~~within the ~~future~~framework ~~liquidity~~of generally accepted accounting principles, significant management judgments and estimates must be made and applied in connection with ~~capital~~the ~~requirements~~revenue ~~also~~recognized ~~will~~in ~~depend~~any onaccounting ~~many~~period. ~~factors~~If ~~including:~~our management made different judgments or utilized different estimates, material differences could result in the amount and timing of our revenue in any period.

• We enter into revenue arrangements with multiple deliverables in order to meet our customer’s needs. For example, the ~~scope~~arrangements ~~and~~may ~~results~~include a combination of ~~preclinical~~up-front fees, license payments, research and development services, milestone payments, future royalties, and manufacturing ~~clinical~~arrangements. Multiple element ~~trials;~~revenue agreements entered into on or after July 1, 2003 are evaluated under Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple Deliverables,” or EITF 00-21, to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists. Deliverables in an arrangement that do not meet the separation criteria in EITF 00-21 must be treated as one unit of accounting for purposes of revenue recognition. Generally, the revenue recognition guidance applicable to the final deliverable is followed for the combined unit of accounting. For certain arrangements, the period of time over which certain deliverables will be provided is not contractually defined. Accordingly, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For example, during the three and six months ended

2827

~~• the~~June 30, 2005, we ~~retention~~recognized revenue of ~~existing~~approximately $83,000 and ~~establishment~~$198,000, respectively, related to arrangements for which the period of ~~further~~time coover which the research will be performed was not contractually defined. For these arrangements, we are amortizing up-~~development~~front fees over the 15- to 20-month period of time defined in the research plan established by us and our customer. As of June 30, ~~licensing~~2005, ~~manufacturing~~approximately $47,000 remained in deferred revenue related to these arrangements. In addition, during the three and ~~other~~six ~~agreements~~months ended June 30, if2005, ~~any;~~we recognized revenue of approximately $174,000 and $349,000, respectively, related to an arrangement for which the period of time of continuing obligation is dependent upon the timing of product commercialization. The length of time necessary to complete preclinical and clinical testing, and to obtain marketing approval to commercialize a product, varies substantially according to the type, complexity, novelty and intended use of the product candidate, and many factors may delay commercialization. If the date of the product commercialization is delayed by one year, the amount of revenue recognized in 2005 would be approximately $0.6 million, as opposed to $0.7 million under our current estimate. As of June 30, 2005, approximately $3.8 million remained in deferred revenue related to this arrangement. To date, there has not been a change in an estimate or assumption in the past that had a material impact on revenue recognition.

~~• continued~~Accounting for ~~scientific~~Equity ~~progress in our research and development programs;~~Investments

• Unrealized holding gains and losses related to our marketable equity investments are reported as a component of stockholders’ equity. We recognize an impairment charge when the ~~size~~declines ~~and~~in ~~complexity~~the fair values of these ~~programs;~~investments below their cost basis are deemed to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the current financial condition of the investee and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

~~• the~~Accounting for ~~cost~~Goodwill ~~of operating our manufacturing facility~~ and ~~complying~~Identified ~~with~~Intangible ~~good manufacturing practice regulations;~~Assets

• As a result of the adoption of SFAS No. 142, “Goodwill and Other ~~cost~~Intangible Assets,” in 2002, we no longer amortize goodwill but instead review goodwill for impairment on an annual basis, or sooner if indications of impairment ~~conducting~~exist. ~~commercialization~~Under ~~activities~~our accounting policy, we have adopted the beginning of the fourth quarter as an annual goodwill impairment test date. Following this approach, we compare the carrying values available as of September 30 with the estimated fair value of the reporting unit to assess if there has been a potential impairment, and, if ~~arrangements;~~impairment is indicated, complete the measurement of impairment under the procedures established by SFAS 142. Because we have determined that we have one reporting unit under SFAS No. 142, our market capitalization is considered to be a reasonable proxy for the fair value of the reporting unit. We also consider whether current business and general market conditions suggest that the fair value of the reporting unit has likely declined below its carrying value. As of June 30, 2005, no impairment has occurred.

• If we were to determine in a future period that an impairment of goodwill existed, the impairment measurement procedures could result in a charge for the ~~time~~impairment ~~and~~of ~~expense~~goodwill. Furthermore, a ~~involved~~change in ~~seeking~~our ~~regulatory~~determination ~~approvals;~~of reporting units could result in a charge for the impairment of goodwill in future periods. A change in the determination of reporting units could occur should we reorganize into reporting units such that each unit constitutes a business for which discrete financial information is available that is regularly reviewed by management to evaluate the performance of that unit. As of June 30, 2005, the carrying value of our goodwill was $34.8 million.

~~• competing~~Under SFAS No. 144, “Accounting for the Impairment or Disposal of ~~technological~~Long-Lived Assets,” identified intangible assets held and ~~market~~used ~~developments;~~must be tested for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount is determined to be not recoverable when the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount. Factors that are considered important in determining whether impairment might exist include a significant change in the

~~• the time and expense of filing and prosecuting patent applications, and enforcing and defending against patent claims;~~28

~~• our investment~~manner in which an asset is being used, a significant adverse change in legal factors or ~~acquisition~~the business climate that could affect the value of an asset, including ~~other~~an ~~companies;~~adverse action or assessment by a regulator, or a current expectation that, more likely that not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life. If it is determined that an impairment indicator exists and the asset is not recoverable, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset.

• In the second quarter of 2005, we determined that impairment indicators ~~amount~~existed with respect to our SLAM and intrabody technologies. We then estimated the undiscounted future cash flows from the use of ~~product~~the SLAM technology and found that the carrying value was not recoverable. Because neither quoted market prices or comparables were available, we estimated the fair value of the SLAM technology based on the net present value of its future cash flows, or $2.0 million. As a result, we recorded an impairment charge of $23.1 million. Future cash flows associated with the SLAM technology are estimated based on future cost savings from using the SLAM technology. Significant assumptions used in~~-licensing~~ this estimate include the number of programs that would use the SLAM technology, cost savings per each program, the life of the SLAM technology, the discount rate and the income tax effect. If one or more of these assumptions changes significantly in ~~which~~a wefuture period ~~engage;~~and it is determined at that time that the carrying value of the SLAM technology is not recoverable, further impairment charge may be recognized. Because future cash flows estimated to be generated from the intrabody technology were determined to be remote, the fair value was determined to be zero and the remaining carrying value of $1.9 million was written off.

~~• other factors~~In ~~not~~the ~~within~~second quarter of 2004, we determined that an impairment of our catalytic ~~control~~antibody technology had occurred. Because future cash flows estimated to be generated from the catalytic antibody technology were determined to be remote, the fair value was determined to be zero, and the remaining carrying value of $17.2 million was written off.

WeIf ~~believe~~we ~~that our~~were ~~current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other agreements will be sufficient~~ to ~~meet~~ ~~our~~determine ~~operating and capital requirements for at least one year. However, because of the uncertainties~~ in ~~our~~a ~~business~~future ~~discussed~~period ~~above, among others, we cannot assure you~~ that ~~this~~an ~~will~~impairment ~~be the case. In addition, we may choose to, or~~of ~~prevailing~~intangible ~~business~~assets ~~conditions~~has ~~may require us to~~occurred, ~~obtain~~the ~~additional~~impairment ~~financing from~~measurement ~~time~~procedures ~~to time. We may choose to raise additional funds through public or~~could ~~private~~result ~~financing,~~in ~~licensing~~a ~~and~~charge ~~other~~for ~~agreements,~~the ~~asset~~impairment ~~sales~~of orlong-lived ~~other arrangements~~assets. As Weof ~~cannot be sure that any additional funding~~June 30, ~~if needed~~2005, ~~will~~the ~~be available~~carrying ~~on terms favorable to us or at all. Furthermore, any additional~~value ~~equity~~of ~~or equity-related financing may be dilutive to~~ our ~~stockholders,~~identified ~~and debt~~intangible ~~financing,~~assets ifwas ~~available, may subject us to restrictive covenants and significant interest costs~~$32.1 ~~We may also choose to obtain funding through collaborations~~million, ~~licensing~~consisting ~~and~~primarily ~~other contractual arrangements. Such agreements may require us to relinquish our rights to certain~~ of ~~our technologies,~~ ~~products~~the orXenoMouse ~~marketing territories~~technology. ~~Our failure to raise capital when needed would harm our business, financial condition and results of operations.~~

~~History~~Restructuring of Net Losses. We have incurred net losses since our organization as an independent company, including in the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $144.6 million in the nine months ended September 30, 2004. As of September 30, 2004, our accumulated deficit was $709.4 million. Our losses to date have resulted principally from:Charges

• In June 2005, we implemented a restructuring plan in which we decided to consolidate our research and ~~development~~pre-clinical activities into our facility located in Burnaby, ~~costs~~British ~~relating~~Columbia, toand reduce our workforce by approximately 15%. As a result of the ~~development~~reduction in workforce and an evaluation of our ~~XenoMouse~~future needs, we determined that we would not occupy and would ~~XenoMax~~sublease, ~~technologies~~to the extent possible, certain of our research facilities. The restructuring plan was designed to focus resources on our development pipeline and particularly the potential commercial ~~antibody~~opportunity ~~therapeutic~~of our lead product ~~candidates;~~candidate, panitumumab.

~~• general~~In accordance with SFAS No. 146, we recorded in the second quarter of 2005 restructuring charges of $14.7 million in total, including $2.7 million of one-time termination benefits, $6.5 million of lease obligations and ~~administrative~~$5.6 million for impairment of leasehold improvements and other assets. Lease obligations of $6.5 million represented the fair value of future lease commitment costs, ~~relating~~net of projected sublease rental income, for the research facilities that we decided not to ~~our~~occupy ~~operations;~~as a result of the restructuring. The estimated future cash flows used in the fair value calculation are based on certain estimates and assumptions by management, including the projected sublease rental income, the amount of time the space will be unoccupied prior to sublease and the length of any subleases.

~~• impairment~~It is possible that our estimates and assumptions may ~~charges~~change ~~relating~~in the future, resulting in adjustments to the estimated sublease income, and the effect of any adjustments could be significant. If the sublease rental rates would differ from our ~~strategic~~assumptions ~~investments~~by approximately 10% in ~~CuraGen~~either direction, ~~ImmunoGen~~the ~~and~~liability related ~~MDS~~to lease obligations as of June 30, 2005 would be increased and ~~Proteomics;~~decreased by

~~• impairment~~approximately $0.6 ~~charges~~million ~~relating~~and to$1.0 ~~technology~~million, respectively. If our estimated sublease timetable were delayed by six months, it would result in ~~the~~an ~~field~~additional liability of ~~catalytic~~approximately ~~antibodies~~$0.7 million, ~~which~~or more, if ~~includes~~there ~~intellectual~~were ~~property~~a ~~that~~further ~~was~~delay. We ~~acquired~~will review ~~through~~our estimates and assumptions on a quarterly basis, until the ~~acquisition~~outcome ofis ~~Hesed~~finalized, ~~Biomed;~~ and modify these estimates as necessary to reflect any changes in circumstances.

~~• manufacturing start-up~~Income ~~costs relating to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.~~Taxes

WeSignificant ~~expect~~management tojudgment ~~incur~~is ~~additional~~required ~~losses~~in ~~for~~developing ~~the foreseeable future as a result of~~ our ~~research~~provision for ~~and~~income ~~development costs~~taxes, including ~~costs~~ ~~associated~~the ~~with~~calculation ~~conducting~~of ~~preclinical~~tax ~~development and clinical trials~~liabilities, the ~~which~~determination ~~will~~of ~~continue~~deferred totax beassets ~~substantial,~~and ~~charges~~liabilities ~~related~~and toany ~~purchases of~~valuation ~~technology~~allowances orthat ~~other~~might ~~assets,~~be ~~and~~required ~~costs~~against ~~associated~~the ~~with~~deferred ~~operating~~tax ~~our manufacturing facilities~~assets. Results Weof ~~intend~~operations ~~to invest significantly~~ in ~~our~~each ~~products~~jurisdiction ~~prior~~involve tointercompany ~~entering into licensing~~ agreements. ~~This~~between ~~will~~us ~~increase~~and our ~~need~~Canadian ~~for capital~~subsidiary. Such ~~and~~agreements ~~will~~could ~~result~~be ~~in losses for at least the next several years. We~~unfavorably ~~expect~~interpreted ~~that~~by the ~~amount~~applicable oftaxing ~~operating~~authorities, ~~losses~~causing ~~will~~an ~~fluctuate~~increase ~~significantly~~in ~~from~~the ~~quarter~~income totax ~~quarter~~provision asand a ~~result~~negative ofimpact ~~increases~~on orour ~~decreases~~results inof ~~our~~operations. The ~~research~~assessment ~~and development~~of ~~efforts,~~ the ~~execution~~income ortax ~~termination~~ implications of ~~licensing~~this ~~and~~intercompany ~~other agreements,~~relationship ~~and~~requires ~~the~~significant ~~initiation,~~management ~~and success or failure, of clinical trials~~judgment.

~~Net Operating~~Stock ~~Loss Carryforwards.~~ Option As of December 31, 2003, we had net operating loss carryforwards for federal and state income tax purposes of approximately $469.0 million and $102.0 million, respectively. Our net operating loss carryforwards exclude losses incurred prior to our formation in July 1996. Further, we have capitalized the amounts associated with a 1997 settlement and cross-license with GenPharm International, Inc. that we have expensed for financial statement accounting purposes and we are amortizing those amounts over a period of approximately 15 years for tax purposes. The federal and state net operating loss and credit carryforwards will expire in the years 2006 through 2023, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.Valuation

~~Critical~~The ~~Accounting~~preparation ~~Estimates~~of the notes to our consolidated financial statements requires us to estimate the fair value of stock options granted to employees. While fair value may be readily determinable for awards of stock, market quotes are not available for long-term, nontransferable stock options because these instruments are not traded. We currently use the Black-Scholes option pricing model to estimate the fair value of employee stock options. However, the Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options and because changes to the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not provide a reliable single measure of the fair value of our employee stock options. We are currently evaluating our option valuation methodologies and assumptions in light of SFAS No. 123(R), which we are required to adopt on January 1, 2006.

~~Several~~Contractual ~~estimates~~Obligations and ~~judgments involved in the~~Commercial application of accounting principles impacts the financial results that we report. We are required to estimate the effect of matters that are inherently uncertain. Changes in our estimates or judgments could materially impact our results of operations, financial condition and cash flows in future years. We believe our most critical accounting estimates include revenue recognition, accounting for our equity investments, and accounting for goodwill, intangible assets and income taxes. There have been no significant changes to our critical accounting estimates as reported in our annual report on Form 10-K for the year ended December 31, 2003 with respect to the accounting for revenue recognition, equity investments, goodwill or income taxes. We have made a significant change to our estimate of the value of certain intangible assets as described below.Commitments

~~Accounting~~As of June 30, 2005, future minimum payments for certain ~~Intangible~~contractual ~~Assets~~obligations for years subsequent to December 31, 2004 were as follows (in thousands):

As a result of the adoption of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, intangible assets held and used must be tested for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. Factors that are considered important in determining whether impairment might exist include a significant change in the manner in which an asset is being used, a significant adverse change in legal factors or the business climate that could affect the value of an asset, including an adverse action or assessment by a regulator, and a current expectation that, more likely that not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

	Total		Less than 1 year(1)		1 – 3 years		4 – 5 years		After 5 years(2)
Operating leases(3)	$	123,890	$	6,981	$	29,151	$	31,213	$	56,545
Convertible notes due 2007 & interest	121,713		1,991		119,722		—		—
Convertible notes due 2011 & interest	334,067		2,625		10,500		10,500		310,442
Convertible note due 2013	50,000		—		—		—		50,000
Redeemable convertible preferred stock	50,000		—		—		—		50,000
Amgen(4)	52,813		—		—		—		—
Purchase orders	1,452		1,452		—		—		—
Total	$	733,935	$	13,049	$	159,373	$	41,713	$	466,987

In the quarter ended June 30, 2004, we determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had

(1)	This represents the period of July 1, 2005 through December 31, 2005.

(2)	Amounts represent total minimum payments for the entire period.

(3)	Amounts include approximately $23.2 million of operating lease payments related to facilities in connection with the restructuring plan implemented in the second quarter of 2005. The discounted operating lease payments, net of estimated sublease rental income, related to these facilities were included as a liability on our consolidated balance sheet as of June 30, 2005.

~~declined~~(4) toThe ~~zero~~$52. ~~This~~8 ~~technology,~~million ~~which~~long-term ~~includes~~obligation ~~intellectual property,~~to ~~was~~Amgen ~~acquired~~consists ~~in 2001 through the acquisition~~ of ~~Hesed Biomed, Inc~~$50. We3 ~~decided~~million toin ~~focus~~advances ~~our~~under ~~resources on~~the ~~other~~credit ~~research~~facility and ~~development~~$2.5 ~~projects~~million ~~and~~of ~~decided~~accrued ~~to wind down our catalytic antibody program~~interest. ~~Additionally,~~ ~~after~~The ~~assessing~~timing ~~the associated patent position and the likelihood~~ of ~~sale~~future orminimum ~~license~~payments ofis ~~the~~uncertain ~~technology~~as tothis aobligation ~~third~~may ~~party,~~be werepaid ~~further determined~~out ~~in the quarter ended June 30, 2004 that the possibility~~ of ~~generating~~ ~~positive~~profits ~~future~~resulting ~~cash flows~~ from ~~the~~future ~~technology~~product ~~was remote~~sales. ~~As a result of this determination, we recorded an impairment charge of $17.2 million.~~

~~Contractual~~We ~~Obligations~~have a commitment to share equally all development and ~~Commercial~~commercialization ~~Commitments~~costs for panitumumab pursuant to our development and commercialization agreement with Amgen. As amended in October 2003, that agreement provides that Amgen will have decision-making authority for development and commercialization activities and will make available to us in 2004 and 2005 up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs for panitumumab after we contributed $20.0 million toward development costs in 2004. We began accessing this facility in 2004 and, as of June 30, 2005, we had a carrying balance of $52.8 million under this facility consisting of $50.3 million in advances and $2.5 million of interest accrued at the contract rate of 12% per annum. We have notified Amgen of the intent to draw a cash advance of an additional $2.7 million. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales and we are generally not obligated to repay any portion of the loan if panitumumab does not reach commercialization.

AsRisk ofFactors ~~September~~That ~~30,~~Might ~~2004,~~Affect ~~future~~Future ~~minimum payments for certain contractual obligations for years subsequent to December 31, 2003 were as follows:~~Results

	Total			Less than 1 year(3)		1 – 3 years		3 – 5 years		After 5 years(1)
	(in thousands)
Contractual Obligations
Operating leases	$	132,624		$	3,332	$	27,782	$	29,793	$	71,717
Convertible subordinated notes due 2007 & interest	217,519			—		14,000		203,519		—
Convertible subordinated note due 2013	50,000			—		—		—		50,000
Redeemable convertible preferred stock	50,000			—		—		—		50,000
Immunex	6,370		(2)	—		—		—		—
Purchase orders	1,851			1,851		—		—		—
Total	$	458,364	(2)	$	5,183	$	41,782	$	233,312	$	171,717

Risks Related to our Finances

~~(1) Amounts~~We ~~represent~~are ~~total~~an ofearly ~~minimum~~stage ~~payments~~company without ~~for~~commercial therapeutic products, and we cannot assure you that we will develop sufficient revenues in the ~~entire~~future ~~period~~to sustain our business.

~~(2) The~~You ~~$6.4~~must ~~million~~evaluate ~~long~~us ~~term obligation~~in tolight ~~Immunex~~of ~~consists~~the ofuncertainties ~~$6.3~~and ~~million~~complexities present in ~~advances~~an ~~under~~early ~~the~~stage ~~credit facility~~biopharmaceutical ~~and~~company. ~~$104~~With the exception of panitumumab,~~000~~ all of ~~interest~~our ~~accrued~~product atcandidates ~~the~~are ~~rate~~in ofearly ~~12%~~stages ~~compounded~~of development. ~~annually~~We will need to make significant additional investments in research and development, ispreclinical ~~repayable~~testing ~~out~~and ofclinical ~~profits~~trials, ~~resulting~~and ~~from~~in ~~future~~regulatory and sales ~~of panitumumab~~and marketing activities, ~~the~~to ~~timing~~commercialize ofcurrent ~~which~~and ~~are~~future ~~uncertain~~product candidates. WeOur ~~are~~product ~~not~~candidates, ~~obligated~~if tosuccessfully ~~repay~~developed and approved for ~~any~~marketing, ~~portion~~may ofnot ~~the~~generate ~~loan~~sufficient ifor ~~panitumumab~~sustainable ~~does~~revenues ~~not~~to ~~reach~~enable ~~commercialization~~us to be profitable.

~~(3) This~~We ~~represents~~have ~~the~~a ~~period~~ history of ~~October~~losses 1,and ~~2004~~we ~~through~~expect ~~December~~to continue ~~31,~~to ~~2004~~incur losses for the foreseeable future.

InWe ~~March~~have ~~2002,~~incurred wenet ~~issued~~losses ~~$200.0~~since ~~million~~we ~~principal amount~~were oforganized ~~convertible~~as ~~subordinated~~an ~~notes in a private placement. The notes are~~independent ~~convertible~~company, ~~into~~including ~~shares~~in ofthe ~~our~~last ~~common~~five ~~stock~~years atnet alosses ~~conversion price~~ of $278.588 million ~~per~~in ~~share~~2000, ~~subject to certain adjustments~~$60.9 million ~~The~~in ~~notes~~2001, ~~accrue interest at an annual rate of 3~~$208.~~5%. We are obligated to pay interest on March~~9 15million ~~and~~in ~~September 15 of each year. We expect to make~~2002, ~~interest payments on the notes of~~ $7196.0 4 million ~~per~~in ~~year, for years~~ 2003 ~~through 2006,~~ and $3187.5 million in ~~2007~~2004, ~~assuming~~and ~~all the notes remain outstanding until their maturity date~~$126.8 ~~The notes will mature on March 15, 2007 and are redeemable~~million atin ~~our~~the ~~option~~six onmonths orended ~~after March 20~~June 30, 2005~~, or earlier if the price of our common~~. ~~stock~~As ~~exceeds specified levels. In addition, the holders~~ of ~~the notes may require us to repurchase the notes if we undergo a change in control. Therefore~~June 30, ~~in March 2007~~2005, ~~or earlier if we undergo a change in control, we may use a significant portion of~~ our ~~cash,~~accumulated ~~cash equivalents~~deficit ~~and~~was ~~marketable securities to repay the~~ $~~200~~879.0 million ~~principal amount of our convertible debt~~. ~~If our balance of cash, cash equivalents and~~ ~~marketable~~Our ~~securities~~losses ~~at any time is insufficient~~ to ~~meet~~date ~~our obligations under the notes, we would~~ have toresulted ~~seek~~principally ~~additional financing, if available, to support our obligations under the notes.~~from:

In• research and ~~connection~~development ~~with~~costs arelating ~~collaboration agreement, we have issued~~ to ~~AstraZeneca~~the ~~$50.0~~development ~~million~~ of ~~Series~~our ~~A-1~~XenoMouse ~~convertible preferred stock~~ and ~~a convertible subordinated note with a principal amount of $50.0 million.~~XenoMax ~~The~~technologies ~~total~~and ~~net~~antibody ~~proceeds~~product ~~were $99.7 million. The Company, subject to certain conditions,~~candidates;

31• manufacturing start-up costs related to our manufacturing facility including depreciation, costs of outside contractors and personnel for quality assurance and quality control activities;

~~can convert the~~• general ~~Series A-1 convertible preferred stock~~ and ~~can~~administrative ~~convert~~costs ~~the~~relating ~~convertible note into shares of common stock at a conversion price equal~~ to ~~the~~our lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share. AstraZeneca may convert the Series A-1 convertible preferred stock and the convertible note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or (b) the maturity date, as applicable. The Company must redeem all outstanding shares, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we can, upon at least 15 days’ notice to the holder, redeem the Series A-1 convertible preferred stock for cash in an amount equal to its liquidation preference and pre-pay the convertible note for its face amount, at any time prior to maturity. In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier redemption. In such circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.operations;

~~Effective June 30, 2003, we canceled our agreement~~• impairment ~~with~~charges ~~Lonza~~related ~~for the exclusive use of a cell culture production suite. Upon canceling the agreement, we became obligated~~ to ~~pay Lonza four equal installments of 4,250,000 British pounds on October 1, 2003, February 1, 2004, May 1, 2004 and August 1, 2004, which eliminated~~ our ~~commitment~~strategic toinvestments ~~pay approximately $46.0 million~~ in ~~total monthly fees through August 2006. The value of the cancellation fee obligation on the effective date of June 30~~CuraGen, ~~2003 was approximately $28.0 million. In July 2004~~ImmunoGen, ~~we made the final installment payment to Lonza~~ Inc. ~~As of September 30~~, ~~2004 we had no remaining~~ ~~obligations~~and toMDS ~~Lonza~~Proteomics Inc.; and

~~We have a commitment to~~• impairment ~~share~~charges ~~equally~~relating ~~all development and commercialization costs for panitumumab pursuant~~ to ~~our~~acquired ~~development and commercialization agreement with Immunex. As amended in October 2003~~technologies, ~~that~~including ~~agreement provides that Immunex will have decision-making authority for development and commercialization activities and will make available to us $60.0 million in advances that we may use to fund~~ our ~~share~~SLAM oftechnology ~~development~~ and ~~commercialization~~ ~~costs~~technologies ~~for panitumumab after we have contributed $20.0 million toward development costs~~ in ~~2004. As of September 30, 2004, we have a carrying balance of $6.4 million under this facility consisting of $6.3 million in advances and $104,000 of interest accrued at~~ the ~~contract~~fields ~~rate~~ of ~~12%~~intrabodies ~~per annum. We have notified Immunex of our intent to draw a cash advance of an additional $13.3 million. We expect to continue to make use of this credit facility in 2004~~ and ~~thereafter~~catalytic ~~up to the $60~~antibodies.0 million limit. The amount and timing of our use of the facility is dependent on the development and related activities directed by Immunex and their cost. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales and we are not obligated to repay any portion of the loan if panitumumab does not reach commercialization.

~~We have outstanding purchase orders totaling $1.9 million to contractors related to the purchase of equipment and design and construction of our new manufacturing facility.~~31

~~Additional~~We ~~Factors~~expect ~~That~~to ~~Might~~incur ~~Affect~~additional ~~Future~~losses for the foreseeable future as a ~~Results~~result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing, manufacturing and other contractual arrangements, the progress or lack of progress of product development candidates in our collaboration with AstraZeneca, the initiation, success or failure of clinical trials and whether any of our product candidates, including panitumumab, achieve commercial success.

~~Risks~~We ~~Related~~are tocurrently unprofitable and may never be profitable, and our ~~Finances~~future revenues could fluctuate significantly.

WeSince ~~are~~our anfounding, ~~early~~we ~~stage~~have ~~company without~~funded ~~commercial~~our ~~therapeutic~~research ~~products,~~ and wedevelopment activities ~~cannot~~primarily ~~assure~~from ~~you~~private ~~that~~placements weand ~~will~~public offerings of our ~~develop~~securities ~~sufficient~~and from revenues ingenerated ~~the~~by ~~future~~our tolicensing ~~sustain~~and ~~our~~other ~~business~~contractual arrangements.

~~You~~Prior ~~must~~to ~~evaluate~~any usmarketing inapproval ~~light~~of panitumumab, we expect that substantially all of our revenues for the ~~uncertainties~~foreseeable ~~and complexities~~future ~~present~~will inresult anfrom payments ~~early~~under ~~stage~~licensing ~~biopharmaceutical~~and ~~company~~other contractual arrangements. ~~Our~~To ~~product~~date, payments ~~candidates~~under ~~are~~licensing inand ~~early~~other ~~stages~~agreements ofhave ~~development.~~been Wein ~~will~~the ~~need~~form toof ~~make~~license ~~significant~~fees, ~~additional~~milestone ~~investments~~payments, inreimbursement for research and development expenses, ~~preclinical~~option fees, ~~testing~~and payments for manufacturing services. Payments under our existing and ~~clinical~~any ~~trials,~~future ~~and~~customer agreements will be subject to significant fluctuation in ~~regulatory~~both timing and ~~sales~~amount. Our revenues may not be indicative of our future performance or of our ability to continue to achieve contractual milestones. Our revenues and ~~marketing~~results ~~activities,~~of operations for any period may also not be comparable to the ~~commercialize~~revenues ~~current~~or ~~and~~results ~~future~~of ~~product~~operations ~~candidates~~for any other period. Our ~~product~~revenues ~~candidates,~~for ifany ~~successfully~~period ~~developed,~~ may not ~~generate~~be sufficient orto ~~sustainable~~cover our operating costs, including the costs of operating our manufacturing plant. We may not be able to:

32• enter into further co-development, licensing, manufacturing or other agreements;

~~revenues~~• successfully complete topreclinical ~~enable~~development usor toclinical ~~be profitable.~~trials;

~~We have a history of losses and we~~• obtain ~~expect~~required toregulatory ~~continue to incur losses for the foreseeable future.~~approvals;

~~We have incurred net losses since we were organized as~~• successfully anmanufacture ~~independent~~or ~~company,~~market ~~including~~product incandidates; the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $144.6 million in the nine months ended September 30, 2004. As of September 30, 2004, our accumulated deficit was $709.4 million. Our losses to date have resulted principally from:or

• ~~research~~ generate ~~and~~additional ~~development~~revenues ~~costs~~or ~~relating to the development of our XenoMouse and XenoMax technologies and antibody product candidates;~~profitability.

~~• general and~~Our ~~administrative~~failure ~~costs~~to ~~relating~~achieve toany of the above goals would materially harm our business, financial condition and results of operations;.

~~• impairment charges~~We ~~related~~may require additional financing, and an inability to ~~our~~raise ~~strategic~~the ~~investments~~necessary incapital ~~CuraGen,~~or ~~ImmunoGen,~~to ~~and~~do ~~MDS~~so on acceptable terms would ~~Proteomics;~~threaten the continued success of our business.

~~• impairment charges~~We ~~relating~~will continue to ~~technology~~expend insubstantial resources to support research and development and operate our manufacturing facility, including costs associated with preclinical development and clinical trials. In the ~~field~~years ended December 31, 2004, 2003 and 2002, we incurred expenses of $124.8 million, ~~catalytic~~$98.2 million ~~antibodies~~and $128.5 million, ~~which~~respectively, ~~includes~~on ~~intellectual~~research ~~property~~and ~~that~~development. For ~~was~~the ~~acquired~~six months ~~through~~ended June 30, 2005, we spent $71.3 million on research and development. For the ~~acquisition~~six ofmonths ended June 30, ~~Hesed~~2005, ~~Biomed;~~our manufacturing start-up costs were $6.8 million. Regulatory and business factors will require us

• manufacturing start-up costs related to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.32

~~We expect~~ to ~~incur~~expend ~~additional~~substantial ~~losses~~funds ~~for~~in the ~~foreseeable~~ ~~future~~course ~~as a result~~ of ~~our~~completing ~~research~~required ~~and development costs and manufacturing~~additional ~~start-up costs~~development, ~~including costs associated with conducting~~ preclinical ~~development~~ testing and clinical trials, ~~which will continue to be substantial~~of, and ~~charges~~ ~~related to purchases of technology or other assets. We intend to invest~~attaining ~~significantly~~regulatory inapprovals ~~our products prior to entering into licensing agreements. This will increase our need~~ for, ~~capital~~product ~~and will result in losses for at least the next several years~~candidates. WeThe ~~expect~~amounts ~~that the amount~~ of ~~operating~~expenditures ~~losses will~~that ~~fluctuate~~will ~~significantly~~be ~~from~~necessary ~~quarter~~ to ~~quarter~~execute ~~as a result of increases or decreases in~~ our ~~research~~business ~~and~~plan ~~development~~are ~~efforts,~~subject ~~the~~to ~~execution or termination~~numerous ofuncertainties ~~licensing,~~that ~~manufacturing~~may ~~and~~adversely ~~other~~affect ~~contractual~~our ~~arrangements,~~liquidity ~~the~~and ~~progress~~capital orresources. ~~lack~~Our offuture ~~progress~~liquidity ~~of product development candidates in our collaboration with AstraZeneca~~ and ~~the~~capital ~~initiation,~~requirements ~~success~~will ordepend ~~failure~~on ofmany ~~clinical trials.~~factors, including:

~~We are currently unprofitable and~~• the ~~may~~scope ~~never be profitable,~~ and ~~our~~results ~~future~~of ~~revenues~~preclinical ~~could~~development ~~fluctuate~~and ~~significantly.~~clinical trials;

~~Since~~• the ~~our~~retention ~~founding, we have funded our research and~~of ~~development~~existing ~~activities primarily from private placements~~ and ~~public~~establishment ~~offerings~~ of ~~our~~further ~~securities~~co-development, ~~and from revenues generated by our~~ licensing, manufacturing and other ~~contractual~~ ~~arrangements.~~agreements, if any;

~~We expect that substantially all of our revenues for~~ • the ~~foreseeable~~decisions ~~future will result from payments under licensing and other contractual arrangements. To date, payments under licensing and other agreements have been in the form~~ of ~~license~~ ~~fees,~~our ~~milestone payments~~collaborator, ~~reimbursement for research and development expenses~~Amgen, ~~option~~ ~~fees, and payments for manufacturing services. Payments~~ under our ~~existing~~co-development ~~and~~agreement ~~any~~for ~~future~~panitumumab, ~~customer~~which ~~agreements~~provides ~~will~~Amgen bedecision-making ~~subject~~authority tofor ~~significant~~development ~~fluctuation in both timing~~ and ~~amount. Our revenues may not be~~commercialization ~~indicative~~activities ~~of our future performance or of our ability to continue to achieve contractual milestones. Our revenues~~ and ~~results~~obligates ofus ~~operations for any period may also not be comparable~~ to ~~the~~share ~~revenues~~50% ~~or results~~ of ~~operations for any other period. Our revenues for any period may not be sufficient to cover our operating costs, including~~ the ~~costs of~~development ~~operating our manufacturing plant. We~~and ~~may~~commercialization ~~not be able to:~~costs;

33• continued scientific progress in our research and development programs;

• ~~enter~~ the ~~into~~size ~~further~~and ~~co-development,~~complexity ~~licensing,~~of ~~manufacturing~~these ~~or other agreements~~programs;

• ~~successfully~~ the cost of ~~complete~~operating ~~preclinical~~our ~~development~~manufacturing orfacility, ~~clinical~~validating ~~trials~~our processes and complying with good manufacturing practice regulations;

• ~~obtain~~ the ~~required~~cost ~~regulatory~~of ~~approvals~~conducting commercialization activities and arrangements;

• ~~successfully~~ the ~~manufacture~~time orand ~~market~~expense ~~product~~involved ~~candidates;~~in orseeking regulatory approvals;

• ~~generate~~ competing ~~additional~~technological ~~revenues~~and ormarket ~~profitability.~~developments;

~~Our~~• the ~~failure~~time toand expense ~~achieve any~~ of ~~the~~filing ~~above~~and ~~goals~~prosecuting ~~would materially~~patent ~~harm our business~~applications, ~~financial~~and ~~condition~~enforcing and defending ~~results~~against ofpatent ~~operations.~~claims;

We• our investment ~~may require additional financing~~in, ~~and~~ ~~an inability to raise the necessary capital~~ or toacquisition ~~do so on acceptable terms would threaten the continued success~~ of, ~~our~~other ~~business.~~companies;

We will continue to expend substantial resources to support research and development and operate our manufacturing facility, including costs associated with preclinical development and clinical trials. In • the ~~years ended December 31, 2003, 2002, and 2001,~~ weamount ~~incurred expenses~~ of ~~$99.6~~product ~~million,~~or ~~$128.5 million~~technology ~~and $96.2 million,~~in-licensing ~~respectively,~~in onwhich ~~research and development. For the nine months ended September 30, 2004,~~ we incurred $94.6 million of research and development expenses. Regulatory and business factors will require us to expend substantial funds in the course of completing required additional development, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. Our future liquidity and capital requirements will depend on many factors, including:engage;

• the ~~scope~~extent and ~~results~~duration of ~~preclinical~~market ~~development~~exclusivity we can command for our products, through patent and ~~clinical~~regulatory ~~trials~~laws; and

• ~~the retention~~ other ~~of existing and establishment of further co-development, licensing,~~factors ~~manufacturing~~not ~~and~~within ~~other~~our ~~agreements, if any;~~control.

• We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual ~~decisions~~arrangements, will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our ~~collaborator~~business, including ~~Immunex~~the uncertainties listed above, ~~under~~we ~~our~~cannot coassure you that this will be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or private equity or debt financing, licensing and other agreements, a bank line of credit, sale-~~development~~lease ~~agreement~~back ~~for~~financing, mortgage financing, asset sales or other ~~panitumumab~~arrangements. We cannot be sure that any additional funding, ~~which~~if ~~provides~~needed, ~~Immunex~~will ~~decision~~be available on terms favorable to us or at all. Furthermore, any additional equity or equity-~~making~~related ~~authority~~financing ~~for~~may ~~development~~be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants and significant ~~commercialization~~interest ~~activities~~costs. We may also choose to obtain funding through licensing and ~~obligates~~other contractual arrangements. Such agreements may require us to relinquish ~~share~~our ~~50%~~rights to certain of ~~the~~our technologies, products or marketing ~~development~~territories. ~~and~~Our ~~commercialization~~failure ~~costs;~~to raise

~~• continued scientific progress in our research and development programs;~~33

~~• the size~~capital ~~and~~when ~~complexity~~needed ofwould ~~these~~harm ~~programs;~~our business, financial condition and results of operations.

~~• the cost~~Our ofindebtedness ~~operating~~may ~~our~~harm ~~manufacturing facility, validating~~ our ~~processes~~financial condition and ~~complying~~ ~~with~~results ~~good~~of ~~manufacturing practice regulations;~~operations.

~~• the~~At June 30, 2005, we had approximately ~~cost~~$463.6 million of ~~conducting~~outstanding ~~commercialization~~notes, ~~activities~~including $113.7 million of convertible subordinated notes due March 15, 2007, $300.0 million of outstanding convertible senior notes due December 15, 2011 and ~~arrangements;~~a $50.0 million note held by AstraZeneca. In addition, at June 30, 2005, we had accrued approximately $52.8 million in long-term liabilities to Amgen pursuant to our co-development agreement. We may incur additional indebtedness in the future. Our level of indebtedness will have several important effects on our future operations, including, without limitation:

• ~~the time~~ we ~~and~~will ~~expense~~have ~~involved~~additional cash requirements in ~~seeking~~order to ~~regulatory~~support ~~approvals~~the payment of interest on our outstanding indebtedness;

• ~~competing~~ increases in our outstanding indebtedness and ~~technological~~leverage will increase our vulnerability to adverse changes in general economic and ~~market~~industry ~~developments~~conditions, as well as to competitive pressure; and

• depending on the levels of our outstanding debt, our ~~time~~ability ~~and~~to ~~expense~~obtain ofadditional ~~filing~~financing ~~and~~for ~~prosecuting~~working ~~patent~~capital, ~~applications~~capital expenditures, ~~and~~general ~~enforcing~~ corporate and ~~defending~~other ~~against~~purposes ~~patent~~may ~~claims;~~be limited.

• Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be ~~investment~~subject into general economic conditions, orindustry ~~acquisition~~cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other ~~companies;~~things:

34• to seek additional financing in the debt or equity markets;

• ~~the amount~~ to ofrefinance ~~product~~or restructure all or ~~technology~~a ~~in-licensing~~portion inof ~~which~~our indebtedness, weincluding ~~engage;~~the ~~and~~notes;

• ~~other factors~~ to ~~not~~sell ~~within~~selected ~~our control.~~assets;

~~We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual arrangements, will be sufficient~~ • to ~~meet our~~reduce operating and capital requirements for at least one year. However, because of the uncertainties in our business, including the uncertainties listed above, we cannot assure you that this will be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or ~~private~~delay ~~equity~~planned or debt financing, licensing and other agreements, a bank line of credit, sale-lease back financing, mortgage financing, asset sales or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants and significant interest costs. We may also choose to obtain funding through licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital ~~when~~ ~~needed~~expenditures; ~~would harm our business, financial condition and results of operations.~~or

~~Our~~• to ~~indebtedness~~reduce ~~may~~or ~~harm~~delay ~~our financial~~planned ~~condition~~operating ~~and~~expenditures, such ~~results~~as ofclinical ~~operations~~trials.

WeSuch ~~have~~measures ~~$200~~might ~~million~~not ofbe ~~convertible~~sufficient ~~subordinated notes~~to ~~due~~enable ~~March~~us ~~15,~~to ~~2007 and debt~~ service ~~obligations~~our ~~related thereto~~debt. In ~~February 2004~~addition, weany ~~incurred~~such ~~an additional $50.0 million of indebtedness to AstraZeneca~~financing, inrefinancing ~~the form of a convertible~~or ~~subordinated~~sale ~~note due 2013, which we issued to AstraZeneca in connection with our redemption~~ of ~~the~~assets ~~shares~~might ofnot ~~our~~be ~~Series~~available ~~A-2 preferred stock we issued to AstraZeneca in October 2003. There is no interest payable~~ on ~~the~~economically ~~note~~favorable ~~except in the event of a payment default~~terms. ~~Our level of indebtedness will have several important effects on our future operations, including, without limitation:~~

~~• we will~~Our ~~have~~strategic ~~additional~~investments ~~cash~~expose ~~requirements~~us to ~~support~~equity price ~~the~~risk ~~payment~~and ofour ~~any~~investments ~~interest or~~in ~~amortization~~those ~~required~~companies ~~with~~may ~~respect~~be todeemed ~~outstanding~~impaired, ~~indebtedness;~~which would affect our results of operations.

~~• increases in~~We are exposed to equity price risk on our ~~outstanding~~strategic ~~indebtedness~~investments in CuraGen and ~~leverage~~ImmunoGen ~~will~~and ~~increase~~we ~~our~~may ~~vulnerability~~elect to ~~adverse~~ ~~changes~~make additional similar investments in ~~general~~the ~~economic~~future. In 1999 and ~~industry~~2000, ~~conditions~~we purchased an aggregate amount of $80.0 million of the common stock of CuraGen and ImmunoGen as strategic investments. Unrealized holding gains and losses on available-for-sale securities generally are excluded from earnings and reported as a component of stockholders’ equity. However, if a decline in the fair value of available-for-sale securities is judged to be other than temporary, the cost basis of the security is written down to fair value as ~~well~~a new cost basis and the amount of the write-down is included in earnings as an impairment charge. In 2002, declines in the fair value of the CuraGen and ImmunoGen common stock were deemed to be other-than-temporary and ~~competitive~~we ~~pressure;~~recorded impairment charges totaling $67.3 million for the year ended December 31, 2002. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If the public trading prices

• depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited.34

~~Our~~of ~~ability~~these toshares ~~make~~trade ~~payments~~below ofour ~~principal~~adjusted ~~and~~cost ~~interest~~basis in future periods, onwe ~~our~~may ~~indebtedness~~incur ~~depends~~additional ~~upon~~impairment ~~our~~charges ~~future~~relating ~~performance~~to these investments, which could ~~will~~adversely beaffect ~~subject to~~our ~~general~~results ~~economic~~of ~~conditions,~~operations. The ~~industry~~amount ~~cycles~~of ~~and~~these ~~financial~~charges, ~~business~~if ~~and~~any, will ~~other~~equal ~~factors~~our ~~affecting~~unrealized ~~our~~loss ~~operations,~~on ~~many~~these securities as of ~~which~~the ~~are~~end ~~beyond~~of ~~our~~the ~~control.~~relevant Ifperiods. As weof ~~are~~June 30, ~~unable~~2005, tothese investments ~~generate~~were ~~sufficient~~recorded ~~cash~~at ~~flow~~fair ~~from~~value ~~operations~~ in long-term investments on the ~~future~~balance tosheet, ~~service~~and ~~our~~any ~~debt,~~net weunrealized ~~may~~holding begains ~~required,~~and ~~among~~losses ~~other~~are ~~things:~~reported as a component of stockholders’ equity.

~~• to seek~~Risks ~~additional~~Related ~~financing~~to in the ~~debt~~Development orand Commercialization ~~equity~~of ~~markets;~~our Products

~~• to~~Our XenoMouse and XenoMax technologies may ~~refinance~~not orproduce ~~restructure~~safe, ~~all~~efficacious or acommercially ~~portion~~viable ofproducts, ~~our~~which ~~indebtedness,~~will ~~including~~be critical to our ~~convertible~~ ~~subordinated~~ability ~~notes~~to ~~due~~generate ~~2007;~~revenues from our products.

• Our XenoMouse and XenoMax technologies are new approaches to developing antibodies as products for the treatment of ~~sell~~diseases ~~selected~~and ~~assets;~~medical disorders. To date, neither we nor our customers have commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from any technologies similar to ours. Our antibody therapeutic product candidates are still in various stages of development and many are in an early development stage. We have initiated clinical trials with respect to four proprietary fully human antibody therapeutic product candidates, and our collaborators have initiated clinical trials with respect to nine other fully human antibody therapeutic product candidates generated by XenoMouse technology. We cannot be certain that our technologies will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if at all. Furthermore, our technologies may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious for patients. Our failure to generate antibody therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and results of operations.

~~• to~~If we do not successfully develop our ~~reduce~~products, or ~~delay~~if ~~planned~~they ~~capital~~do ~~expenditures~~not achieve commercial success, our business will be materially harmed.

35Our development of current and future product candidates, either alone or in conjunction with collaborators, is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies. These risks include:

~~Such~~• delays ~~measures~~in ~~might~~product ~~not be sufficient to enable us to service our debt. In addition~~development, ~~any~~clinical ~~such~~testing ~~financing, refinancing~~ or ~~sale of~~ ~~assets might not be available on economically favorable terms.~~manufacturing;

~~Our~~• unplanned ~~strategic~~expenditures ~~investments expose us to equity price risk and our investments~~ in ~~those~~product ~~companies may be deemed impaired~~development, clinical ~~which~~testing ~~would~~or ~~affect our results of operations.~~manufacturing;

We• failure ~~are exposed to equity price risk on our strategic investments~~ in ~~CuraGen~~clinical ~~and~~trials ~~ImmunoGen~~or ~~and~~failure ~~we may elect~~ to ~~make additional~~receive ~~similar~~regulatory investments in the future. In 1999 and 2000, we purchased an aggregate amount of $80.0 million of the common stock of CuraGen and ImmunoGen as strategic investments. In 2002, declines in the fair value of the CuraGen and ImmunoGen common stock were deemed to be other than temporary, primarily because the stock of each company traded below our cost basis for more than six months. Accordingly, we recorded a total impairment charge for the year ended December 31, 2002 of $67.3 million. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If these shares trade below their new cost bases in future periods, we may incur additional impairment charges relating to these investments. As of September 30, 2004, these investments were recorded at fair value in long-term investments on the balance sheet, and any net unrealized holding gains and losses are reported as a component of stockholders’ equity.approvals;

~~Risks Related~~• emergence toof ~~the~~superior ~~Development~~or ~~and~~equivalent ~~Commercialization~~product development oftechnologies ~~our~~or ~~Products~~products;

~~Our XenoMouse~~• inability ~~and~~to ~~XenoMax~~manufacture ~~technologies~~on ~~may~~our ~~not produce safe~~own, ~~efficacious~~ or ~~commercially~~ ~~viable products~~through others, ~~which~~product ~~will~~candidates beon ~~critical~~a toclinical ~~our~~or ~~ability~~commercial ~~to generate revenues from our products.~~scale;

~~Our~~• inability ~~XenoMouse and XenoMax technologies are new approaches~~ to ~~developing~~market ~~antibodies as~~ products ~~for~~ ~~the~~due treatment of diseases and medical disorders. We have not commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from any technologies similar to ~~ours. Our antibody~~third-party ~~therapeutic product candidates are still in various stages of development and many are in an early development stage. We have initiated clinical trials with respect to four~~ proprietary fully human antibody therapeutic product candidates, and our collaborators have initiated clinical trials with respect to four other fully human antibody therapeutic product candidates generated by XenoMouse technology. We cannot be certain that either XenoMouse technology or XenoMax technology will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse technology and XenoMax technology may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious for patients. Our failure to generate antibody therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and results of operations.rights;

If• election ~~we do~~by ~~not successfully develop~~ our ~~products,~~customers ~~or if they do~~ not ~~achieve~~to ~~commercial success,~~pursue ~~our business will be materially harmed.~~product development;

~~Our~~• failure ~~development~~by ~~of current~~our ~~and~~customers ~~future product candidates, either alone or in conjunction with collaborators, is subject~~ to ~~the~~develop ~~risks of failure inherent in the development of new pharmaceutical~~ products ~~and products based on new technologies. These~~ ~~risks~~successfully; ~~include:~~and

• ~~delays in~~ failure ~~product~~to ~~development,~~achieve ~~clinical~~market ~~testing or manufacturing;~~acceptance.

~~• unplanned expenditures in product development, clinical testing or manufacturing;~~35

~~• failure~~In incertain instances, we have terminated the clinical development of product candidates when the results of clinical trials ordid ~~failure~~not warrant continued development. We hope to ~~receive~~be ~~regulatory~~able ~~approvals;~~to make up for the loss of diversity in our product pipeline through the number and variety of potential new product candidates we have in preclinical development. However, to the extent that we are unable to maintain a broad and diverse range of product candidates, our success would depend more heavily on one or a few product candidates.

~~• emergence~~Because of these risks, our research and development efforts and those of ~~superior~~our orcustomers ~~equivalent~~and ~~product~~collaborators may not result in any commercially viable products. Our failure to successfully complete a significant portion of these development ~~technologies~~efforts, to obtain required regulatory approvals or to achieve commercial success with any approved products; would materially harm our business, financial condition and results of operations.

36Before we commercialize and sell any of our product candidates, we must conduct clinical trials, which are expensive and have uncertain outcomes.

~~• inability~~Conducting clinical trials is a lengthy, totime-consuming ~~manufacture~~and onexpensive ~~our~~process. ~~own~~Before obtaining regulatory approvals for the commercial sale of any products, orwe must demonstrate through ~~others,~~preclinical testing and clinical trials that our product candidates onare safe and effective for use in humans. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a ~~clinical~~significant oramount ~~commercial~~of ~~scale;~~time to, preclinical testing and clinical trials.

~~• inability~~Completion of clinical trials may take toseveral ~~market~~years ~~products~~or ~~due~~more. The length of time generally varies substantially according to ~~third-party~~the ~~proprietary~~type, ~~rights;~~complexity, novelty and intended use of the product candidate.

~~• election by~~Many factors may delay our ~~customers~~commencement ~~not~~and rate toof ~~pursue~~completion ~~product~~of ~~development;~~clinical trials, including:

• ~~failure~~ the number of patients that ultimately participate byin ~~our~~the ~~customers~~trial, towhich ~~develop~~may ~~products~~be ~~successfully;~~affected ~~and~~by the availability of competing therapeutic alternatives;

• ~~failure~~ the length of time required to ~~achieve~~enroll ~~market~~suitable patient ~~acceptance.~~subjects;

~~Because~~• the duration of ~~these~~patient ~~risks,~~follow-up ~~our~~that ~~research and development~~seems ~~efforts~~appropriate ~~and those of our customers and collaborators may not result~~ in ~~any commercially~~view ~~viable products. Our failure to successfully complete a significant portion~~ of ~~these~~the ~~development efforts, to obtain required regulatory approvals or to achieve commercial success with any approved products would materially harm our business, financial condition and~~ results ~~of operations.~~;

In addition, our decisions to terminate our clinical programs for developing ABX-IL8, a fully human antibody product candidate for inflammatory disorders, and ABX-CBL, an in-licensed antibody product candidate for graft versus host disease, have reduced • the ~~diversity of our product portfolio. We hope to be able to make up for this loss of diversity through the~~ number ~~and variety~~ of potential new product candidates we have in preclinical development. For example, ABX-PTH, which targets the action of parathyroid hormone in patients with chronic renal disease, is a new product candidate that we moved from the preclinical stage into a clinical ~~study~~sites inincluded ~~2004~~ in ~~patients with secondary hyperparathyroidism. However, to~~ the ~~extent that we are unable to maintain a broad and diverse range of product candidates, our success would depend more heavily on one or a few product candidates.~~trials;

~~Before~~• changes wein ~~commercialize~~regulatory ~~and~~requirements ~~sell~~for ~~any~~clinical oftrials ~~our~~or ~~product~~any ~~candidates,~~governmental weor ~~must~~regulatory ~~conduct~~delays or clinical ~~trials,~~holds ~~which~~requiring suspension ~~are~~or ~~expensive and~~termination ~~have~~of ~~uncertain~~the ~~outcomes.~~trials;

~~Conducting clinical trials is a lengthy~~• delays, ~~time-consuming~~ ~~and~~suspensions ~~expensive~~or ~~process.~~termination ~~Before~~of ~~obtaining regulatory approvals for~~ the ~~commercial sale of any products, we must demonstrate through preclinical testing and~~ clinical trials ~~that~~due ~~our~~to ~~product~~the ~~candidates~~institutional ~~are~~review ~~safe~~board ~~and~~responsible ~~effective~~ for ~~use~~overseeing ~~in humans. We have incurred and will continue to incur substantial~~the ~~expense~~study ~~for,~~at ~~and we have devoted and expect to continue to devote~~ a ~~significant amount~~particular ofstudy ~~time to, preclinical testing and clinical trials.~~site;

~~Historically,~~• unforeseen the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety ~~and~~issues; ~~efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical~~ and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of product development.

~~Completion~~• inability ofto ~~clinical~~manufacture ~~trials~~on ~~may~~our ~~take~~own, ~~several years~~ or ~~more. The length of time generally varies substantially according to the~~through ~~type~~others, ~~complexity,~~adequate ~~novelty~~supplies ~~and intended use~~ of the product candidate. ~~However, we~~being ~~estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:~~ tested.

Clinical Phase		Estimated Completion Period
Phase 1		1-2 Years
Phase 2		1-2 Years
Phase 3		2-4 Years

We have limited experience in conducting and managing clinical trials. We rely on third parties, including our collaborators, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failure to complete, these trials if the third parties fail to perform under our agreements with them.

37In addition, we have ongoing research projects that may lead to product candidates, but we have not submitted INDs, nor begun clinical trials for these projects. Our ability to file additional INDs, and to build

~~Many factors may delay our commencement and rate of completion of clinical trials, including:~~36

~~• the~~diversity and scale in our product portfolio, depends to a significant ~~number~~extent ofon ~~patients~~our ~~that~~ability ~~ultimately~~to ~~participate~~identify inadditional ~~the~~potential ~~trial,~~product ~~which~~candidates through our preclinical research and to conduct preclinical research efficiently. Our preclinical or clinical development efforts may not be ~~affected~~successfully bycompleted, ~~the~~we ~~availability~~may ofnot ~~competing~~file ~~therapeutic~~further ~~alternatives;~~INDs and clinical trials may not commence as planned.

~~• the~~Two of our proprietary product candidates, ~~duration~~panitumumab and ABX-10241, are in various stages of ~~patient~~clinical ~~follow~~trials. We have discontinued development of three proprietary product candidates, ABX-upCBL, ABX-IL8 and ABX-MA1. To date, data obtained from these clinical trials have been insufficient to demonstrate safety and efficacy under applicable FDA guidelines. As a result, these data will not support an application for regulatory approval without further clinical trials or further results from ongoing trials. Clinical trials that ~~seems~~we ~~appropriate~~conduct or that third parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in ~~view~~the course of our business as our product development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates. In addition, the ~~results;~~FDA, other regulatory authorities, our partners, the institutional review boards for clinical trial sites or we may suspend or terminate clinical trials at any time.

~~• the~~Our product candidates may fail to demonstrate ~~number~~safety or efficacy in clinical trials. For example, in 2002 we completed analysis of a Phase 2b clinical ~~sites~~trial ~~included~~of ABX-IL8 in psoriasis, concluded that the results did not warrant continued development in psoriasis and decided not to proceed with studies in other disease indications. Similarly, in February 2003, we completed a preliminary analysis of the results from the Phase 2/3 clinical trial of ABX-CBL and concluded that the study did not meet its primary endpoint. Therefore, we and our co-developer, SangStat (now a subsidiary of Genzyme Corporation) do not plan any further development of ABX-CBL. Failures of clinical trials; of any product candidate could delay the development of other product candidates or hinder our ability to obtain additional financing. In addition, failures in our clinical trials can lead to additional research and development expenses. Any delays in, or termination of, our clinical trials could impede our ability to commercialize our product candidates and materially harm our business, financial condition and results of operations.

~~• the length~~Success ofin ~~time~~early ~~required~~clinical totrials ~~enroll~~may ~~suitable~~not ~~patient~~be indicative ~~subjects;~~of ~~and~~results obtained in subsequent trials.

• Results from our early stage clinical trials and those of our collaborators are based on a limited number of patients and may, upon review, be revised or negated by authorities or by later stage clinical trials. Historically, the ~~availability~~results from preclinical testing and early clinical trials have often not been predictive of ~~adequate~~results ~~supplies~~obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as a result of many factors, including: changes in regulatory policy during the period of product ~~candidate~~development; ~~being~~delays ~~tested~~in obtaining regulatory approvals to commence a study; lack of efficacy during clinical trials; or unforeseen safety issues.

WeOur ~~have~~own ~~limited~~ability ~~experience~~to inmanufacture ~~conducting~~is ~~and managing clinical trials. We rely on third parties~~uncertain, ~~including our collaborators, to~~ ~~assist~~which ~~us in managing and monitoring clinical trials. Our reliance on these third parties~~ may ~~result~~make init ~~delays~~more indifficult ~~completing,~~for orus ~~in failure~~ to ~~complete, these~~develop ~~trials~~and ifsell ~~the third parties fail to perform under~~ our ~~agreements with them~~products.

InWe ~~addition, we~~ have ~~ongoing~~limited ~~research~~experience ~~projects that~~manufacturing ~~may~~antibody ~~lead~~therapeutic to product candidates, ~~but~~in weour ~~have~~manufacturing ~~not~~facility. ~~submitted~~We intend ~~INDs~~to ~~nor~~use ~~begun~~our manufacturing facility for the manufacture of product candidates for clinical trials ~~for~~and ~~these~~to ~~projects. Our~~support the potential early commercial ~~ability~~launch toof ~~file~~a ~~additional~~limited ~~INDs~~number of products, ~~and~~in toeach ~~build~~case, ~~diversity~~in compliance with FDA and ~~scale~~European ingood ~~our~~manufacturing practices. We have yet to manufacture a commercial product ~~portfolio~~in our facility. In May 2000, ~~depends~~we tosigned a ~~significant~~long-term lease ~~extent~~for onthe ~~our~~building ~~ability~~that tocontains ~~identify~~this manufacturing facility. Construction ~~additional~~has ~~potential~~been ~~product~~completed ~~candidates~~and ~~through~~the ~~our~~facility ~~preclinical~~is ~~research~~operational, ~~and~~although toportions of the ~~conduct~~facility ~~preclinical~~are ~~research~~still ~~efficiently~~to be validated. In October ~~Our~~2003, ~~preclinical~~following oran inspection ~~clinical~~by ~~development~~the ~~efforts~~California ~~may~~State ~~not~~Department beof ~~successfully completed~~Health Services, we ~~may~~received ~~not~~a State ~~file~~Drug ~~further~~Manufacturing ~~INDs~~License. The license permits us to manufacture and ship clinical ~~trials~~material ~~may~~from ~~not~~our ~~commence~~manufacturing ~~as planned~~facility.

Three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH, are in various stages of clinical trials. We have discontinued development of two proprietary product candidates, ABX-CBL and ABX-IL8. To date, data obtained from these clinical trials have been insufficient to demonstrate safety and efficacy under applicable FDA guidelines. As a result, these data will not support an application for regulatory approval without further clinical trials. Clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in the course of our business as our product development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates.37

~~Our~~The ~~product~~total ~~candidates~~cost ~~may~~of ~~fail~~the tofacility ~~demonstrate~~was ~~safety or~~approximately ~~efficacy in clinical trials~~$150 million. ~~For~~The costs ~~example, in 2002 we completed analysis~~ of ~~a Phase~~completing 2bvalidation ~~clinical trial~~ of ~~ABX-IL8~~this infacility ~~psoriasis,~~and ~~concluded~~qualifying ~~that~~ the ~~results~~facility ~~did~~for ~~not~~regulatory ~~warrant~~compliance ~~continued~~may ~~development~~be inhigher ~~psoriasis~~than ~~and decided not to proceed with studies in other disease indications~~expected. ~~Similarly,~~We incurrently ~~February~~have ~~2003, we completed~~excess aproduction ~~preliminary~~services ~~analysis~~capacity ~~of the results from the Phase 2/3 clinical trial of ABX-CBL~~ and ~~concluded~~this ~~that~~condition ~~the~~may ~~study~~persist ~~did~~for ~~not~~an ~~meet its primary endpoint.~~extended ~~Therefore,~~period. ~~we and our co-developer~~However, ~~SangStat~~if ~~(now~~the acommercial ~~subsidiary~~launch of ~~Genzyme Corporation)~~one door ~~not~~more ~~plan any further development~~ of ~~ABX-CBL.~~our ~~Failures of clinical trials of any~~ product ~~candidate could delay the development of other~~ ~~product~~ candidates orproves ~~hinder our ability to obtain additional financing. In addition~~successful, ~~failures~~we inwill ~~our~~likely ~~clinical~~experience ~~trials~~capacity ~~can~~shortages ~~lead to additional research~~ and ~~development~~may ~~charges.~~need ~~Any~~to ~~delays~~use ~~in,~~one or ~~termination~~more ~~of,~~third-party ~~our~~facilities ~~clinical~~to ~~trials could~~produce ~~materially~~these ~~harm~~products ~~our business, financial condition and results of~~in ~~operations~~sufficient quantities.

~~Our~~The ~~own~~process ~~ability~~of manufacturing antibody therapeutic products is complex. While the managers of the facility have gained extensive manufacturing experience in prior positions with other companies, we have limited experience in the clinical or commercial scale manufacturing of our existing product candidates, or any other antibody therapeutic products, in our facility. We will need to hire, train and retain additional qualified manufacturing, quality control and quality assurance personnel. Also, we will need to manufacture issuch antibody therapeutic products in a facility and by an ~~uncertain~~appropriately validated process that comply with FDA, ~~which~~European and other regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspections by the FDA, European and other foreign regulatory agencies and state regulatory agencies to ensure compliance with good manufacturing practices and applicable health and safety regulations. If we are unable to manufacture product or product candidates in accordance with FDA and European good manufacturing practices we may ~~make~~not itbe ~~more~~able ~~difficult~~to obtain regulatory approval for usour products . Any significant manufacturing changes for the production of our product candidates could result in delays in development or regulatory approval or in the reduction or interruption of commercial sales of our product candidates. Our inability to ~~develop~~manufacture ~~and~~clinical ~~sell~~or commercial supplies or to maintain our manufacturing operations in compliance with ~~products~~applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.

We ~~have~~also ~~limited~~may ~~experience~~encounter ~~manufacturing~~problems ~~antibody therapeutic~~with ~~product candidates in our manufacturing facility. We intend to use our manufacturing facility for~~ the ~~manufacture of product candidates for~~ ~~clinical trials and to support the potential early commercial launch of a limited number of products, in each case, in compliance with FDA and European good manufacturing practices. In~~ following:

38• production yields;

~~May 2000,~~• quality wecontrol ~~signed a long-term lease for the building that contains this manufacturing facility. Construction has been completed~~ and portions of the facility are operational and validated. In October 2003, following an inspection by the California State Department of Health Services, we received a State Drug Manufacturing License. The license permits us to manufacture and ship clinical material from our manufacturing facility. The total cost of the facility to date, including design fees, permits, validation, construction, leasehold improvements and equipment, is approximately $150 million. The costs of completing validation of this facility, making the remaining portions of the facility operational and qualifying the facility for regulatory compliance may be higher than expected. We currently have excess production services capacity and this condition may persist for an extended period. However, if the commercial launch of one or more of our product candidates proves successful, we will likely experience capacity shortages and may need to use one or more third-party facilities to produce these products in sufficient quantities.assurance;

~~The~~• availability ~~process~~ of manufacturing antibody therapeutic products is complex. While the managers of the facility have gained extensive manufacturing experience in prior positions with other companies, we have limited experience in the clinical or commercial scale manufacturing of our existing product candidates, or any other antibody therapeutic products. We will need to hire, train and retain additional qualified ~~manufacturing, quality control and quality assurance~~ personnel. Also, we will need to manufacture such antibody therapeutic products in a facility and by an appropriately validated process that comply with FDA, European and other regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices. Our inability to manufacture in accordance with FDA and European good manufacturing practices could affect our ability to obtain regulatory approval for our products and to supply our clinical trial needs. Any significant manufacturing changes for the production of our product candidates could result in delays in development or regulatory approval or in the reduction or interruption of commercial sales of our product candidates. Our inability to maintain our manufacturing operations in compliance with applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.;

We• availability ~~also~~of ~~may encounter~~raw ~~problems with the following:~~materials;

• ~~production yields~~ adequate training of new and existing personnel;

• ~~quality control~~ on-going ~~and~~compliance ~~assurance~~with our standard operating procedures;

• ~~availability of~~ on-going ~~qualified~~compliance ~~personnel~~with FDA and other health authority regulations;

• ~~availability of~~ production ~~raw materials~~costs; and

• ~~adequate training~~ development of ~~new~~advanced ~~and~~manufacturing ~~existing~~techniques ~~personnel;~~and process controls.

~~• on-going~~In addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured. These facilities will be subject to periodic and unannounced inspections to confirm compliance with FDA good manufacturing practices or other equivalent regulations. The FDA or foreign regulatory bodies will not grant pre-market approval of our ~~standard~~product candidates, including panitumumab, if our facilities cannot pass a pre-license inspection. Therefore, both the filing and approval of a Biologic License Application, or BLA, for panitumumab could be delayed if we are unable to meet the relevant pre-license requirements and or if our facilities and operating ~~procedures;~~systems do not pass a pre-license inspection. In complying with FDA regulations and foreign regulatory requirements, we will be obligated to expend time, money and effort in production, record keeping and quality control in an effort to ensure that our product candidates meet applicable specifications

~~• on-going compliance with FDA regulations;~~38

~~• production~~and other requirements. Our failure to maintain regulatory compliance ~~costs;~~would materially harm our business, financial condition and results of operations.

~~• development of~~We ~~advanced~~may ~~manufacturing~~rely ~~techniques~~on third-party manufacturers, and we ~~process~~may ~~controls~~have difficulty conducting clinical trials or commercializing product candidates if a manufacturer does not perform in accordance with our expectations.

~~In addition~~Previously, ~~the FDA~~we ~~and~~relied ~~other~~on ~~regulatory~~contract manufacturers ~~authorities~~to ~~will~~produce ~~require~~candidates usunder togood ~~register~~manufacturing ~~any~~practice ~~manufacturing~~regulations ~~facilities~~for use in ~~which~~ our ~~antibody~~clinical ~~therapeutic~~trials. ~~products~~While ~~are manufactured~~we ~~and~~have ~~subject~~established ~~the~~our ~~facilities~~own manufacturing tofacility, ~~inspections~~we tocannot ~~confirm~~assure ~~compliance with~~you ~~FDA~~that ~~good~~we ~~manufacturing~~will ~~practices~~be orable ~~other~~to ~~equivalent~~qualify this ~~regulations. The~~facility ~~FDA~~for orcompliance ~~foreign~~with ~~regulatory~~FDA ~~bodies~~and ~~will~~European ~~not~~good manufacturing practices ~~grant~~or ~~pre-market~~manufacture ~~approval~~sufficient quantities of our product candidates iffor ~~our facilities cannot~~clinical ~~pass~~trials or a ~~pre-approval~~potential ~~plant~~early ~~inspection~~commercial launch. In ~~complying~~We ~~with~~continually ~~these~~evaluate ~~regulations~~our ~~and~~options ~~foreign~~for ~~regulatory~~commercial ~~requirements,~~production weof ~~will~~our beproduct ~~obligated to expend time~~candidates, ~~money~~including ~~and~~third-party ~~effort~~ manufacturers.

39Third-party manufacturers may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, shortage of capacity, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. They may not perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our product candidates. Also, third-party manufacturers may have difficulty maintaining compliance with FDA good manufacturing practices or equivalent regulations, or having their facilities pass a pre-license or routine inspection. Any failure of third-party manufacturers to deliver the required quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and our failure to find replacement manufacturers or successfully implement our own manufacturing capabilities, would materially harm our business, financial condition and results of operations.

inThe ~~production,~~successful ~~record keeping~~growth ~~and~~of ~~quality~~revenues ~~control~~from inour manufacturing anservices ~~effort~~depends to ~~ensure~~a ~~that~~large ~~our~~extent ~~product~~on ~~candidates meet~~our ~~applicable~~ability ~~specifications~~to ~~and~~find ~~other~~third parties ~~requirements. Our~~who ~~failure~~agree to ~~maintain~~use ~~regulatory~~our ~~compliance would~~services ~~materially~~and ~~harm~~ our ~~business,~~ability ~~financial~~to ~~condition~~provide ~~and~~those ~~results of~~services ~~operations~~successfully.

We ~~may~~intend ~~rely~~to onenhance our contract revenues by entering into agreements to provide antibody production services to third~~-party~~ parties. ~~manufacturers~~Potential third parties include our existing collaborators, as well as other pharmaceutical and webiotechnology ~~may~~companies, ~~have~~technology ~~difficulty~~companies, ~~conducting~~academic institutions ~~clinical~~and ~~trials~~other orentities. We must enter into these agreements to ~~commercializing~~successfully ~~product~~develop ~~candidates~~this ifaspect of our business. To date, we have entered into only a ~~manufacturer~~few ~~does~~production ~~not~~services ~~perform~~agreements inand we cannot assure you that we will ~~accordance~~be ~~with~~able ~~our~~to ~~expectations~~enter into additional agreements.

~~Previously,~~We wemay ~~relied~~not onbe ~~contract~~able ~~manufacturers~~ to secure manufacturing ~~produce~~agreements ~~candidates~~on ~~under~~favorable ~~good~~terms. ~~manufacturing~~If ~~practice~~we ~~regulations~~do ~~for~~obtain ~~use~~such inagreements, ~~our~~we may ~~clinical~~encounter ~~trials~~difficulties in performing as agreed. ~~While~~ weWe ~~have established~~may ~~our~~encounter ~~own~~difficulties in ~~manufacturing~~scaling ~~facility~~up production, weincluding ~~cannot~~problems ~~assure~~involving ~~you~~production ~~that~~yields, quality wecontrol ~~will be~~and ~~able~~assurance, toshortage ~~qualify~~of ~~this~~qualified ~~facility~~personnel, ~~for~~training of personnel, compliance with FDA good manufacturing practices and ~~European~~other applicable ~~good~~regulations, production costs, and development of advanced manufacturing ~~practices~~techniques orand ~~manufacture~~process ~~sufficient~~controls. The failure to deliver required quantities of ~~our~~ product on a timely basis and at commercially reasonable prices ~~candidates~~could ~~for~~materially ~~clinical~~harm ~~trials~~our orbusiness, afinancial ~~potential~~condition ~~early~~and ~~commercial~~results ~~launch~~of operations.

WeThe ~~continually~~successful ~~evaluate~~growth ~~our options for commercial production~~ of our ~~product~~business ~~candidates, including use of third-party~~depends ~~manufacturers~~to ~~or entering into~~ a ~~manufacturing~~large ~~joint~~extent ~~venture~~on ~~relationship~~our ~~with a~~ability ~~collaborator~~to orfind ~~other~~ third -party~~. We are~~ ~~aware~~collaborators ofto ~~only~~develop and acommercialize ~~limited~~many ~~number~~ of ~~companies on a worldwide basis that operate manufacturing facilities in which~~ our product candidates ~~can be manufactured under good manufacturing practice regulations, a requirement for all pharmaceutical products~~. It may take a substantial period of time for a contract manufacturing facility that has not been producing antibodies to begin producing antibodies under good manufacturing practice regulations. We may not be able to contract with any of these companies on acceptable terms, if at all.

~~Third-party~~Our ~~manufacturers~~strategy ~~may~~for ~~encounter~~the ~~difficulties in~~development ~~scaling up production, including problems involving production yields,~~and ~~quality~~commercialization ~~control and assurance, shortage~~ of ~~qualified~~antibody ~~personnel,~~therapeutic ~~shortage~~products ~~of capacity~~depends, ~~compliance~~in ~~with~~large ~~FDA and other applicable regulations~~part, ~~production~~upon ~~costs,~~the ~~and~~formation ~~development~~ of ~~advanced~~collaboration ~~manufacturing~~agreements ~~techniques~~with ~~and~~third ~~process controls~~parties. ~~They~~ ~~may~~Potential ~~not perform as agreed~~third orparties ~~may~~include ~~not~~pharmaceutical ~~remain in the contract manufacturing business for the time required by us to successfully produce~~ and ~~market~~biotechnology ~~our product candidates. Also~~companies, ~~third-party manufacturers may have~~technology ~~difficulty maintaining compliance with FDA good manufacturing practices or equivalent regulations~~companies, oracademic ~~having~~institutions ~~their~~and ~~facilities~~other ~~pass~~entities. aWe ~~pre-approval inspection. Any~~must ~~failure~~enter ofinto ~~third-party~~these ~~manufacturers~~agreements to ~~deliver~~successfully ~~the~~develop ~~required~~and ~~quantities~~commercialize ~~of our~~ product candidates. ~~for~~These ~~clinical~~agreements ~~use~~are onnecessary ain ~~timely~~order ~~basis~~for ~~and~~us ~~at commercially reasonable prices, and our failure~~ to ~~find replacement manufacturers or successfully implement our own manufacturing capabilities, would materially harm our business, financial condition and results of operations.~~:

~~The~~• access ~~successful~~proprietary ~~growth~~antigens offor ~~revenues from~~which ~~our~~we ~~manufacturing services depends to a large extent on our ability to~~can ~~find~~generate ~~third~~fully ~~parties~~human ~~who~~antibody ~~agree to use our services and our ability to provide those services successfully.~~products;

Enhancing our contract revenues depends to a significant extent on entering into agreements to provide antibody production services to third parties. Potential third parties include our existing collaborators, as well as other pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to successfully develop this aspect of our business. To date, we have entered into two production services agreements and we cannot assure you that we will be able to enter into additional agreements.39

We• fund ~~may not be able to secure manufacturing agreements on favorable terms. If we do obtain such agreements~~research, wepreclinical may encounter difficulties in performing as agreed. We may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, training of personnel, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. The failure to deliver required quantities of product on a timely basis and at commercially reasonable prices could materially harm our business, ~~financial~~clinical ~~condition~~trials and ~~results of operations.~~manufacturing;

40• seek and obtain regulatory approvals; and

~~The~~• successfully ~~successful~~commercialize ~~growth~~existing ~~of our business depends to a large extent on our ability to find third-party collaborators to develop~~ and ~~commercialize many of our~~ future product candidates.

Our ~~strategy~~ability ~~for~~to ~~the~~continue ~~development~~our current collaborations and ~~commercialization of~~to ~~antibody~~enter ~~therapeutic~~into ~~products~~additional ~~depends,~~third party collaborations is dependent in large part, ~~upon~~on ~~the~~our ~~formation~~ability ofto successfully demonstrate that our ~~collaboration~~XenoMouse ~~agreements~~technology ~~with~~is ~~third~~an ~~parties~~attractive method of developing antibody therapeutic products. We ~~Potential~~have ~~third~~generated ~~parties~~only ~~include~~a ~~pharmaceutical~~limited ~~and~~number ~~biotechnology~~of ~~companies,~~fully ~~technology~~human ~~companies,~~antibody ~~academic~~therapeutic product candidates pursuant ~~institutions~~to ~~and~~our ~~other~~collaboration ~~entities.~~agreements Wethat ~~must~~have ~~enter~~advanced ~~into~~to ~~these~~the ~~agreements~~clinical stage. Our failure to maintain our existing ~~successfully~~collaboration ~~develop~~agreements ~~and~~or ~~commercialize~~to ~~product~~enter ~~candidates.~~into ~~These~~additional agreements ~~are~~could ~~necessary~~materially inharm ~~order~~our ~~for~~business, usfinancial ~~to:~~condition and results of operations.

~~• access~~Our dependence on licensing, collaboration, ~~proprietary~~manufacturing ~~antigens~~and ~~for~~other ~~which~~agreements with third parties subjects us to a number of risks. These agreements may not be on terms that prove favorable to us, and we ~~can~~typically ~~generate~~afford ~~fully~~our ~~human~~collaborators significant ~~antibody~~discretion in electing whether to pursue any of the planned activities. Licensing and other contractual arrangements may require us to relinquish our rights to certain of our technologies, products; or marketing territories. To the extent we agree to work exclusively with one collaborator in a given therapeutic area, our opportunities to collaborate with other entities could be curtailed. For example, our collaboration with AstraZeneca for the identification and development of therapeutic antibodies in oncology contains exclusivity provisions that significantly restrict our ability, during a three-year target selection period, to enter into arrangements with third parties in the field of oncology as well as our ability to conduct research and development activities in that field. To the extent that our collaboration with AstraZeneca is not successful, our ability to develop antibodies for use in oncology applications through other collaborations will be severely curtailed. Our collaboration with AstraZeneca also limits our ability to develop such antibodies through our own independent development.

~~• fund~~We cannot control the amount or timing of ~~research~~resources our collaborators may devote to a collaboration, ~~preclinical~~and ~~development~~collaborators may not perform their obligations as expected. Additionally, ~~clinical~~business combinations ~~trials~~or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. The termination or breach of agreements by our collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business, financial condition and ~~manufacturing;~~results of operations. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may:

• ~~seek~~ limit the number of product candidates that we will ~~and~~be ~~obtain~~able ~~regulatory~~to ~~approvals;~~develop and reduce the likelihood of successful product introduction;

• ~~successfully commercialize~~ significantly ~~existing~~increase ~~and~~our ~~future~~capital ~~product~~requirements; ~~candidates.~~and

~~Our~~• place ~~ability to continue our current collaborations and to enter into~~ additional ~~third~~strain ~~party collaborations is dependent in large part~~ on our ~~ability~~management’s ~~to successfully demonstrate that our XenoMouse technology is an attractive method of developing antibody therapeutic products~~time. We have generated only a limited number of fully human antibody therapeutic product candidates pursuant to our collaboration agreements and only eight fully human antibody therapeutic product candidates generated with XenoMouse technology have entered the clinical stage. We have announced that one of these product candidates has not met our expectations. Our failure to maintain our existing collaboration agreements or to enter into additional agreements could materially harm our business, financial condition and results of operations.

~~Our~~Existing ~~dependence~~or onpotential ~~licensing,~~collaborators ~~collaboration,~~may ~~manufacturing~~pursue ~~and~~alternative ~~other~~technologies, ~~agreements~~including ~~with~~those ~~third~~of ~~parties~~our ~~subjects~~competitors, usor ~~to a number~~enter ofinto ~~risks.~~other ~~These~~transactions ~~agreements~~that ~~may~~could ~~not~~make bea oncollaboration ~~terms~~with ~~that prove favorable to~~ us, ~~and we~~less ~~typically afford our collaborators significant discretion in electing~~attractive ~~whether~~ to ~~pursue any of the planned activities~~them. ~~Licensing~~For ~~and~~example, ~~other contractual~~if ~~arrangements~~an ~~may~~existing ~~require~~collaborator uspurchases toa ~~relinquish~~company ~~our~~that ~~rights~~is one ~~to certain~~ of our ~~technologies~~competitors, ~~products~~that orcompany ~~marketing~~could ~~territories.~~be Toless ~~the~~willing ~~extent we agree~~ to ~~work~~ ~~exclusively~~continue ~~with one collaborator in a given therapeutic area, our~~its ~~opportunities~~collaboration ~~to collaborate~~ with ~~other entities could be curtailed~~us. ~~For example~~Moreover, disputes ~~our~~may ~~collaboration~~arise with ~~AstraZeneca~~ ~~for~~respect to the ~~identification~~ownership ~~and development~~ of ~~therapeutic~~rights ~~antibodies~~to ~~in oncology~~any ~~contains~~technology ~~exclusivity provisions that significantly restrict our~~or ~~ability~~products todeveloped ~~enter into arrangements~~ with ~~third~~any ~~parties~~current inor ~~the~~future ~~field~~collaborator. ~~of oncology~~Lengthy asnegotiations ~~well~~with aspotential ~~our~~new ~~ability~~collaborators toor ~~conduct~~disagreements ~~research~~between ~~and~~us ~~development activities in that~~and ~~field. To the extent that~~ our ~~collaboration~~ ~~with~~collaborators ~~AstraZeneca~~may islead ~~not successful, our ability~~ to ~~develop antibodies~~delays ~~for use~~ in ~~oncology~~or ~~applications~~termination ~~through~~of ~~other~~the ~~collaborations will~~research, bedevelopment ~~severely~~or ~~curtailed. Our~~commercialization ~~collaboration with~~of ~~AstraZeneca also limits our ability to develop such antibodies through our own independent development.~~product

We cannot control the amount or timing of resources our collaborators may devote to a collaboration, and collaborators may not perform their obligations as expected. Additionally, business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. The termination or breach of agreements by our collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business, financial condition and results of operations. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may:40

~~• limit~~candidates or result in time-consuming and expensive litigation or arbitration. The decision by our collaborators to pursue alternative technologies or the ~~number~~failure of ~~product~~our ~~candidates~~collaborators ~~that~~to wedevelop ~~will~~or becommercialize successfully ~~able~~any product candidate to ~~develop~~which they have obtained rights from us could materially harm our business, financial condition and results of ~~commercialize;~~operations.

41We are subject to extensive government regulation, which will require us to spend significant amounts of money, and we may not be able to obtain regulatory approvals, which are required for us to conduct clinical testing and commercialize our products.

~~• reduce~~Our product candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the development, ~~likelihood~~testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical ~~successful~~products. If we market our products abroad, they will also be subject to extensive regulation by foreign governments. Neither the FDA nor any other regulatory agency has approved any of our product ~~introduction;~~candidates for sale in the United States or any foreign market. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. The recent withdrawal of certain approved products from the market may lead to longer review periods by the FDA, particularly for product candidates being reviewed under an accelerated approval process, or may result in requests for more extensive trials or data.

~~• significantly~~Securing FDA approval requires the submission ~~increase~~of ~~our~~extensive ~~capital~~preclinical and clinical data, manufacturing data and supporting information to the FDA for each indication to establish the product candidate’s safety and efficacy. The generation of data supporting the approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and requirements; for post-marketing studies. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. The approval of a product candidate may depend on the acceptability to the FDA of data from clinical trials conducted outside the United States. Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:

• ~~place~~ adversely affect the successful commercialization of ~~additional~~any ~~strain~~drugs onthat we or our ~~management’s~~customers ~~time.~~develop;

~~Existing~~• impose orcostly ~~potential~~procedures ~~collaborators~~on ~~may pursue alternative technologies, including those of our competitors, or enter into other transactions that could make a collaboration with~~ us less attractive to them. For example, if an existing collaborator purchases a company that is one of our competitors, that company could be less willing to continue its collaboration with us. In addition, a company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect to the ownership of rights to any technology or ~~products developed with any current or future collaborator. Lengthy negotiations with potential new collaborators or disagreements between us and~~ our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration. The decision by our collaborators to pursue alternative technologies or the failure of our collaborators to develop or commercialize successfully any product candidate to which they have obtained rights from us could materially harm our business, financial condition and results of operations.customers;

We• diminish ~~are subject~~any tocompetitive ~~extensive~~advantages ~~government~~that ~~regulation,~~we ~~which~~or ~~will require us to spend~~our ~~significant~~customers ~~amounts of money, and we~~ may ~~not~~attain; ~~be able to obtain regulatory approvals, which are required for us to conduct clinical testing~~ and ~~commercialize our products.~~

~~Our~~• adversely ~~product~~affect candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If we market our ~~products~~receipt ~~abroad, they will also be subject to extensive regulation by foreign governments. Neither the FDA nor any other regulatory agency has approved any~~ of ~~our~~revenues ~~product candidates for sale in the United States~~ or ~~any foreign market. The regulatory~~ ~~review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain~~royalties. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish the product candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and requirements for post-marketing studies. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. The approval of a product candidate may depend on the acceptability to the FDA of data from clinical trials conducted outside the United States. Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:

~~• adversely~~Our product candidates may not be approved or ~~affect~~may ~~the~~be ~~successful~~approved ~~commercialization~~with oflimitations ~~any~~or ~~drugs~~for indications that differ from those we initially ortarget. ~~our~~Even ~~customers~~if marketing approval from the FDA is received, the FDA ~~develop;~~may impose post-marketing requirements, such as:

• ~~impose~~ labeling and advertising requirements, restrictions ~~costly~~or ~~procedures~~limitations, onsuch usas the inclusion of warnings, precautions, contra-indications or use limitations that could have a material impact on the future profitability of our ~~customers~~product candidates;

• ~~diminish any~~ testing ~~competitive~~and ~~advantages~~surveillance ~~that~~to wemonitor or our ~~customers~~future ~~may~~products and ~~attain~~their continued compliance with regulatory requirements; and

~~• adversely affect our receipt of revenues or royalties.~~41

42• inspection of products and manufacturing operations and, if any inspection reveals that the product or operation is not in compliance, prohibiting the sale of all products, suspending manufacturing or withdrawing market clearance.

~~Our~~The ~~product~~discovery ~~candidates~~of ~~may~~previously ~~not~~unknown beproblems with ~~approved~~our orfuture products may ~~be approved~~result ~~with~~in ~~limitations~~restrictions orof ~~for~~the ~~indications~~products, ~~that~~including withdrawal ~~differ~~ from ~~those we initially target~~manufacture. ~~If approved~~Additionally, certain material changes affecting an aapproved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. The FDA may revisit and change its prior determination with regard to the safety or efficacy of our products and withdraw any required approvals after we obtain them. WeEven ~~may~~prior ~~not~~to ~~maintain~~any formal ~~compliance~~regulatory ~~with~~action ~~other~~requiring ~~regulatory requirements.~~labeling ~~Further,~~changes ifor affecting manufacturing, we ~~fail~~could tovoluntarily ~~comply~~decide ~~with~~to ~~applicable~~cease ~~FDA~~the distribution and ~~other regulatory~~sale ~~requirements~~or atrecall any ~~stage~~of our ~~during~~future ~~the~~products ~~regulatory~~if ~~process,~~concerns weabout ortheir ~~our third-party~~safety ~~manufacturers~~and ~~may~~efficacy ~~be subject to sanctions, including:~~develop.

~~• delays;~~In their regulation of advertising, the FDA and the Federal Trade Commission (“FTC”) may issue correspondence alleging that particular advertising or promotional practices are false, misleading or deceptive. The FDA or FTC may impose a wide array of sanctions on companies for such advertising practices. Additionally, physicians may prescribe pharmaceutical or biologic products for uses that are not described in a product’s labeling or differ from those tested by us and approved by the FDA. While such “off-label” uses are common and the FDA does not regulate physicians’ choice of treatments, the FDA does restrict a manufacturer’s communications on the subject of “off-label” use. Companies cannot promote FDA-approved pharmaceutical or biologic products for off-label uses. If our advertising or promotional activities fail to comply with the FDA’s or FTC’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA or FTC.

~~• warning~~If we fail to comply with applicable FDA and ~~letters;~~other regulatory requirements at any stage during the regulatory process, we or our third-party manufacturers may be subject to sanctions, including:

• ~~fines~~ delays;

• ~~clinical holds~~ warning letters;

• ~~product recalls or seizures~~ fines;

• ~~injunctions~~ clinical holds;

• ~~refusal of~~ consent ~~the FDA to review pending market approval applications or supplements to approval applications~~decrees;

• ~~total or~~ product ~~partial~~recalls ~~suspension~~or ~~of production~~seizures;

• ~~civil penalties~~ changes to advertising;

• ~~withdrawals of previously approved marketing applications~~ injunctions; ~~and~~

• ~~criminal~~ refusal of the FDA to review pending market approval ~~prosecutions.~~applications or supplements to approval applications;

In• total many instances we expect to rely on our customers and co-developers to file INDs and generally direct the regulatory approval process for products derived from our technologies. These customers and co-developers may not be able to or ~~may~~partial ~~choose~~suspension ~~not~~of ~~to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any~~ product ~~candidates. If they fail to obtain required governmental approvals,~~ ~~we will experience delays in or be precluded from marketing or realizing the commercial benefits from the marketing of products derived from our technologies. In addition~~manufacturing, ~~our failure to obtain the required approvals would preclude the commercial use of our products. Any such delays and limitations may materially harm our business~~distribution, ~~financial~~marketing ~~condition~~ and ~~results of operations.~~sales;

We• civil and our third-party manufacturers also are required to comply with the applicable FDA current good manufacturing practice regulations and other regulatory requirements. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA and the facilities must pass an inspection by the FDA before we can use them in commercial manufacturing of any product. Manufacturing facilities in California, including our facility, are also subject to the licensing requirements of and inspection by the State of California Department of Health Services. In October 2003, following an inspection, we received a Drug Manufacturing License from the State of California. The license, which must be renewed annually, permits us to manufacture and ship clinical material. We or our third-party manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other regulatory requirements. The failure of us or our third-party manufacturers to comply with these requirements would materially harm our business, financial condition and results of operations.penalties;

43• withdrawals of previously approved marketing applications; and

If• criminal ~~our products do not gain market acceptance among the medical community, our revenues would greatly decline and might not be sufficient to support our operations~~prosecutions.

Our product candidates may not gain market acceptance among physicians, patients, third-party payors and the medical community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy, and the necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product candidates that we develop will depend on a number of factors, including:42

~~• establishment~~In many instances we expect to rely on our customers and ~~demonstration~~co-developers ofto file INDs and generally direct the regulatory approval process for products derived from our technologies. These customers and co-developers may not be able to or may choose not to conduct clinical ~~efficacy~~testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If they fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing or realizing the commercial benefits from the marketing of products derived from our technologies. In addition, our failure to obtain the required approvals would preclude the commercial use of our products. Any such delays and ~~safety;~~limitations may materially harm our business, financial condition and results of operations.

~~• cost-effectiveness~~If we are unable to manufacture our product ofcandidates in compliance with current good manufacturing practices requirements, we will not be able to commercialize our product candidates;.

~~• their~~We are required to comply with the applicable ~~potential~~FDA ~~advantage~~current ~~over~~good ~~alternative~~manufacturing ~~treatment~~practice, ~~methods;~~or “cGMP” regulations and the requirements of other regulatory authorities. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities, including our facility, must pass a pre-license inspection by the FDA before initiating commercial manufacturing of any product. The FDA enforces post-marketing regulatory requirements such as cGMP requirements, through periodic unannounced inspections. We do not know whether we will pass any future FDA inspections. Failure to pass an inspection could disrupt, delay or shut down our manufacturing operations. In addition, cGMP requirements are constantly evolving and new or different requirements may apply in the future. Manufacturing facilities in California, including our facility, are also subject to the licensing requirements of and inspection by the State of California Department of Health Services. In October 2003, following an inspection, we received a Drug Manufacturing License from the State of California. The license, which must be renewed annually, permits us to manufacture and ship clinical material. We are responsible for manufacturing clinical and, for the first five years after launch, commercial supplies for panitumumab with Amgen’s support and assistance. We may not be able to comply with applicable cGMP requirements and other regulatory requirements. Our failure to comply with these requirements could delay or prevent the approval of our product candidates and would materially harm our business, financial condition and results of operations.

~~• reimbursement~~If our products do not gain market acceptance ~~policies~~among ofthe ~~government~~medical ~~and~~community, ~~third-party~~our ~~payors;~~revenues would greatly decline and might not be sufficient to support our operations.

~~• marketing~~Our product candidates may not gain market acceptance among physicians, patients, third-party payors and ~~distribution~~the ~~support~~medical community. ~~for~~We ~~our~~may ~~product~~not ~~candidates~~achieve market acceptance even if clinical trials demonstrate safety and efficacy, ~~including~~and the ~~efforts~~necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product ~~our~~candidates ~~collaborators~~that ~~where~~we ~~they~~develop ~~have~~will ~~marketing~~depend ~~and~~on ~~distribution~~a ~~responsibilities.~~number of factors, including:

~~Physicians~~• establishment ~~will not recommend therapies using our products until such time as clinical data or other factors demonstrate the safety~~ and ~~efficacy~~demonstration of ~~such procedures as compared to conventional drug and other treatments. Even if we establish the~~ clinical ~~safety and~~ efficacy of therapies using our antibody product candidates, physicians may elect not to recommend the therapies for any number of other reasons, including whether the mode of administration of our antibody products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others. Physicians, patients, third-party payers and the medical community may not accept or utilize any product candidates that we or our customers develop. The failure of our products to achieve significant market acceptance would materially harm our business, financial condition and results of operations.safety;

We• cost-effectiveness doof ~~not have marketing and sales experience, which may require us to rely on others to market and sell~~ our ~~products~~ ~~and may make it more challenging for us to commercialize our~~ product candidates.;

~~Although~~• their ~~we have been marketing our XenoMouse technology to~~ potential ~~customers~~advantage ~~and~~over ~~collaborators~~alternative ~~for several years, we do~~treatment not have marketing, sales or distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product candidates when we commercialize them, which may be as early as 2005. For example, pursuant to our amended joint development agreement with Immunex, we have granted to Immunex decision-making authority for development and commercialization activities relating to any products developed under the collaboration. We may not be able to enter into these marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others. These efforts may not be successful. If we are unable to enter into third-party arrangements, we will need to develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. Our failure to enter into successful marketing arrangements with third parties and our inability to conduct such activities ourselves would materially harm our business, financial condition and results of operations.methods;

44• reimbursement policies of government and third-party payors; and

~~Risks~~• marketing ~~Related~~and todistribution ~~Intellectual~~support for our product ~~Property~~candidates, including the efforts of our collaborators where they have marketing and distribution responsibilities.

~~Our~~Physicians ~~ability~~will tonot ~~protect~~recommend ~~our~~therapies using ~~intellectual~~our ~~property~~products ~~rights~~until ~~will~~such betime ~~critically~~as ~~important~~clinical todata ~~the~~or ~~success~~other offactors ~~our~~demonstrate the ~~business,~~safety and weefficacy ~~may~~of ~~not~~such beprocedures ~~able~~as compared to ~~protect~~conventional ~~these~~drug ~~rights~~and other intreatments. Even if we establish the ~~United~~clinical ~~States~~safety and efficacy of ortherapies ~~abroad.~~using our antibody product

~~Our success depends in part on our ability to:~~43

~~• obtain~~candidates, physicians may elect not to recommend the therapies for any ~~patents;~~number of other reasons, including whether the mode of administration of our antibody products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others. Physicians, patients, third-party payers and the medical community may not accept or utilize any product candidates that we or our customers develop. The failure of our products to achieve significant market acceptance would materially harm our business, financial condition and results of operations.

~~• protect~~We do not have marketing and sales ~~trade~~experience, ~~secrets;~~which may require us to rely on others to market and sell our products and may make it more challenging for us to commercialize our product candidates.

~~• operate~~Although we have been marketing our XenoMouse ~~without~~technology ~~infringing~~to potential customers and collaborators for several years, we do not have marketing, sales or distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product candidates when we commercialize them. For example, pursuant to our amended joint development agreement for panitumumab, Amgen has decision-making authority for development and commercialization activities relating to any products developed under the ~~proprietary~~collaboration, ~~rights~~and we have the right to co-promote any products. Should this product candidate proceed to commercialization, it will take significant resources to develop the appropriate sales capabilities and there can be no assurance that we will be able to do this successfully. We may not be able to enter into additional marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others;. These efforts may not be successful. If we are unable to enter into third-party arrangements, we will need to develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. Our failure to enter into successful marketing arrangements with third parties and our inability to conduct such activities ourselves would materially harm our business, financial condition and results of operations.

~~• prevent others~~Risks ~~from~~Related ~~infringing~~to ~~our~~Intellectual ~~proprietary rights.~~Property

WeOur ~~will~~ability ~~be able~~ to protect our ~~proprietary rights from~~intellectual ~~unauthorized~~property ~~use by third parties only to the extent that our proprietary~~ rights ~~are~~will ~~covered~~be bycritically valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the ~~development~~ success of our business~~. However~~, ~~the patent position of biopharmaceutical companies~~ ~~involves complex legal~~ and ~~factual questions, and, therefore,~~ we ~~cannot~~may ~~predict with~~not ~~certainty whether our patent applications will~~ be ~~approved~~able ~~or any resulting patents will be enforced. In addition, third parties may challenge, seek~~ to ~~invalidate~~protect orthese ~~circumvent~~rights any of our patents, once they are issued. Thus, any patents that we own or license from third parties may not provide any protection against competitors. Our pending patent applications, those we may file in the ~~future,~~United orStates ~~those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection~~ or ~~competitive advantages against competitors with similar technologies~~abroad. ~~The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.~~

InOur ~~addition~~success todepends ~~patents, we rely on trade secrets and proprietary know-how. We seek protection,~~ in part, ~~through~~on ~~confidentiality and proprietary information agreements. These agreements may not provide meaningful protection for~~ our ~~technology or adequate remedies in the event of unauthorized~~ability ~~use or disclosure of confidential and proprietary information, and, in addition, the parties may breach such agreements. Also, our trade secrets may otherwise become known~~ to~~, or be independently developed by, our competitors. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed.~~:

We• obtain ~~may face challenges from third parties regarding the validity of our~~ patents and proprietary rights, or from third parties asserting that we are infringing their patents or proprietary rights, which could result in litigation that would be costly to defend and could deprive us of valuable rights.;

~~Parties~~• protect ~~have~~trade conducted research for many years in the antibody and transgenic animal fields. The term “transgenic”, when applied to an animal, such as a mouse, refers to an animal that has chromosomes into which human genes have been incorporated. This research has resulted in a substantial number of issued patents and an even larger number of pending patent applications. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. Such infringement or violation may prevent us and our customers from pursuing product development or commercialization. Such a result could materially harm our business, financial condition and results of operations.secrets;

45• operate without infringing the proprietary rights of others and defend ourselves from any allegation that we have done so; and

In• prevent ~~March 1997,~~others wefrom ~~entered~~infringing into a cross-license and settlement agreement with GenPharm to avoid protracted litigation. Under the cross-license, we licensed on a non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice, that produce fully human antibodies that are integral to our ~~products and business. Our business,~~proprietary ~~financial condition and results of operations could be materially harmed if any of the parties breaches the cross-license agreement~~rights.

~~GlaxoSmithKline,~~We ~~plc,~~will orbe ~~Glaxo,~~able ~~has a family of patents relating~~ to ~~certain~~protect ~~methods~~our ~~for generating monoclonal antibodies that~~proprietary ~~Glaxo~~rights isfrom ~~asserting~~unauthorized ~~against~~use ~~Genentech, Inc.~~by inthird ~~litigation~~parties ~~that~~only ~~was commenced~~to inthe ~~1999.~~extent ~~On May 4, 2001, Genentech announced~~ that ~~a jury had~~our ~~determined~~proprietary ~~that~~rights ~~Genentech~~are ~~had~~covered ~~not~~by ~~infringed~~valid ~~Glaxo’s patents~~ and ~~that~~enforceable ~~all~~patents ofor ~~the patent claims asserted against Genentech~~ are ~~invalid. We understand that Glaxo~~effectively ~~has~~maintained ~~filed~~as atrade ~~notice of appeal with the Court of Appeals for the Federal Circuit~~secrets. If ~~any~~We ofattempt ~~the~~to ~~claims~~protect ofour ~~these~~proprietary ~~patents~~position ~~are finally determined in the litigation~~by tofiling beU.S. ~~valid,~~ and ifforeign wepatent ~~were~~applications torelated ~~use manufacturing processes covered by the patents~~ to ~~make~~ our ~~products~~proprietary technology, weinventions ~~may~~and ~~then~~improvements ~~need~~that toare ~~obtain~~important ato ~~license~~the ~~should one~~development beof ~~available~~our business. ~~Should a license be denied or unavailable on commercially reasonable terms~~However, wethe ~~may~~patent ~~have~~position ~~difficulty commercializing one or more~~ of ~~our~~biopharmaceutical companies ~~products~~involves incomplex ~~any~~legal ~~territories in which these claims were in force.~~and

Genentech, Johnson & Johnson, Glaxo, Transkaryotic Therapies, Inc. and the Trustees of Columbia University in the City of New York each owns or controls a U.S. patent that relates to recombinant cell lines or methods of generating recombinant cell lines for the production of antibodies. If we were to use a production system covered by any of these patents, we may then need to obtain a license should one be available. Under these circumstances, our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products in any territories in which these patent claims were in force.44

~~Genentech~~factual ~~owns~~questions, aand, ~~U.S.~~therefore, ~~patent~~we ~~that~~cannot ~~issued~~predict ~~in June 1998~~with ~~relating to inhibiting the growth of tumor cells that involves~~certainty anwhether ~~antibody~~our ~~that~~patent ~~binds~~applications towill anbe ~~epidermal~~approved ~~growth~~or ~~factor~~any ~~receptor,~~resulting orpatents ~~an anti-EGF~~will ~~receptor~~be ~~antibody,~~enforced. inIn ~~combination~~addition, ~~with~~third aparties ~~cytotoxic~~may ~~factor~~challenge, ~~which~~seek isto ainvalidate ~~substance~~or ~~having~~circumvent aany ~~toxic~~of ~~effect~~our ~~on cells. ImClone Systems~~patents, ~~Inc.~~ ~~owns~~once orthey isare ~~licensed under a U~~issued.S. ~~patent that issued in April 2001~~Thus, ~~relating~~any topatents ~~inhibiting~~that ~~the~~we ~~growth~~own ofor ~~tumor~~license ~~cells~~from ~~that~~third ~~involves~~parties anmay ~~anti-EGF~~not ~~receptor~~provide ~~antibody~~any inprotection ~~combination~~against competitors. ~~with~~Our anpending ~~anti-neoplastic,~~patent ~~or anti-tumor~~applications, ~~agent. A~~those ~~corresponding~~we ~~European~~may ~~patent~~file ~~was~~in ~~published~~the ~~for~~future, ~~grant~~or inthose ~~March 2002~~we ~~and~~may ~~Abgenix~~license ~~and~~from ~~others~~third ~~are~~parties, ~~opposing~~may ~~that~~not ~~patent~~result in ~~the~~patents ~~European~~being ~~Patent Office~~issued. A ~~corresponding~~ Also, patent ~~has~~rights ~~also~~may ~~been issued in Canada. We do~~ not ~~believe~~provide ~~based~~us ~~on our~~with ~~review~~adequate ~~that~~proprietary ~~either~~protection ~~the Genentech patent~~ or ~~any of the ImClone patents would~~ becompetitive ~~successfully~~advantages ~~asserted~~ against ~~any~~competitors ofwith ~~our~~similar ~~current or planned activities relating to panitumumab or future commercial sales of panitumumab~~technologies. IfThe ~~a court~~laws ~~determines that the claims~~ of ~~either~~certain ~~the~~foreign ~~Genentech~~countries ~~patent~~do ornot ~~the~~protect ~~ImClone patents cover~~ our ~~activities~~intellectual ~~with~~property ~~panitumumab~~rights ~~and are valid, such a decision may require us~~ to ~~obtain a license to Genentech’s patent or ImClone’s patents,~~ as the ~~case~~same ~~may~~extent ~~be,~~as todo ~~label~~the ~~and~~laws ~~sell~~of ~~panitumumab~~the ~~for~~United ~~certain combination therapies~~States. ~~Our failure to obtain a license, or to obtain a license on commercially reasonable terms, could impede our commercialization of panitumumab.~~

In ~~2000,~~addition ~~the~~to ~~Japan~~patents, ~~Patent~~we ~~Office~~rely ~~granted~~on ~~a patent to~~trade ~~Kirin~~secrets ~~Beer~~and ~~Kabushiki~~proprietary ~~Kaisha,~~know-how. ~~one~~We ofseek ~~our competitors~~protection, ~~relating~~in topart, ~~non-human~~through ~~transgenic~~confidentiality ~~mammals~~and proprietary information agreements. In ~~October~~These ~~2003,~~agreements ~~the~~may ~~United~~not ~~States~~provide ~~Patent~~meaningful ~~and~~protection ~~Trademark~~for ~~Office~~our ~~issued~~technology aor ~~corresponding~~adequate ~~patent~~remedies toin ~~Kirin. Kirin~~the ~~has~~event ~~filed~~of ~~corresponding patent~~unauthorized ~~applications~~use inor ~~Europe~~disclosure ~~and~~of ~~Australia.~~confidential ~~Our~~and ~~licensee~~proprietary information, ~~Japan~~and, ~~Tobacco~~in addition, ~~has~~the parties may breach such agreements. Also, ~~filed~~our ~~opposition~~trade ~~proceedings~~secrets ~~against~~may ~~the~~otherwise ~~Kirin~~become ~~patent.~~known Weto, ~~cannot~~or ~~predict~~be ~~the~~independently developed ~~outcome~~by, ofour ~~those~~competitors. ~~opposition proceedings~~Furthermore, ~~which~~others may ~~take~~independently ~~years~~develop tosimilar technologies beor ~~resolved~~duplicate any technology that we have developed.

~~Extensive~~We ~~litigation~~may ~~regarding~~face ~~patents~~challenges ~~and~~from ~~other~~third parties ~~intellectual~~regarding ~~property~~the ~~rights~~validity ~~has~~of ~~been~~our ~~common~~patents ~~in the biotechnology~~ and ~~pharmaceutical~~ ~~industries.~~proprietary ~~The~~rights, ~~defense~~or ~~and~~from ~~prosecution~~third parties ofasserting ~~intellectual~~that ~~property suits,~~we ~~United~~are ~~States~~infringing ~~Patent~~their ~~and~~patents ~~Trademark~~or ~~Office~~proprietary ~~interference proceedings~~rights, ~~and~~ ~~related~~which ~~legal~~could ~~and~~result ~~administrative proceedings~~ in ~~the~~litigation ~~United~~that ~~States~~would ~~and internationally~~be ~~involve complex legal and factual questions. As a result, such proceedings are~~ costly ~~and time-consuming~~ to ~~pursue~~defend and ~~their outcome is~~could ~~uncertain.~~deprive ~~Litigation~~us ~~may~~of bevaluable ~~necessary to:~~rights.

46Parties have conducted research for many years in the antibody and transgenic animal fields. The term “transgenic”, when applied to an animal, such as a mouse, refers to an animal that has chromosomes into which human genes have been incorporated. This research has resulted in a substantial number of issued patents and an even larger number of pending patent applications. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. Such infringement or violation may prevent us and our customers from pursuing product development or commercialization. Such a result could materially harm our business, financial condition and results of operations.

~~• enforce~~ Extensive litigation regarding patents ~~that~~and other weintellectual ~~own~~property orrights ~~license;~~has been common in the biotechnology and pharmaceutical industries. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office interference proceedings, and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to:

• ~~protect trade~~ enforce ~~secrets~~patents ~~or know-how~~ that we own or license; or

• ~~determine the~~ protect ~~enforceability,~~trade ~~scope~~secrets ~~and~~or ~~validity~~know-how ofthat ~~the~~we ~~proprietary~~own ~~rights~~or license; ~~of others.~~or

~~Our~~• determine ~~involvement~~the ~~in any litigation~~enforceability, ~~interference~~scope ~~or other administrative proceedings could cause us to incur substantial expense~~ and ~~could~~validity ~~significantly divert the efforts~~ of ~~our technical and management~~ ~~personnel.~~the ~~An adverse determination may subject us to loss of our~~ proprietary ~~position~~ orrights to significant liabilities, or require us to seek licenses that may not be available from third parties. An adverse determination in a judicial or administrative proceeding, or a failure to obtain necessary licenses, may restrict or prevent us from manufacturing and selling our products, if any. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes could materially harm our business, financial condition and results of ~~operations~~others.

~~Risks~~Our ~~Related~~involvement in any litigation, interference or other administrative proceedings could cause us to ~~Our~~incur substantial ~~Industry~~expense and could significantly divert the efforts of our technical and management personnel. An adverse determination may subject us to loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties. An adverse determination in a judicial or administrative proceeding, or a failure to obtain necessary licenses, may restrict or prevent us from manufacturing and selling our products, if any. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes could materially harm our business, financial condition and results of operations.

We face intense competition and rapid technological change, and if we fail to develop products that keep pace with new technologies and that gain market acceptance, our product candidates or technologies could become obsolete.45

~~Some~~We offace ~~our~~intense ~~competitors~~competition ~~have~~and ~~received regulatory~~rapid ~~approval~~technological ofchange, orand ~~are~~if ~~developing~~we orfail ~~testing~~to ~~product~~develop ~~candidates~~products that ~~may~~keep ~~compete directly~~pace with ~~our product candidates. ImClone, in collaborations with Bristol-Meyers~~ ~~Squib~~new ~~Company~~technologies and ~~Merck~~that ~~KgAa;~~gain ~~AstraZeneca,~~market ~~plc; Glaxo; and a collaboration of OSI Pharmaceuticals~~acceptance, ~~Inc.,~~ ~~Genentech~~our ~~and Roche have potential antibody and small molecule~~ product candidates ~~in clinical development that may compete with~~or ~~panitumumab,~~technologies ~~which~~could isbecome ~~also in clinical trials~~obsolete.

~~ImClone~~The biotechnology and ~~Bristol-Myers~~pharmaceutical industries ~~Squibb~~are ~~have~~highly ~~received approval~~competitive toand ~~market~~subject ~~Erbitux,~~to ~~ImClone’s~~significant ~~antibody~~and ~~product~~rapid technological ~~candidate~~change. We ~~for the~~face ~~treatment~~competition ofin ~~metastatic~~several ~~colorectal~~different ~~cancer,~~forms. Our inantibody ~~the~~generation ~~United~~activities ~~States. ImClone~~currently ~~and~~face ~~Bristol-Myers~~competition ~~Squibb~~from several ~~have~~companies ~~also~~and technologies. In ~~announced~~addition, the ~~submission~~product ofcandidates anthat ~~application~~we ~~for~~or ~~approval~~our tocustomers ~~market~~are ~~Erbitux~~developing inalso ~~Canada~~face competition. ~~Merck~~Finally, ~~KgAa~~we ~~has~~compete with ~~announced~~companies that ~~it has~~currently ~~received~~offer ~~approval~~antibody toproduction ~~market~~services, ~~Erbitux~~and ~~for the treatment of metastatic~~may ~~colorectal~~compete ~~cancer~~with incompanies ~~the~~that ~~European~~currently ~~Union~~only ~~and~~manufacture ~~that~~their itown ~~has~~antibodies ~~received approval to~~but ~~market~~could ~~Erbitux~~offer inantibody ~~Switzerland~~production ~~for~~services ~~treatment~~to ofthird ~~metastatic colorectal cancer~~parties.

~~Genentech~~ We ~~has~~are aware ~~received~~of ~~approval~~several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to ~~market~~antibody ~~Avastin~~therapy. Many ~~for~~of these companies have commenced ~~use~~clinical ~~with~~trials ~~chemotherapy~~of asantibody atherapeutic ~~first-line~~product ~~treatment~~candidates or have successfully commercialized antibody therapeutic products for ~~colorectal~~use ~~cancer~~on their own or in combination therapies. Many of these companies are addressing the same diseases and disease indications as we or our customers are.

47We compete with companies that offer the services of generating monoclonal antibodies for antibody-based therapeutics. These competitors have specific expertise or technology related to antibody development and introduce new or modified technologies from time to time.

~~AstraZeneca~~Many ~~has~~of ~~received~~these ~~approval~~companies toand ~~market Iressa~~institutions, a ~~small~~either ~~molecule~~alone ~~product~~or ~~candidate~~together ~~that~~with ~~may~~their ~~compete~~customers ~~with~~or ~~panitumumab~~collaborators, ~~in many~~have ~~markets~~substantially ingreater ~~the~~financial ~~world,~~resources ~~including~~and ~~the~~larger ~~United~~research ~~States,~~and ~~Japan~~development staffs than we do. In addition, ~~Australia~~many ~~and~~of ~~Canada~~these competitors, either alone or ~~for~~together ~~the~~with ~~treatment~~their ofcustomers ~~advanced~~or ~~non-small~~collaborators, ~~cell~~have ~~lung~~significantly ~~cancer.~~greater experience than we do in:

~~The~~• developing ~~FDA has accepted an NDA submitted by Genentech and OSI for Tarceva for the treatment of advanced non-small cell lung cancer.~~products;

In• undertaking ~~addition,~~preclinical ~~Amgen~~testing ~~has~~and ~~received~~human ~~approval to market~~clinical ~~Sensipar, or cinacalcet HCI, a small molecule product candidate for the treatment of secondary hyperparathyroidism, which may compete with ABX-PTH.~~trials;

~~Many~~• obtaining ofFDA ~~these companies~~ and ~~institutions,~~other ~~either~~regulatory ~~alone or~~approvals ~~together with their customers or collaborators, have substantially greater financial resources and larger research and development staffs than we do. In addition, many~~ of ~~these competitors, either alone or together with their~~ ~~customers~~products; ~~or collaborators, have significantly greater experience than we do in:~~and

• ~~developing~~ manufacturing and marketing products;.

~~• undertaking~~Accordingly, our competitors may succeed in ~~preclinical~~obtaining ~~testing~~patent protection, receiving FDA approval or commercializing products before we do. If we commence commercial product sales, we will be competing against companies with greater marketing and ~~human~~manufacturing ~~clinical~~capabilities, ~~trials;~~areas in which we have limited or no experience.

~~• obtaining~~We also face, and will continue to face, ~~FDA~~competition from academic institutions, government agencies and ~~other~~research institutions. ~~regulatory~~There ~~approvals~~are numerous competitors working on products to treat each of the diseases for which we are seeking to develop therapeutic products;. In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from:

• ~~manufacturing~~ other drug development technologies and ~~marketing~~methods ~~products.~~of preventing or reducing the incidence of disease;

~~Accordingly,~~• new ~~our~~small ~~competitors~~molecules; ~~may succeed in obtaining patent protection, receiving FDA approval~~ or commercializing products before we do. If we commence commercial product sales, we will be competing against companies with greater marketing and manufacturing capabilities, areas in which we have limited or no experience.

We also face, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which we are seeking to develop therapeutic products. In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from:46

• other ~~drug~~ ~~development~~classes ~~technologies and methods~~ of ~~preventing~~therapeutic ~~or reducing the incidence of disease;~~agents.

~~• new~~Developments by competitors may render our ~~small~~product ~~molecules;~~candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other companies for agreements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their customers, may succeed in developing technologies or products that are more effective than ours.

• We also face competition from companies that provide production services. These include contract manufacturers, such as Lonza, Avid Bioservices, Inc., Diosynth Biotechnology, DSM N.V., Cangene Corporation and Goodwin Biotechnology Inc., and other pharmaceutical and ~~classes~~biotechnology ofcompanies ~~therapeutic~~that ~~agents~~manufacture their own product candidates but can make extra capacity available to collaborators and customers, such as Boehringer Ingelheim GmbH, Biogen Idec Inc., ICOS Corporation, Abbott and Novartis AG.

~~Developments by competitors may render our product candidates or technologies obsolete or non-competitive.~~ We face ~~and~~uncertainty ~~will continue~~over toreimbursement ~~face intense competition from other companies for agreements with~~and ~~pharmaceutical~~healthcare ~~and biotechnology companies~~reform, ~~for establishing relationships with academic and research institutions~~which, ~~and~~if ~~for~~determined ~~licenses~~adversely to ~~proprietary technology. These competitors~~us, ~~either~~could ~~alone~~seriously ~~or with their customers, may succeed in~~hinder ~~developing~~the ~~technologies~~market oracceptance ~~products~~of ~~that~~our ~~are more effective than ours~~products.

WeIn ~~also~~both ~~face~~domestic ~~competition~~and ~~from~~foreign ~~companies~~markets, ~~that provide~~sales ~~production~~of ~~services. These~~our ~~include~~product candidates will depend in part upon the availability of ~~contract~~reimbursement ~~manufacturers~~from third-party payors, such as ~~Lonza,~~government ~~Avid~~health ~~Bioservices~~administration authorities, ~~Inc~~managed care providers and private health insurers., Third-party ~~Diosynth~~payors are increasingly ~~Biotechnology,~~challenging ~~DSM~~the Nprice and examining the cost effectiveness of medical products and services.V. In addition, ~~Cangene~~significant ~~Corporation~~uncertainty ~~and~~exists ~~Goodwin~~as ~~Biotechnology~~to ~~Inc~~the reimbursement status of newly approved healthcare products. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, domestic and foreign governments ~~other~~continue ~~pharmaceutical~~to propose and ~~biotechnology~~pass ~~companies~~legislation ~~that~~designed ~~manufacture~~to ~~their~~reduce ~~own~~the cost of ~~product~~healthcare, ~~candidates~~which ~~but~~could ~~can~~further ~~make~~limit ~~extra~~reimbursement ~~capacity~~for ~~available~~pharmaceuticals. The failure of government and third-party payors to ~~collaborators~~provide adequate coverage and reimbursement rates for our product ~~customers,~~candidates ~~such~~could asadversely ~~Boehringer~~affect ~~Ingelheim~~the ~~GmbH,~~market ~~Biogen~~acceptance ~~Idec~~of ~~Inc~~our products., The ~~ICOS~~failure of our products to receive market ~~Corporation~~acceptance would materially harm our business, ~~Abbott~~financial condition and ~~Novartis~~results of AGoperations.

48We may experience pressure to lower the prices of any prescription pharmaceutical products we are able to obtain approval for because of new and/or proposed federal legislation.

WeNew ~~face~~federal ~~uncertainty~~legislation, ~~over~~enacted in December 2003, ~~reimbursement~~has ~~and~~added ~~healthcare~~an ~~reform~~outpatient prescription drug benefit to Medicare, effective January 2006. In the interim, Congress has established a discount drug card program for Medicare beneficiaries. Both benefits will be provided primarily through private entities, which will attempt to negotiate price concessions from pharmaceutical manufacturers. These negotiations may increase pressures to lower prices. While the new law specifically prohibits the United States government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, ifsome ~~determined~~members ~~adversely~~of Congress are pursuing legislation that would permit the United States government to ususe its enormous purchasing power to demand discounts from pharmaceutical companies, thereby creating de facto price controls on prescription drugs. In addition, the new law contains triggers for Congressional consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could ~~seriously~~include some ~~hinder~~sorts of limitations on prescription drug prices. The new legislation also modified the methodology ~~market~~used ~~acceptance~~for reimbursement of physician administered and certain other drugs already covered under Medicare Part B. This new methodology would likely apply to certain of our products if and when commercialized. Experience with new reimbursement methodology is limited, and could be subject to change in the future. Our results of operations could be materially harmed by the different features of the Medicare prescription drug coverage legislation, by the potential effect of such legislation on amounts that private insurers will pay for our products and by other healthcare reforms that may be enacted or adopted in the future.

In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers and private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, which could further limit reimbursement for pharmaceuticals. The failure of the government and third-party payors to provide adequate coverage and reimbursement rates for our product candidates could adversely affect the market acceptance of our products. The failure of our products to receive market acceptance would materially harm our business, financial condition and results of operations.47

Other Risks Related to Our Company

~~The future growth and success of our~~Our ~~business~~restructuring ~~will~~plan ~~depend~~may onnot ~~our~~achieve ~~ability~~the toresults ~~continue~~we tointend ~~attract~~ and ~~retain~~may harm our ~~employees and consultants~~business.

~~For~~In usJune 2005, towe ~~pursue~~announced ~~product~~a ~~development,~~restructuring ~~manufacturing~~plan, ~~marketing~~which ~~and~~includes ~~commercialization~~a ~~plans,~~reduction wein ~~will~~headcount. ~~need~~The toplanning ~~hire~~and ~~additional qualified~~implementation ~~scientific,~~of ~~manufacturing, quality control, quality assurance, and~~our ~~key~~restructuring ~~management~~has ~~personnel~~placed, ~~including a vice president of quality~~ and ~~a vice president of process science. We~~ may ~~also~~ ~~need~~continue to ~~hire~~place ~~personnel~~a ~~with~~strain ~~expertise~~on inour ~~clinical testing~~managerial, ~~government~~ ~~regulation,~~operational ~~marketing, law~~ and ~~finance~~other resources. ~~Attracting~~ ~~and~~The ~~retaining~~restructuring ~~qualified~~may ~~personnel~~negatively ~~will~~affect ~~be critical to~~ our ~~success. We~~employee ~~may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology~~turnover, ~~pharmaceutical~~recruiting and ~~healthcare companies~~retention, ~~universities~~ and ~~non-profit~~may ~~research~~not ~~institutions. In~~enable ~~addition,~~us weto ~~experienced increased~~reduce ~~attrition rates in 2003. Further attrition could materially harm~~ our ~~business,~~costs ~~financial~~to ~~condition~~the ~~and~~extent ~~results of operations~~expected.

WeThe ~~grant~~future ~~stock~~growth ~~options as a method of attracting~~ and ~~retaining~~ ~~employees,~~success ~~to motivate performance and to align the interests~~ of ~~management~~ ~~with those of~~ our ~~stockholders. Due to the decline in the trading~~business ~~price~~will ofdepend ~~our~~on ~~common stock during 2001, 2002 and in recent months, a substantial portion of the stock options held by~~ our ~~employees~~ability ~~have~~to ancontinue ~~exercise price that is higher than the current trading price of our common stock. We may elect~~ to ~~grant~~ ~~additional~~attract ~~stock~~and ~~options at the current lower market price, pay higher cash compensation, or provide some combination of these alternatives to~~ retain ~~and~~ ~~attract~~our ~~qualified~~ employees, ~~but we cannot be sure that any of these~~and ~~actions would be successful~~consultants. ~~If we issue additional stock options, this would dilute existing stockholders.~~

AsFor aus ~~result~~to ofpursue ~~these~~our ~~factors~~product development, manufacturing, marketing and commercialization plans, we will need to hire additional qualified scientific, manufacturing, quality control, quality assurance, sales, marketing and key management personnel. We may ~~have~~also ~~difficulty~~need to ~~attracting~~hire personnel with expertise in clinical testing, government regulation, law and finance. Attracting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical ~~which~~and ~~could~~healthcare companies, universities and non-profit research institutions. The inability to attract and retain qualified personnel could materially harm our business, financial condition and results of operations.

We ~~may~~grant ~~experience~~stock ~~difficulty~~options as a method of attracting and retaining employees, to motivate performance and to align the interests of management with those of our stockholders. Due to fluctuations in the trading price of our common stock in recent years, a substantial portion of the stock options held by our employees have an exercise price that is higher ~~integration~~than the current trading price of our common stock. We may elect to grant additional stock options at the current lower market price, pay higher cash compensation, or provide some combination of these alternatives to retain and attract qualified employees, but we cannot be sure that any ~~future~~of ~~acquisition~~these ~~with~~actions would be successful. In addition, the issuance ~~operations~~of additional stock options may be dilutive to existing stockholders. While we will continue to utilize our existing equity compensation plans to compensate employees, we may have difficulty attracting and retaining qualified personnel if we are unable to obtain stockholder approval for any new plan as may be required to keep equity compensation available. In addition, the expensing of stock options and other stock-based awards, which will be required commencing on January 1, 2006, will increase any net losses or decrease any net income recorded in any given period and could affect the price that investors might be willing to pay in the future for shares of our ~~business~~common stock.

WeAs ~~may~~a ~~from~~result ~~time~~of tothese ~~time~~factors, ~~seek~~we tomay ~~expand our business~~have ~~through~~difficulty ~~corporate~~attracting ~~acquisitions.~~and ~~Our~~retaining ~~acquisition~~qualified ofpersonnel, ~~companies~~which ~~and~~could ~~businesses and~~materially ~~expansion~~harm ofour ~~operations~~business, ~~involve~~financial ~~risks~~condition ~~such~~and asresults ~~the~~of ~~following:~~operations.

• We may experience difficulty in the ~~potential~~integration ~~inability~~of toany ~~identify~~future ~~target~~acquisition ~~companies~~with ~~best~~the ~~suited~~operations toof our business ~~plan;~~.

~~• the potential~~We ~~inability~~may from time to ~~successfully~~time ~~integrate~~seek ~~acquired~~to ~~operations~~expand our business through corporate acquisitions. Our acquisition of companies and businesses and toexpansion ~~realize~~of ~~anticipated synergies~~operations, ~~economies~~involve ofrisks ~~scale~~such oras ~~other expected~~the ~~value;~~following:

49• the potential inability to identify target companies best suited to our business plan;

• ~~incurrence~~ the potential inability to successfully integrate ofacquired ~~expenses~~operations ~~attendant~~and businesses and to ~~transactions~~realize ~~that~~anticipated ~~may~~synergies, economies orof ~~may~~scale ~~not~~or beother ~~consummated;~~expected ~~and~~value;

• ~~difficulties in~~ incurrence ~~managing~~of ~~and~~expenses ~~coordinating~~attendant ~~operations~~to ~~at multiple venues, which, among other~~transactions ~~things,~~that ~~could~~may ~~divert~~or ~~our~~may ~~management’s~~not ~~attention~~be ~~from~~consummated; ~~other important business matters.~~and

In• difficulties ~~addition,~~in ~~our~~managing ~~past~~ and ~~future~~coordinating ~~acquisitions of companies and businesses and expansion of~~ operations ~~may result in dilutive~~ ~~issuances~~at ofmultiple ~~equity securities~~venues, ~~the incurrence of additional debt~~which, ~~U.S.~~among ~~or foreign~~other ~~tax liabilities~~things, ~~large one-time write-offs and the creation of goodwill or other intangible assets that~~ could ~~result~~divert ~~in amortization expense or other charges to expense. For example, we recorded a one-time charge of $17.2 million in the quarter ended June 30, 2004, as a result of~~ our ~~determination that an impairment of our acquired technology~~management’s inattention the field of catalytic antibodies had occurred and that the estimated value had declined to zero. This technology was acquired in 2001 through the acquisition of Hesed Biomed, Inc. After assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined that the possibility of generating positive future cash flows from ~~the~~other ~~technology~~important ~~was~~business ~~remote~~matters. ~~We continue to evaluate our internal programs and assets. Further changes in our plans or strategy could result in additional one-time charges.~~

~~We have implemented a stockholder rights plan and are subject to other anti-takeover provisions, which could deter a party from effecting a takeover of us at a premium to our then-current stock price.~~48

In ~~June 1999~~addition, our ~~board~~past ofand ~~directors~~future ~~adopted a~~acquisitions ~~stockholder~~of ~~rights~~companies ~~plan,~~and ~~which~~businesses ~~we amended~~ and ~~restated~~expansion inof ~~November 1999 and~~operations ~~May 2002,~~may ~~and~~result ~~amended~~ in ~~October 2003.~~dilutive issuances ~~The~~of ~~stockholder~~equity ~~rights plan~~securities, ~~and~~the ~~certain~~incurrence ~~provisions~~ of ~~our~~additional ~~amended~~debt, ~~and~~U.S. ~~restated certificate of~~or ~~incorporation~~foreign ~~and~~tax ~~amended~~liabilities, ~~and~~large ~~restated~~one-time ~~bylaws~~write-offs ~~may~~and ~~have~~ the ~~effect~~creation of ~~making it~~goodwill ~~more~~or ~~difficult~~other ~~for~~intangible aassets ~~third~~that ~~party~~could toresult ~~acquire,~~in amortization expense or ofother charges ~~discouraging~~to aexpense. ~~third~~For ~~party from~~example, ~~attempting~~we tohave ~~acquire,~~recorded ~~control~~impairment charges of us$23.1 million ~~This~~and ~~could~~$1.9 ~~limit~~million in the ~~price~~quarter ~~that certain~~ended ~~investors~~June 30, ~~might~~2005 beand $17.2 million ~~willing to pay~~ in the ~~future~~quarter ~~for~~ended ~~our~~June 30, ~~common~~2004, ~~stock.~~related to ~~Certain~~technologies ~~provisions~~acquired ofthrough our ~~amended~~acquisitions, ~~and~~respectively, ~~restated certificate~~ of ~~incorporation and~~Abgenix ~~amended~~Biopharma and ~~restated~~IntraImmune ~~bylaws~~in ~~allow~~2000 usand ~~to:~~Hesed Biomed in 2001.

~~• issue~~We have implemented a stockholder rights plan ~~preferred~~and ~~stock~~are ~~without~~subject ~~any~~to ~~vote~~other oranti-takeover ~~further~~provisions, ~~action~~which bycould ~~the~~deter ~~stockholders;~~a party from effecting a takeover of us at a premium to our then-current stock price.

~~• eliminate~~In June 1999, our board of directors adopted a stockholder rights plan, which we amended and restated in November 1999 and May 2002, and amended in October 2003. The stockholder rights plan and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the ~~right~~effect of ~~stockholders~~making toit more ~~act~~difficult byfor ~~written~~a ~~consent~~third ~~without~~party to acquire, or of discouraging a ~~meeting;~~third party from attempting to acquire, control of us. This could affect the price that certain investors might be willing to pay in the future for our common stock. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws allow us to:

• ~~specify procedures~~ issue ~~for~~preferred ~~director~~stock ~~nominations~~without byany ~~stockholders~~vote ~~and~~or ~~submission of other~~further ~~proposals~~action ~~for~~by ~~consideration~~the ~~at stockholder meetings~~stockholders; ~~and~~

• eliminate ~~cumulative~~ ~~voting in~~ the ~~election~~right of ~~directors.~~stockholders to act by written consent without a meeting;

In• specify ~~October~~procedures ~~2003, we entered into a collaboration and license agreement with AstraZeneca~~ for ~~the~~director ~~purpose~~nominations of identifying and developing antibody products for use in oncology therapeutics. The collaboration agreement includes provisions that would allow AstraZeneca to accelerate its selection of target antigens and, in certain situations, terminate the collaboration agreement, or specific programs or activities conducted under it, in the event of a change in control in us, particularly if we were acquired by ~~a competitor of~~ ~~AstraZeneca. In~~stockholders ~~the event of a change in control of us, AstraZeneca could also acquire control over the development programs~~ and ~~various~~submission ~~intellectual property rights in respect~~ of antigens that are the subject of the collaboration agreement. This would result in a reduction in the royalties and milestones to be paid by AstraZeneca to us under the collaboration agreement and the release of AstraZeneca from certain exclusivity provisions. In addition, certain exclusivity provisions contained in the collaboration agreement would apply to an acquirer of our company and would restrict the acquirer’s ability to operate its business in the oncology field after the acquisition, except with respect to pre-existing development programs. These and other ~~provisions~~ ofproposals ~~the~~for ~~collaboration~~consideration ~~agreement~~at ~~could make our company less~~stockholder ~~attractive~~meetings; ~~to a potential acquirer, particularly an acquirer that conducts or expects to conduct significant operations in the field of oncology therapeutics.~~and

50• eliminate cumulative voting in the election of directors.

WeIn ~~are~~October 2003, ~~also~~we ~~subject~~entered tointo ~~certain~~a collaboration ~~provisions~~and oflicense ~~Delaware~~agreement with AstraZeneca for the purpose of ~~law~~identifying ~~which~~and ~~could~~developing ~~also~~antibody ~~delay~~products orfor ~~make~~use ~~more~~in ~~difficult~~oncology atherapeutics. The ~~merger,~~collaboration ~~tender~~agreement ~~offer~~includes orprovisions that would allow AstraZeneca to ~~proxy~~accelerate ~~contest~~its ~~involving~~selection ~~us.~~of Intarget ~~particular~~antigens and, ~~Section 203~~in ofcertain situations, terminate the ~~Delaware~~collaboration agreement, or specific programs or activities ~~General~~conducted ~~Corporation~~under ~~Law~~it, ~~prohibits~~in athe ~~Delaware~~event ~~corporation~~of ~~from~~a ~~engaging~~change in ~~any business~~control ~~combination~~in ~~with~~us, ~~any~~particularly ~~interested~~if we ~~stockholder~~were ~~for~~acquired by a ~~period~~competitor of ~~three years~~AstraZeneca. ~~unless~~In the ~~transaction~~event ~~meets~~of ~~certain~~a ~~conditions.~~change ~~The~~in control ~~stockholder~~of ~~rights plan~~us, AstraZeneca could also acquire control over the ~~possible~~development programs ~~issuance~~and various intellectual property rights in respect of ~~preferred~~antigens ~~stock,~~that are the ~~procedures~~subject ~~required~~of ~~for~~the collaboration agreement. This would result in a ~~director~~reduction ~~nominations~~in the royalties and ~~stockholder~~milestones ~~proposals,~~to ~~our~~be ~~collaboration~~paid ~~agreement with~~by AstraZeneca ~~and~~to ~~Delaware~~us ~~law~~under the ~~could~~collaboration ~~have~~agreement and the ~~effect~~release of ~~delaying,~~AstraZeneca ~~deferring~~from certain orexclusivity ~~preventing~~provisions. aIn ~~change~~addition, certain exclusivity provisions contained in ~~control~~the ofcollaboration ~~us,~~agreement ~~including,~~would ~~without~~apply ~~limitation,~~to an acquirer of our company and ~~discouraging~~would arestrict ~~proxy~~the ~~contest~~acquirer’s orability ~~making~~to ~~more~~operate ~~difficult~~its business in the oncology field after the acquisition, ofexcept awith respect to pre-existing development ~~substantial~~programs. ~~block~~These and other provisions of the collaboration agreement could make our ~~common~~company ~~stock.~~less ~~The~~attractive ~~provisions~~to ~~also~~a ~~could~~potential ~~limit~~acquirer, ~~the price~~particularly an acquirer that ~~investors~~conducts ~~might~~or beexpects ~~willing~~ to ~~pay~~conduct significant operations in the ~~future~~field ~~for shares~~ of ~~our~~ ~~common~~oncology ~~stock~~therapeutics.

We ~~face~~are ~~product~~also ~~liability~~subject ~~risks~~to ~~and~~certain provisions of ~~may~~Delaware ~~not~~law bewhich ~~able~~could toalso ~~obtain~~delay ~~adequate~~or ~~insurance~~make more difficult a merger, ~~and~~tender offer ifor weproxy ~~are~~contest ~~held~~involving ~~liable~~us. ~~for~~In anparticular, Section 203 of the ~~uninsured~~Delaware ~~claim~~General orCorporation Law prohibits a ~~claim~~Delaware corporation from engaging in ~~excess~~any business combination with any interested stockholder for a period of three ~~our~~years ~~insurance~~unless ~~limits~~the transaction meets certain conditions. The stockholder rights plan, ~~our~~the ~~business~~possible issuance of preferred stock, the procedures required ~~financial~~for ~~condition~~director nominations and ~~results~~stockholder proposals, our collaboration agreement with AstraZeneca and Delaware law could have the effect of ~~operations~~delaying, ~~may~~deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions also could limit the price that investors might be ~~harmed~~willing to pay in the future for shares of our common stock.

The use of any of our product candidates, or of any products manufactured in our facility, in clinical trials, and the sale of any approved products, may expose us to liability claims resulting from such use or sale. Consumers, healthcare providers, pharmaceutical companies or others selling such products might make claims of this kind. We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials and production services activities, under which the coverage limits are $15.0 million per occurrence and $15.0 million in the aggregate. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially harmed.49

~~Our~~We ~~operations~~face ~~involve~~product ~~hazardous~~liability risks and may not ~~materials~~be able to obtain adequate insurance, and if we ~~could~~are be held ~~responsible~~liable for ~~any~~an uninsured ~~damages~~claim ~~caused~~or bya ~~such~~claim in excess of our insurance limits, our business, ~~materials~~financial condition and results of operations may be harmed.

~~Our~~The ~~research~~use ~~and~~of ~~manufacturing~~any ~~activities~~of ~~involve~~our ~~the controlled~~product ~~use~~candidates, or of ~~hazardous~~any ~~materials.~~products Inmanufactured ~~addition~~in our facility, ~~although~~in weclinical ~~maintain~~trials, and the sale ~~insurance~~of ~~for~~any ~~harm~~approved toproducts, ~~employees~~may ~~and~~expose us to ~~our~~liability ~~facilities~~claims ~~caused~~resulting byfrom ~~hazardous~~such ~~materials~~use or sale. Consumers, wehealthcare doproviders, ~~not~~pharmaceutical ~~insure~~companies ~~against~~or others ~~any~~selling ~~other~~such ~~harm~~products ~~(including~~might ~~harm~~make toclaims ~~the~~of this kind. We may experience ~~environment)~~financial ~~caused~~losses byin the ~~use~~future ofdue ~~hazardous~~to ~~materials~~product onliability ~~our premises~~claims. We have ~~cannot~~obtained ~~eliminate~~limited ~~the~~product ~~risk~~liability ofinsurance ~~accidental~~coverage ~~contamination~~for orour ~~injury~~clinical ~~from~~trials and ~~these~~production services activities, under which the coverage limits are $15.0 million ~~materials~~per occurrence and $15.0 million Inin the ~~event~~aggregate. ofWe anmay ~~accident~~not be able to maintain insurance coverage at a reasonable cost or ~~environmental~~in ~~discharge,~~sufficient weamounts ~~may~~to protect beus against losses. If third parties bring a successful product ~~held~~liability ~~liable~~claim ~~for~~or ~~any~~series ~~resulting~~of ~~damages,~~claims ~~which~~against ~~may~~us ~~exceed~~for ~~our~~uninsured ~~financial~~liabilities ~~resources~~or in ~~and~~excess ~~may~~of ~~materially~~insured ~~harm~~liabilities, our business, financial condition and results of operations may be materially harmed.

WeOur dooperations ~~not~~involve ~~intend~~hazardous tomaterials, and ~~pay~~we ~~cash dividends~~could onbe ~~our~~held ~~common~~responsible ~~stock~~for any damages caused by such materials.

WeOur ~~intend~~research toand ~~retain~~manufacturing ~~any~~activities involve ~~future~~the ~~earnings~~controlled touse ~~finance~~of ~~the~~hazardous materials. In addition, although we ~~growth~~maintain ~~and~~insurance ~~development~~for ofharm ~~our~~to ~~business~~employees and to our facilities caused by hazardous materials, we do not ~~plan~~insure toagainst ~~pay~~any ~~cash~~other ~~dividends~~harm (including harm to the environment) caused by the use of hazardous materials on our ~~common~~premises. ~~stock~~We cannot ineliminate the ~~foreseeable~~risk ~~future~~of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may materially harm our business, financial condition and results of operations.

~~Our~~We ~~stock~~do ~~price is highly volatile, and you may~~ not beintend ~~able~~ to ~~sell~~pay ~~your~~cash ~~shares~~dividends ofon our common stock ~~at a price greater than or equal to the price you paid for them~~.

~~The~~We ~~market~~intend ~~price~~to ~~and~~retain ~~trading~~any ~~volume~~future ofearnings ~~our common stock are volatile, and we expect such volatility~~ to ~~continue for the~~ ~~foreseeable~~finance ~~future. For example, during~~ the ~~period~~growth ~~between September 30, 2003~~ and ~~September~~development ~~30,~~of ~~2004,~~ our ~~common~~business ~~stock closed as high as $18.55 per share~~ and as ~~low~~we asdo ~~$7.77~~not ~~per~~plan ~~share. This~~to ~~may~~pay ~~impact~~cash ~~your~~dividends ~~decision~~on ~~to buy or sell~~ our common stock. ~~Factors~~in ~~affecting~~the ~~our stock~~foreseeable ~~price include:~~future.

• Our stock price is highly volatile, and you may not be able to sell your shares of our common stock at a price greater than ~~financial~~or ~~results;~~equal to the price you paid for them.

~~• fluctuations~~The market price and trading volume of our incommon stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during the period between June 30, 2004 and June 30, 2005, our ~~operating~~common ~~results;~~stock closed as high as $11.36 per share and as low as $6.54 per share. This may impact your decision to buy or sell our common stock. Factors affecting our stock price include:

51• our financial results;

• ~~announcements~~ fluctuations ofin ~~technological innovations or new commercial therapeutic products by us or~~ our ~~competitors~~operating results;

• ~~published~~ announcements ~~reports~~of technological innovations or new commercial therapeutic products by ~~securities~~us ~~analysts~~or our competitors;

• ~~developments~~ published inreports ~~our~~by ~~clinical~~securities ~~trials and in clinical trials for potentially competitive product candidates~~analysts;

• ~~government~~ developments ~~regulation~~in our clinical trials and in clinical trials for potentially competitive product candidates;

• ~~changes~~ government ~~in reimbursement policies~~regulation;

~~• developments in patent or other proprietary rights;~~50

• ~~announcements~~ changes ~~that~~in wereimbursement ~~have entered into new collaboration, licensing or similar arrangements with new collaborators, or amendments of the terms of our existing collaborations~~policies;

• developments in ~~our~~patent ~~relationship~~or ~~with~~other ~~customers~~proprietary rights;

• ~~public~~ announcements ~~concern~~that aswe tohave ~~the~~entered ~~safety~~into ~~and~~new ~~efficacy~~collaboration, licensing or similar arrangements with new collaborators, or amendments of the terms of our ~~products~~existing collaborations; ~~and~~

• ~~general~~ developments ~~market~~in ~~conditions.~~our relationship with customers;

~~If we were deemed to be an~~• public ~~investment~~concern ~~company,~~as ~~we would become subject~~ to ~~provisions of~~ the ~~Investment Company~~safety ~~Act~~and ~~that~~efficacy ~~likely~~of ~~would have a material adverse impact on~~ our ~~business.~~products; and

~~A company is required to register as an investment~~• general ~~company~~market ~~under the Investment Company Act of 1940, or the 1940 Act, if, among other things, and subject to various exceptions:~~conditions.

• it isItem or3. holdsQuantitative itselfand outQualitative toDisclosures beAbout engagedMarket primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; orRisk

~~• it~~Interest Rate Risk. We isare ~~engaged~~exposed orto ~~proposes~~interest rate sensitivity on our investments in debt securities and our outstanding fixed rate debt. The objective of our investment activities is to ~~engage~~preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the ~~business~~exposure due to an adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of ~~investing~~approximately one year. In addition, ~~reinvesting~~as of June 30, ~~owning~~2005, ~~holding~~we orhad ~~trading~~$113.7 million of outstanding 3.5% convertible subordinated notes due in ~~securities~~2007, and ~~owns~~$300.0 ormillion ~~proposes~~of tooutstanding ~~acquire~~1.75% convertible senior notes ~~investment~~due ~~securities~~in ~~having~~2011. aThe fair value ~~exceeding~~of ~~40 percent~~these convertible notes may fluctuate with changes in market interest rates, as well as changes in the market price of our common stock. A hypothetical 1.0% per annum decrease in interest rates would result in an adverse net change in the fair value of ~~such~~ ~~company’s~~our ~~total~~interest rate sensitive assets ~~(exclusive~~and liabilities of approximately ~~Government~~$18.2 ~~securities~~million and ~~cash~~$16.6 ~~items) on~~million anat ~~unconsolidated~~June 30, ~~basis~~2005 and December 31, 2004, respectively.

AEquity ~~major~~Price ~~portion~~Risk. We are ofexposed ~~our~~to ~~assets~~equity ~~has~~price ~~been~~risk ~~invested~~on ~~in investment~~strategic ~~grade~~investments, ~~interest-bearing~~such ~~securities.~~as ~~Such~~those ~~investments~~we have ~~could~~made in ~~some circumstances~~CuraGen ~~require~~and usImmunoGen. We typically do not attempt to ~~register~~reduce asor eliminate anour ~~investment~~market ~~company~~exposure ~~under~~on ~~the~~these ~~1940 Act~~securities. ~~Registration~~With ~~under~~respect ~~the~~to ~~1940~~CuraGen ~~Act~~and ImmunoGen, oreach aof ~~determination~~whose ~~that~~common westock ~~failed~~is ~~to register~~publicly ~~when~~traded, ~~required~~the toaggregate domarket value ~~so,~~of ~~could~~our ~~have~~investments ain ~~material~~these ~~adverse~~securities ~~impact~~was onapproximately us$16. We3 ~~believe~~million ~~that~~and we$23.3 ~~are~~million ~~and~~as ~~will~~of ~~remain~~June 30, ~~exempt~~2005 ~~from~~and ~~the~~December 31, ~~registration requirements~~2004, ~~but~~respectively. ~~absent~~Due ~~interpretation~~to bydecreases in the ~~courts~~market orprices of the ~~SEC~~shares of ~~the~~CuraGen and ~~relevant~~ImmunoGen, ~~exemption~~we ~~as applied~~recorded toimpairment ~~companies~~charges ~~engaged~~of $67.3 million in ~~research~~2002 ~~and~~related to ~~development,~~these ~~this~~investments. ~~result~~The ~~cannot~~trading beprices of shares of CuraGen and ImmunoGen ~~assured~~have fluctuated significantly since we purchased these securities. InEach additional ~~addition,~~10% adecrease ~~change~~in market value of these securities would result in ~~our~~a decrease ~~allocation~~in value of ~~assets~~approximately on$1.6 ~~account~~million and $2.3 million from the fair value of ~~1940~~those investments at June 30, 2005 and December 31, 2004, ~~Act~~respectively. Additional ~~concerns~~price declines could ~~reduce~~cause ~~the~~us ~~rate~~to ofrecord ~~return~~additional onimpairment ~~our~~charges ~~liquid~~in ~~assets~~future periods.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. We are exposed to interest rate sensitivity on our investments in debt securities and our outstanding fixed rate debt. The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an

adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of approximately one year. In addition, as of September 30, 2004, we had $200.0 million of outstanding 3.5% convertible subordinated notes due in 2007. The fair value of these convertible subordinated notes may fluctuate with changes in market interest rates, as well as changes in the market price of our common stock. A hypothetical 1.0% per annum decrease in interest rates would result in an adverse net change in the fair value of our interest rate sensitive assets and liabilities of approximately $2.6 million at September 30, 2004 and December 31, 2003.

Equity Price Risk. We are exposed to equity price risk on strategic investments, such as those we have made in CuraGen and ImmunoGen. We typically do not attempt to reduce or eliminate our market exposure on these securities. With respect to CuraGen and ImmunoGen, each of whose common stock is publicly traded, the aggregate market value of our investments in these securities was approximately $16.5 million and $20.7 million as of September 30, 2004 and December 31, 2003, respectively. Due to decreases in the market prices of the shares of CuraGen and ImmunoGen, we recorded impairment charges of $67.3 million in 2002 related to these investments. The trading prices of shares of CuraGen and ImmunoGen have fluctuated significantly since we purchased these securities. Each additional 10% decrease in market value of these securities would result in a decrease in value of approximately $1.7 million and $2.1 million from the fair value of those investments at September 30, 2004 and December 31, 2003, respectively. Additional price declines could cause us to record additional impairment charges in future periods.

Foreign Currency Risk. A substantial majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we did enter into transactions in other currencies, primarily the British pound. As of December 31, 2003, we had a contract cancellation obligation to Lonza of $22.7 million, which was payable in British pounds. As of September 30, 2004, we had no remaining obligations to Lonza.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures, as that term is defined by Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as of the end of the period covered by this report, our chief executive officer and our chief financial officer, have concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be included in this quarterly report on Form 10-Q has been made known to them in a timely fashion.

Changes in Internal Controls Over Financial Reporting

There has been no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

ITEM 3. Defaults upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

~~Not~~Our ~~applicable~~Annual Meeting of Stockholders was held on June 13, 2005 at our principal executive offices at 6701 Kaiser Drive, Fremont, California 94555. A total of 65,508,818 shares of the Company’s issued and outstanding common stock entitled to vote at the Annual Meeting, representing 72% of the voting power of the Company, was present in person or by proxy at the Annual Meeting. Matters submitted to stockholders at the Annual Meeting and the voting results thereof were as follows.

Election of Directors

Each of R. Scott Greer, M. Kathleen Behrens, Ph.D., Raju S. Kucherlapati, Ph.D., Kenneth B. Lee, Jr., Mark B. Logan, William R. Ringo and Thomas G. Wiggans, was re-elected to serve on the Company’s Board of Directors, having each received not less than 90% of the votes cast. The following is a breakdown of the voting results:

Director	Votes For	Votes Withheld
R. Scott Greer	64,024,220	1,484,598
M. Kathleen Behrens, Ph.D.	64,341,732	1,167,086
Raju S. Kucherlapati, Ph.D.	59,246,623	6,262,195
Kenneth B. Lee, Jr.	64,289,816	1,219,002
Mark B. Logan	59,391,891	6,116,927
William R. Ringo	64,340,607	1,168,211
Thomas G. Wiggans	59,364,503	6,144,315

Ratification of the Selection the Independent Registered Public Accounting Firm for the 2005 Fiscal Year

Our stockholders ratified the selection of Ernst & Young, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2005. The following is a breakdown of the voting results:

Votes For		Votes Against		Abstentions		Broker Non-Votes
64,636,489		846,836		25,493		0

Approval of the 2005 Incentive Stock Plan

Because less than a majority of the voting power present at the meeting voted in favor of the proposal, our stockholders did not approve the adoption of the Abgenix, Inc. 2005 Incentive Stock Plan. The number of votes required to adopt this plan was 32,754,410. The following is a breakdown of the voting results:

Votes For		Votes Against		Abstentions		Broker Non-Votes
31,338,491		9,985,211		890,872		23,294,244

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Number		Description
3.1(1)		Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect.
3.2(2)		Amended and Restated Bylaws of Abgenix, as currently in effect.
10.88		Employment Agreement, dated July 20, 2004, between Abgenix, Inc. and William R. Ringo.
10.70(3)		Letter Agreement dated May 9, 2005, between Abgenix, Inc. and C. Geoffrey Davis.
10.89		Change of Control Severance Agreement, dated August 30, 2004, between Abgenix, Inc. and William R. Ringo.
10.90		Resignation and Transition Agreement, dated August 30, 2004, between Abgenix, Inc. and Raymond M. Withy, Ph.D.
31.1		Certification of William R. Ringo Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of H. Ward Wolff Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of William R. Ringo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of H. Ward Wolff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2002.

(2) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2001.

54(3) Incorporated by reference to the same exhibit filed with Abgenix’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

~~SIGNATURES~~53

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~SIGNATURES

Dated: November 5, 2004
	ABGENIX, INC.
	(Registrant)
	/s/ WILLIAM R. RINGO
	William R. Ringo
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ H. WARD WOLFF
	H. Ward Wolff
	Chief Financial Officer and Senior Vice President, Finance
	(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

55Dated: August 9, 2005

	ABGENIX, INC.
	(Registrant)


	/s/ WILLIAM R. RINGO
	William R. Ringo
	President and Chief Executive Officer
	(Principal Executive Officer)


	/s/ H. WARD WOLFF
	H. Ward Wolff
	Chief Financial Officer and Senior Vice President, Finance
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Number		Description

3.1(1)		Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect.
3.2(2)		Amended and Restated Bylaws of Abgenix, as currently in effect.
10.70(3)		Letter Agreement dated May 9, 2005, between Abgenix, Inc. and C. Geoffrey Davis.
31.1		Certification of William R. Ringo Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of H. Ward Wolff Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of William R. Ringo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of H. Ward Wolff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2002.

(2) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2001.

(3) Incorporated by reference to the same exhibit filed with Abgenix’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

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