Since its inception in April 1988, Cell Genesys, Inc. ("Cell Genesys" or "the Company") has focused its research and product development efforts on human disease therapies which are based on innovative gene modification technologies. The Company's strategic objective is to develop and commercialize cancer vaccines, oncolytic virus therapies and gene therapies to treat cancer and other major, life-threatening diseases. Cell Genesys' current clinical programs include GVAX^® cancer vaccines and oncolytic virus therapies. GVAX^® cancer vaccines are in Phase II studies for lung cancer, prostate cancer, pancreatic cancer and leukemia and in Phase I/II studies for multiple myeloma. The Company expects to initiate a Phase III trial for GVAX^® lung cancer vaccine in late 2002 and a Phase III trial for GVAX^® prostate cancer vaccine during 2003. Ongoing clinical programs evaluating the Company's oncolytic virus therapies include a Phase II study of CG7060, an intratumorally administered product for early stage prostate cancer and a Phase I/II study of CG7870, an intravenously administered therapy for late stage prostate cancer. In addition, Cell Genesys has preclinical oncolytic virus programs evaluating potential therapies for liver cancer, colon cancer and bladder cancer as well as preclinical gene therapy programs evaluating potential therapies for multiple types of cancer and hemophilia. Additionally, Cell Genesys has a majority-owned subsidiary, Ceregene, Inc., which is focused on gene therapies for central nervous system disorders and Cell Genesys continues to hold approximately nine million shares of common stock of its former subsidiary, Abgenix, Inc. (Nasdaq: ABGX), which is focused on the development and commercialization of antibody therapies.

During 2001, Cell Genesys continued to build its gene therapy business through the acquisition of new product platforms, through progress in both clinical and preclinical programs, by further validating its technology through multiple scientific papers and patent issuances, and by establishing licensing agreements for its gene therapy technologies. Additionally, the Company continued to invest in its manufacturing infrastructure in preparation for Phase III clinical trials.

Cell Genesys believes that gene therapies are likely to be developed on a continuum, progressing from ex vivo (modification of cells outside the patient's body for injection as therapy) to in vivo (modification of cells within the patient's body to provide therapy). The Company's goal is to emphasize "off-the-shelf" products that enable gene therapy to be provided in out-patient settings. These potentially include both non patient-specific therapies, which could be vialed for direct administration and patient-specific gene therapy products, which could be manufactured as non patient-specific products at Cell Genesys and combined with patients' cells prior to treatment.

Ex vivo gene therapies are currently being evaluated by Cell Genesys in human clinical studies. These include studies of GVAX^® cancer vaccines which are designed to impart new disease-fighting capabilities to the patient's immune system in order to enhance an immune response against malignant cells, as well as studies of oncolytic virus therapies which employ genetically modified adenoviruses designed to selectively target, replicate in and kill tumor cells. During 2001, encouraging data were obtained from clinical trials of GVAX^® lung cancer vaccine, GVAX^® prostate cancer vaccine and GVAX^® pancreatic cancer vaccine. Additionally, in 2001, encouraging data were obtained from clinical trials of the Company's oncolytic virus therapy including CG7870 for the treatment of advanced stage prostate cancer and positive preclinical studies were reported with CG8900 for the treatment of liver cancer, respectively.

In vivo gene therapies are at the preclinical stage of development at Cell Genesys. Treatment strategies may target cells that typically cannot be removed from the body for external processing and therefore are modified within the body. With in vivo gene therapy, the treatment goals include stimulating targeted cells to produce a protein or other substance needed to normalize key biological processes, or otherwise inhibiting specific disease processes. In 2001, the Company continued preclinical studies in a number of therapeutic areas and further developed its gene therapy technologies. While the Company's preclinical gene therapy research primarily focuses on studies of gene therapy in animal models for cancer, the Company is also conducting hemophilia gene therapy research. The Company's preclinical gene therapy program in Parkinson's disease will be pursued in the future by Cell Genesys' majority-owned subsidiary, Ceregene, Inc., which was launched in January 2001.

Cell Genesys ended 2001 with approximately $259 million in cash, cash equivalents and short-term investments. The Company has maintained its financial position through strategic management of its resources including the Company's holdings in Abgenix (of which Cell Genesys continues to hold approximately nine million shares of common stock) and by relying on funding from various corporate collaborations and licensing agreements. Additionally, in late 2001, Cell Genesys secured a $60 million asset-backed financing in connection with the construction of the Company's manufacturing facility in Hayward, California.

The Company may finance certain of its operations through corporate collaborations with established pharmaceutical and biotechnology companies in order to develop its technologies as broadly as possible, to fund product development and to accelerate the commercialization of certain product opportunities. Such alliances are intended to provide financial resources, research, development and manufacturing capabilities and marketing infrastructure to aid in the commercialization of potential disease therapies. Cell Genesys also evaluates, on an ongoing basis, opportunities to in-license or acquire products and/or technologies that complement its portfolio. There can be no assurance that Cell Genesys will be able to enter into additional collaborative relationships or obtain new products and/or technologies on acceptable terms, if at all, or that if such actions occur, they will be successful. Failure to enter new corporate relationships or expand Cell Genesys' product and technological base may limit Cell Genesys' success.

A major portion of our operating expenses to date are related to the research and development ("R&D") of products either on our own behalf or under contracts. During 2001, 2000, and 1999, our R&D expenses were $50.8 million, $30.4 million, and $24.5 million, respectively. We intend to maintain our strong commitment to R&D as an essential component of our product development effort. Licensed technology developed by outside parties is an additional source of potential products.

For many years the pharmaceutical industry has focused on developing chemical compounds as pharmaceutical drugs and disease therapies. These traditional pharmaceutical products are most often synthesized in the laboratory or derived from substances found in nature and include antibiotics, antineoplastics, analgesics and a variety of other compounds. The therapeutic value of such agents generally depends on their ability to stimulate or inhibit physiological processes related to disease, to interfere directly with infection or cancer, or to correct various chemical imbalances. In certain cases, traditional pharmaceutical products may not be able to achieve these objectives, due to a variety of reasons including unwanted side effects, delivery of insufficient amounts of drug to the disease site, or treatment of symptoms rather than the underlying cause of illness. Although the biotechnology industry has made significant advances with respect to the development of therapeutic products based on proteins or monoclonal antibodies, such products are not always successful in treating certain complex diseases. Examples include types of cancer, AIDS, cardiovascular diseases, neurologic conditions and a variety of genetic diseases and disorders. Cell Genesys believes that an important approach to the treatment of these and other diseases could involve the genetic modification of cells, ex vivo or in vivo, to potentially provide new, enhanced or expanded functions in the form of "gene therapy."

A critical component of gene therapy is genes, or segments of DNA, which typically are contained in the nucleus of cells. Genes provide the chemical instructions that direct cells to produce proteins. The latter process is known as gene "expression," and the resulting proteins determine the nature and function of cells and tissues in all living organisms.

A worldwide effort has been under way for several years to discover and study genes and their functions. Findings by academic institutions, government organizations and various corporations are providing an increased understanding of the relationship between specific genes and human disease. It is now well known that genes are implicated in the cause of many diseases, including not only inherited conditions involving a defective or missing gene, but also a wide range of diseases arising from inappropriate biological activity, such as the over- or under-expression of a normal gene product as a result of environmental factors. Certain genes also may provide therapeutic benefits by stimulating the production of proteins that can overcome various disease processes.

The field known as gene therapy is based on the principle that naturally occurring or modified genes can be introduced into target cells to bring about a therapeutic effect. Depending upon the choice of genetic material delivered, gene therapy may be used to enhance normal cell activities or enable cells to perform new roles. In addition, certain forms of gene therapy may involve "gene correction," which introduces normal genes into relevant cells of patients with genetically inherited diseases, or may involve "vaccination," which uses genetic material or modified cells to stimulate the patient's immune response. GVAX^® cancer vaccines, one of Cell Genesys' programs currently undergoing human clinical testing, are designed to expand the capabilities of immune cells to target and more effectively fight cancer. Another of Cell Genesys' clinical stage programs, oncolytic virus therapies, which are also currently undergoing human clinical testing, are engineered to selectively replicate in and kill targeted cancer cells, leaving healthy normal cells largely unharmed.

Another key component of gene therapy is the methodology used to introduce therapeutic genes into cells. Whether ex vivo or in vivo, the insertion of genes into cells is typically accomplished using reagents known as vectors. The role of vectors is to deliver the gene to the target cell in order to allow the production of a specific protein. Depending upon the type of gene and its delivery site in the cell, the expressed protein may remain within the cell for intracellular effect, travel to the cell membrane to exert a cell-surface effect, or be secreted into the bloodstream to provide a systemic effect.

Different types of vectors are needed for multiple gene therapy products and the appropriateness of a specific vector is based on the disease indication, safety considerations, production efficiencies, disease site and other factors. Certain viruses, because of their natural ability to insert genes into cells, have proven to be particularly efficient vectors and can be genetically modified to substantially eliminate inherent disease-causing properties. Engineered viruses may potentially have selective capabilities for targeting the delivery of genes into specific cell types and specific regions within the cells. Cell Genesys is focusing its gene delivery efforts on the development and use of viral vector systems, including adeno-associated viral ("AAV"), lentiviral, adenoviral and retroviral vectors.

Cell Genesys' strategic objective is to develop and commercialize ex vivo and in vivo gene therapies to treat cancer and other life-threatening diseases. In its cancer programs, Cell Genesys is genetically modifying selected cell types and viruses to impart disease-fighting capabilities that are not possible with conventional therapeutic agents.

Overview of GVAX^® Cancer Vaccines Program. GVAX^® cancer vaccines are treatment vaccines, not preventative vaccines, designed to stimulate the patient's immune system to effectively fight cancer. This program was added to the product portfolio of Cell Genesys through its acquisition of Somatix Therapy Corporation in 1997. GVAX^® cancer vaccines are comprised of tumor cells which are genetically modified to secrete an immune-stimulating hormone, granulocyte-macrophage colony stimulating factor ("GM-CSF"), and then are lethally irradiated for safety. The goal of GVAX^® cancer vaccines is to stimulate an anti-tumor immune response that targets and destroys tumor cells which persist or recur following surgery, radiation therapy and other forms of cancer treatment. Cell Genesys is currently testing non patient-specific and patient-specific configurations of GVAX^® cancer vaccines in human clinical studies. Cell Genesys currently has clinical trials under way for GVAX^® cancer vaccines in lung cancer, prostate cancer, pancreatic cancer, leukemia and myeloma. GVAX^® cancer vaccines are administered by intradermal (under the skin) injection on an outpatient basis. They have been administered to over 350 patients in multiple human trials to date and have been safe and well tolerated. The most consistent treatment-related side effects appear to be inflammation at the injection site and occasional low grade fever. Cell Genesys expects to manufacture GVAX^® cancer vaccines in its GMP ("Good Manufacturing Practices") facilities located in Hayward, California and Memphis, Tennessee.

GVAX^® Lung Cancer Vaccine. Based on encouraging data from Cell Genesys' initial GVAX^® lung cancer vaccine trial, the Company initiated two multicenter clinical trials, each evaluating a different patient-specific form of GVAX^® cancer vaccine. One form of the vaccine is made directly from each treated patient's tumor cells. After surgical removal of a patient's tumor, the GVAX^® cancer vaccine is prepared genetically modifying the patient's tumor cells to secrete GM-CSF. The cells are then irradiated for safety prior to vaccinating the patient. The alternate form of patient-specific GVAX^® lung cancer vaccine involves the mixing of the patient's tumor cells that have been irradiated for safety with a non patient-specific GVAX^® product manufactured at Cell Genesys. The first of these trials, a Phase II trial for patients with advanced and early stage non small-cell lung cancer, evaluated the GVAX^® vaccine prepared completely from the patient's own tumor cells. In December 2001, updated data from this trial were presented at the International Conference on Gene Therapy of Cancer. Of the 26 evaluable advanced stage patients who had failed prior chemotherapy and/or radiation therapy, three patients (12 percent) experienced complete responses (complete disappearance of tumor) -- two were ongoing at 11 and 16 months without further cancer treatment and one, maintained for nine months, developed a local recurrence that was successfully surgically removed leaving no evidence of tumor. Seven of eight early stage patients remain disease free following surgical removal of their tumors and administration of GVAX^® lung cancer vaccine. In June 2001, the Company initiated the second trial, a Phase I/II multicenter trial for patients with advanced stage lung cancer. This trial is designed to evaluate the safety and efficacy of the alternate form of GVAX^® lung cancer vaccine, a non patient-specific GVAX^® product that is mixed with the patient's irradiated tumor cells and is expected to enroll approximately 40 patients. Cell Genesys expects to report data from this ongoing trial in mid-2002. The Company will evaluate data from these two trials and is expecting to initiate a Phase III clinical trial in late 2002 utilizing one of the two product configurations.

GVAX^® Prostate Cancer Vaccine. GVAX^® prostate cancer vaccine is an "allogeneic" (non patient-specific) vaccine comprised of prostate cancer cells that have been genetically modified to secrete GM-CSF and then irradiated for safety. The Company's plan is to develop and manufacture this potential product as an "off-the-shelf" pharmaceutical for use after surgery, hormone, or radiation therapy for advanced stage prostate cancer. Data from the initial Phase II clinical trial of GVAX^® prostate cancer vaccine in 34 patients with hormone refractory metastatic prostate cancer demonstrated that following treatment with the higher of two doses of GVAX^® prostate cancer vaccine, there was a trend toward prolonged progression-free survival as measured by bone scan as compared to those treated with the lower dose (median time to progression of 140 days versus 85 days). Additionally, earlier studies showed a high degree of correlation between antitumor activity as measured by PSA (Prostate Specific Antigen) and antitumor immunity as measured by formation of new antibodies against prostate cancer cells. Based on these encouraging data, in April 2001, Cell Genesys launched a series of Phase I/II clinical trials in hormone refractory prostate cancer patients to evaluate the safety and efficacy of a second-generation higher potency form of GVAX^® prostate cancer vaccine. This second-generation product is approximately five to ten times more potent than the vaccine used in the previous trial. The Company expects to initiate a Phase III clinical trial of GVAX^® prostate cancer vaccine in hormone refractory patients in 2003.

GVAX^® Pancreatic Cancer Vaccine. GVAX^® pancreatic cancer vaccine is comprised of "allogeneic" (non patient-specific) pancreatic cancer cells that have been genetically modified to secrete GM-CSF and then irradiated for safety. In October 2001, the Company reported updated results from a Phase I trial evaluating a non patient-specific form of GVAX^® pancreatic cancer vaccine which was conducted at Johns Hopkins Oncology Center. Prolongation of disease-free survival was demonstrated in three of eight patients who received the two highest vaccine doses following surgery and adjuvant radiation and chemotherapy. The updated data revealed that these three responding patients remained disease-free at 48, 45 and 43 months after their respective diagnoses. These data prompted the initiation of a Phase II clinical trial of GVAX^® pancreatic cancer vaccine in up to approximately 60 patients with resectable pancreatic cancer, which is evaluating GVAX^® cancer vaccine in combination with surgery and adjuvant radiation and chemotherapy. An additional trial of GVAX^® pancreatic cancer vaccine in patients with unresectable pancreatic cancer is expected to be initiated during 2002.

GVAX^® Vaccines for Hematologic Malignancies. Cell Genesys is also currently conducting clinical trials utilizing a patient-specific form of GVAX^® cancer vaccine in combination with bone marrow transplantation for the treatment of hematologic malignancies, including multiple myeloma and acute myelogenous leukemia. Prior to being treated with chemotherapy, the patient's tumor cells are collected and mixed with a non patient-specific GVAX^® cancer vaccine product manufactured at Cell Genesys. In February 2001, Cell Genesys initiated a multicenter Phase I/II clinical trial evaluating GVAX^® cancer vaccine in patients with multiple myeloma. In this trial, patients are being treated with chemotherapy to induce remission and are then vaccinated before and after autologous bone marrow stem cell transplantation. The goal of GVAX^® vaccine therapy in this setting is to stimulate an immune response directed against the patient's tumor cells and prolong the remission induced by standard chemotherapy and transplantation. In November 2001, the Company initiated a similar multicenter Phase II trial in patients with acute myelogenous leukemia. This trial, which is expected to enroll up to approximately 50 patients, was prompted by encouraging results published in the May 2000 issue of the journal, Blood, demonstrating that in animal studies of GVAX^® vaccine for acute leukemia, GVAX^® vaccine administered following bone marrow transplantation significantly prevented tumor relapse and increased the therapeutic benefit of transplantation. Autologous (patient-specific) bone marrow transplantation is currently being used to treat hematologic cancers in order to reduce the bone marrow toxicity of high dose chemotherapy and to enhance antitumor immunity.

Overview of Oncolytic Virus Therapies Program. Cell Genesys added the oncolytic virus technology platform to its portfolio in September 2001 through its acquisition of Calydon, Inc., a private Sunnyvale, California-based biotechnology company. As part of this transaction, Calydon shareholders received approximately 935,000 shares of Cell Genesys stock, then valued at approximately $17.4 million, and the transaction also included the assumption of up to approximately $2.6 million in Calydon liabilities by Cell Genesys. The proprietary oncolytic virus therapy program utilizes adenovirus, one of the viruses responsible for the common cold, to create cancer cell-killing viruses. The virus is engineered to selectively replicate in and kill targeted cancer cells, leaving healthy normal cells largely unharmed. The engineered viruses are delivered either by direct injection into tumors or by intravenous administration and then replicate in cancer cells until the cancer cell can no longer contain the virus and bursts. The tumor cell is destroyed and the newly created viruses spread to neighboring cancer cells to continue the cycle. Following treatment, excess virus is cleared by the patient's immune system. Cell Genesys expects to manufacture oncolytic virus therapies and other viral-based products in its GMP facility located in San Diego, California.

CG7060 Oncolytic Virus Therapy for Early Stage Prostate Cancer. Cell Genesys' CG7060, an oncolytic virus therapy for early stage prostate cancer, has demonstrated encouraging results in an initial Phase I/II clinical trial. CG7060 is administered via direct injection into the prostate, similar to radiation seed therapy. Results from an initial Phase I/II trial of CG7060 conducted in 21 patients with recurrent, organ-confined prostate cancer, demonstrated that CG7060 was safe and well tolerated. The trial also demonstrated evidence of antitumor activity as measured by PSA levels in patients treated at the two higher dose levels (11 patients). Nine of the 11 patients demonstrated greater than 35 percent reductions in PSA levels below baseline and in four cases, there were greater than 50 percent reductions, qualifying as partial responses, with a median time to progression of 11 months. Cell Genesys expects to initiate a follow-on Phase II trial during 2002 evaluating CG7060 in combination with external beam radiation therapy. This trial will be conducted in preparation for a potential Phase III trial targeted for 2003 in which treatment with CG7060 plus radiation therapy will be compared to treatment with radiation alone for preventing clinical relapse in newly-diagnosed, intermediate to high risk prostate cancer patients.

CG7870 Oncolytic Virus Therapy for Advanced Stage Prostate Cancer. Cell Genesys' CG7870, an intravenously administered oncolytic virus therapy for the treatment of advanced stage prostate cancer, has demonstrated encouraging results in an initial Phase I/II clinical trial. Preliminary data, in 23 patients with recurrent prostate cancer have demonstrated antitumor activity as measured by PSA level in six of the treated patients after just a single intravenous injection of CG7870. Additionally, preclinical studies of CG7870 in combination with chemotherapy, the current standard of care for patients with advanced stage prostate cancer, demonstrated significant synergistic antitumor activity in mouse tumor models of prostate cancer including complete elimination of tumors within four weeks of treatment without dose-limiting toxicity. Based on these findings, Cell Genesys may initiate a Phase I/II trial evaluating CG7870 in combination with chemotherapy.

Cell Genesys' GVAX^® cancer vaccines and oncolytic virus therapies are novel therapies which must undergo rigorous human testing regulated by the Food and Drug Administration ("FDA"). There is no assurance that GVAX^® cancer vaccines or oncolytic virus therapies will be proven safe or efficacious, or if approved, that the vaccines can be successfully commercialized. Although preliminary results reported to date from Cell Genesys' clinical testing of GVAX^® vaccines for prostate cancer, lung cancer, pancreatic cancer, and leukemia as well as clinical testing of oncolytic virus therapies CG7060 and CG7870 are encouraging and the therapies appear to be both safe and well tolerated by patients, there can be no assurance that the therapies will be tolerated over an extended period of time or that the clinical efficacy of the vaccines will be demonstrated in later stage testing. There also can be no assurance that Phase I/II studies of GVAX^® vaccines for the treatment of hematologic malignancies, nor Phase I/II studies of CG7870 will demonstrate clinical efficacy. Any conclusion as to whether the Company's GVAX^® cancer vaccines and oncolytic virus therapies can potentially play a role in the treatment of multiple types of cancer will be based on both the results of ongoing clinical trials as well as future Phase II and Phase III studies.

Cell Genesys' preclinical programs are focused on oncolytic virus therapies and gene therapies for multiple types of cancer, although encouraging results have been obtained in other preclinical gene therapy programs such as hemophilia. Moreover, with the Company's increasing focus on cancer, Cell Genesys continues to execute its plan to pursue its Parkinson's disease gene therapy program through its majority-owned subsidiary, Ceregene, Inc., and expects to seek partners to complete the development and commercialization of its hemophilia gene therapy program in the future.

Cancer Gene Therapy. Cell Genesys is exploring a variety of gene therapy strategies to block tumor growth with an emphasis on antiangiogenesis therapies that inhibit blood vessel growth to tumors, thereby starving the tumor of its blood supply. Cell Genesys is collaborating with EntreMed, Inc. to evaluate two genes with antiangiogenic properties- Angiostatin and Endostatin -using the Company's adenoviral and AAV vectors. In June 2001, Cell Genesys reported encouraging preclinical data at the American Society for Gene Therapy Meeting demonstrating the feasibility of gene therapy with Angiostatin and Endostatin as a strategy to inhibit tumor growth by delivering genes that block the growth of tumor blood vessels. Cell Genesys also has an agreement with Rigel Pharmaceuticals, Inc. ("Rigel") in which Rigel is using their high throughput functional genomics screening to identify novel genes which have antiangiogenic capabilities. Cell Genesys will be granted exclusive worldwide rights to these targets in the field of gene therapy. In light of the Company's growing pipeline of potential cancer therapeutic products, a separate collaboration with GPC Biotech focusing on the use of cell cycle inhibitor genes for the treatment of cancer and cardiovascular disorders was terminated in early 2002.

Oncolytic Virus Therapies. Beyond prostate cancer, Cell Genesys' oncolytic virus technology is demonstrating encouraging results in preclinical studies of liver cancer (CG8900), bladder cancer (CG8840) and colon cancer (CG7980) when used alone as well as in combination with chemotherapy or radiation. For example, it was published in the September 2001 issue of the journal, Cancer Research, that in studies evaluating CG8900 for liver cancer, human liver tumors in mice could be completely eliminated following a single intravenous injection of CG8900 combined with doxorubicin, a chemotherapeutic agent commonly used in the treatment of liver cancer. By late 2002, the Company plans to select one preclinical cancer product candidate to bring into clinical trials.

Hemophilia Gene Therapy. Cell Genesys' scientists and academic collaborators have evaluated gene therapy using an AAV vector to deliver the factor IX gene (which produces the factor IX protein, the protein deficient in hemophilia B patients) into the livers of both small and large animals with hemophilia. In a canine hemophilia model, scientists observed an 85 percent reduction in bleeding episodes following a single administration of factor IX gene therapy. Additionally, three years after the single injection, the treated animals continued to produce the factor IX protein that was deficient in these animals prior to treatment. In Cell Genesys' preclinical program for hemophilia B, an AAV vector system is employed since the factor IX gene is small enough to fit in this vector. For hemophilia A, the company has the option of employing an AAV vector system if a truncated form of the factor VIII gene (which produces the factor VIII protein, the protein deficient in hemophilia A patients) can be successfully applied, or its proprietary lentiviral vector system if the full length gene is required for optimal production of the deficient clotting factor protein. This program has been targeted for outlicensing and therefore, the Company's focus in its hemophilia program is on partnering.

Successful gene therapy -- ex vivo or in vivo -- depends on an effective combination of therapeutic genes and vectors, the gene delivery technologies used to transfer genes into cells. Cell Genesys' proprietary gene delivery technologies include AAV, lentiviral, adenoviral and retroviral vectors. This broad portfolio of vectors enhances the number of gene therapy applications that the Company and its collaborators can pursue.

The selection of a specific vector is based on the disease indication, safety considerations, production efficiencies, disease site and other factors. Adenoviral vectors deliver larger genes into dividing or nondividing cells and they are currently being used ex vivo in human clinical studies of GVAX^® cancer vaccines. AAV vectors deliver smaller genes to certain nondividing cells, including muscle, liver, nerve and blood vessel cells. Effective in vivo gene delivery using the AAV vector has been achieved in the Company's preclinical cancer gene therapy and hemophilia programs and previously in the Company's Parkinson's disease research now being conducted by Ceregene, Inc. (see Cell Genesys' Assets Outside of its Core Business in Gene Therapy). Lentiviral vectors deliver larger genes to dividing and nondividing cells, including nerve, liver, muscle and bone marrow stem cells. Company scientists have described improved third-generation lentiviral vectors that employ a new safety mechanism that can prevent the vector from functioning should it recombine with an infectious virus already present in the individual receiving the gene therapy treatment. The Company believes that these third generation lentiviral vectors could potentially be employed in human clinical studies. Finally, retroviral vectors are suitable for delivering genes ex vivo to dividing cells.

Cell Genesys believes that its broad portfolio of vectors, positions the Company as an attractive partner for biotechnology and pharmaceutical companies as well as academic institutions which have proprietary genes with potential in gene therapy. Cell Genesys has signed agreements relating to its vector technologies with several companies. These collaborations include transactions in which Cell Genesys is reimbursed for providing gene delivery technologies to other companies with gene therapy product opportunities within their portfolio, as well as transactions in which Cell Genesys acquired commercial rights to therapeutic genes owned or discovered by other companies. Examples of the former type of transaction include agreements with EntreMed, Inc. in cancer gene therapy, Pharmacia in animal health, Invitrogen Corporation for the research market and Clontech Laboratories, Inc., a division of Becton Dickinson, in genomic research kits. An example of the latter type of transaction is Cell Genesys' collaboration with Rigel Pharmaceuticals, Inc., a genomics company, which is providing access to genes for cancer. Cell Genesys anticipates that additional agreements of these types will be signed in the future.

FDA Regulation. The activities required before a pharmaceutical agent may be marketed in the United States begin with preclinical testing. Preclinical tests include laboratory evaluation of potential products and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies and other information must be submitted to the Food and Drug Administration ("FDA") as part of an investigational new drug application, which must be reviewed and approved by the FDA before proposed clinical testing can begin. Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the investigational new drug application. Further, each clinical study must be conducted under the auspices of an independent institutional review board at the institution at which the study will be conducted. The institutional review board will consider, among other things, ethical factors and the safety of human subjects. In addition, certain protocols involving the use of genetically modified human cells must also be reviewed by the Recombinant Advisory Committee of the National Institutes of Health.

Typically, clinical testing involves a three-phase process. In Phase I, clinical trials are conducted with a small number of subjects to determine the early safety profile and pharmacology of the new therapy. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale, multicenter, comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others. In the case of products for life-threatening diseases, the initial human testing is generally done with diseased patients rather than with healthy volunteers. Since these patients are already afflicted with the target disease, it is possible that such studies may provide some results traditionally obtained in Phase II trials. These trials are frequently referred to as Phase I/II trials. Although the preliminary Phase I/II and Phase II clinical trials of Cell Genesys' GVAX^® cancer vaccine and oncolytic virus therapies have shown a favorable safety profile to date, there can be no assurance that such therapies or products will be tolerated at higher doses or that the clinical efficacy of such therapy or product will be demonstrated in later stage testing.

The results of the preclinical and clinical testing, together with chemistry and manufacturing information, are submitted to the FDA in the form of a new drug application for a pharmaceutical product, and in the form of a product license application for a biological product, for approval to commence commercial sales. In responding to a new drug application or a product license application, the FDA may grant marketing approvals, request additional information or further research, or deny the application if it determines that the application does not satisfy its regulatory approval criteria. Approvals may not be granted on a timely basis, if at all, or if granted may not cover all the clinical indications for which Cell Genesys is seeking approval or may contain significant limitations in the form of warnings, precautions or contraindications with respect to conditions of use.

Other Government Regulations. In addition to laws and regulations enforced by the FDA, Cell Genesys is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state or local laws and regulations as Cell Genesys research and development involves the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds.

Minority-Owned Abgenix, Inc. ("Abgenix") Subsidiary. Abgenix is developing antibody therapies for inflammation, cancer, transplant disorders, cardiovascular disease and infectious disease. Abgenix's core technology includes strains of transgenic mice capable of generating fully human antibodies. Cell Genesys formed Abgenix as a separate business subsidiary in June 1996, contributing $14.0 million in cash, research, development and manufacturing technology as well as patents and other intellectual property specific to the antibody therapy programs. Abgenix completed its initial public offering (Nasdaq-ABGX) in July 1998. Following the initial public offering, Cell Genesys' ownership of Abgenix dropped below 50 percent. Additional Abgenix financings, including secondary offerings in 2000 further decreased Cell Genesys' holdings. The Company continues to hold 8,954,136 shares of Abgenix stock, or approximately 10.31 percent of outstanding shares as of December 31, 2001. The Company expects to sell additional shares of Abgenix common stock over time to provide additional funding for Cell Genesys' cancer vaccine, oncolytic virus and gene therapy programs.

Ceregene, Inc., A Majority-Owned Subsidiary of Cell Genesys. In January 2001, Cell Genesys launched a new majority-owned subsidiary, Ceregene, Inc., located in San Diego, California, which is focused on gene therapies for central nervous system (CNS) disorders such as Alzheimer's disease and Parkinson's disease. Ceregene was formed through the acquisition of Neurologic Gene Therapeutics, a private San Diego-based start-up company. Cell Genesys contributed $10 million to Ceregene together with access to technology and patents in the CNS gene therapy area, in exchange for approximately 60 percent ownership of the new company. Cell Genesys has majority representation on Ceregene's board and Stephen A. Sherwin, M.D., chairman and chief executive officer of Cell Genesys, also serves as chairman of Ceregene. In 2001, Ceregene's operations were significantly expanded and included the appointment of Dr. Jeffrey M. Ostrove as president and chief operating officer. Also in 2001, the first-ever study of Alzheimer's disease gene therapy was initiated at the University of California, San Diego (UCSD) School of Medicine based on technology exclusively licensed to Ceregene.

Gene Activation Technology. Cell Genesys has developed a novel and proprietary method for protein production referred to as "gene activation." Gene activation involves the insertion of genetic regulatory elements at specific sites in cell chromosomes in proximity to a human gene responsible for the production ("expression") of a therapeutic protein. Subsequently, the gene-activated protein could be produced in a cell-based production system. Gene activation may be applied to therapeutic proteins such as erythropoietin (EPO) and potentially other proteins and may offer certain advantages. Gene activation licensing agreements have provided more than $25 million in revenues to Cell Genesys to date. Since February 1997, Cell Genesys has had a license agreement with Hoechst Marion Roussel, now Aventis Pharmaceuticals, Inc. ("Aventis"), for gene-activated EPO. To date, Cell Genesys has received over $17 million under this license agreement, which includes certain milestone payments relating to the development of gene-activated EPO which Aventis is developing in collaboration with Transkaryotic Therapies, Inc. The agreement also provides for royalties on future sales of gene-activated EPO anywhere in the world.

Pharmaceutical Division of Japan Tobacco. In November 2001, Cell Genesys and the pharmaceutical division of Japan Tobacco Inc. ("JT") modified an agreement originally signed in December 1998 involving the Company's GVAX^® prostate cancer and lung cancer vaccine programs. Under the terms of the new agreement, the two parties established a royalty arrangement on sales of GVAX^® lung cancer vaccines and on sales in other cancer indications that may be derived from a certain form of that vaccine. JT will pay Cell Genesys an undisclosed royalty on GVAX^® lung cancer vaccine sales in Japan, Taiwan and Korea, and Cell Genesys will pay JT the same royalty on such sales in North America and the rest of the world. The two parties will continue to share equally in the product development costs of GVAX^® lung cancer vaccine and JT will continue to pay Cell Genesys milestone payments. In addition, full commercial rights to GVAX^® prostate cancer vaccine have been returned to Cell Genesys. As of February 2002, Cell Genesys has received over $68.4 million in milestone and other payments and reimbursement for research and development costs. The agreement provides for future loans of up to $30 million to Cell Genesys for Phase III development costs, if JT continues in the collaboration into Phase III trials. The parties have also agreed to support an ongoing clinical trial of GVAX^® for kidney cancer in Japan, which is the first clinical trial of cancer gene therapy in Japan. If the parties agree to proceed with the development of this GVAX^® product for kidney cancer, Cell Genesys will be eligible to receive additional funding in the form of research and development reimbursements and other payments to be agreed upon at a later date. None of the payments involve an additional equity investment in Cell Genesys by JT, which currently owns approximately three percent of the Company. This is the second collaboration agreement between Cell Genesys and JT. The first collaboration, signed in 1991, funded the successful development of the fully human monoclonal antibody technology transferred to Abgenix.

Other Collaborations. Cell Genesys has licensing agreements with five companies relating to its four proprietary viral vector technologies.  These collaborations enable Cell Genesys to either acquire commercial rights to therapeutic genes owned or discovered by other companies or to receive monetary reimbursement for providing viral vector technologies to companies researching and developing their own gene therapy products in disease areas that Cell Genesys is not pursuing.  Cell Genesys' agreement with Rigel Pharmaceuticals, Inc. is an example of an agreement that enables Cell Genesys to acquire commercial rights to therapeutic genes. Under the agreement, Rigel is attempting to discover novel genes for use in Cell Genesys' cancer gene therapy programs with a primary focus on genes for antiangiogenesis in exchange for certain rights to Cell Genesys' retroviral vector technology.   Examples of licensing agreements which provide Cell Genesys with monetary reimbursement for providing vector technologies to other companies include agreements with the Clonetech division of Becton Dickinson and Invitrogen for use in the research market and an agreement with Pharmacia in the field of animal health. Additionally, Cell Genesys has a research collaboration with EntreMed, Inc. in which EntreMed's Angiostatin and Endostatin genes are being combined with Cell Genesys' proprietary adenoviral and AAV gene delivery systems in preclinical antiangiogenesis studies designed to assess whether this gene therapy strategy can treat tumors by inhibiting their blood supply.

The patent positions of pharmaceutical and biotechnology firms, including Cell Genesys, are generally uncertain and involve complex legal and factual questions. Cell Genesys currently has approximately 315 issued or granted patents and more than 400 pending applications. While Cell Genesys is currently prosecuting its patent applications, it cannot be certain whether any given application will result in the issuance of a patent or, if any patent is issued, whether it will provide significant proprietary protection or will not be invalidated. Because patent applications in the United States are confidential until patents are issued and publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, Cell Genesys cannot be certain that it was the first creator of inventions covered by pending patent applications or that it was the first to file patent applications for such inventions.

The commercial success of the Company will also depend in part on not infringing the patents or proprietary rights of others and not breaching licenses granted to the Company. The Company is aware of competing intellectual property relating to both its programs in cancer vaccines and oncolytic viruses. While the Company currently believes it has freedom to operate in these areas, there can be no assurance that its position will not be challenged by others in the future. The Company may be required to obtain licenses to certain third-party technologies or genes necessary in order to market our products. Any failure to license any technologies or genes required to commercialize our technologies or products at reasonable cost may have a material adverse effect on the our business, results of operations or financial condition.

Litigation, which could result in substantial cost to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of other parties' proprietary rights. To determine the priority of inventions, interference proceedings are frequently declared by the U.S. Patent and Trademark Office, which could result in substantial costs to the Company and may result in an adverse decision as to the priority of the Company's inventions. Cell Genesys is currently involved in multiple interference and/or opposition proceedings with regard to: (i) gene activation technology, (ii) certain ex vivo gene therapies, (iii) chimeric receptor technology and (iv) certain vector technologies. The outcomes of these proceedings cannot be predicted, but are not expected to have a material adverse effect on the Company's intellectual property position or its business. The Company may be involved in other interference and/or opposition proceedings in the future. The Company believes there will continue to be significant litigation in the industry regarding patent and other intellectual property rights.

The Company also relies on unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain its competitive position. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to the Company's trade secrets or disclose such technology, or that the Company can meaningfully protect its rights to its unpatented trade secrets.

Cell Genesys requires its employees and consultants to execute confidentiality agreements upon the commencement of employment and consulting relationships with the Company. These agreements provide that all confidential information developed by or made known to an individual during the course of the employment or consulting relationship generally must be kept confidential. In the case of employees, the agreements provide that all inventions conceived by the individual, while employed by the Company, relating to the Company's business are the Company's exclusive property. These agreements may not provide meaningful protection for the Company's trade secrets in the event of unauthorized use or disclosure of such information.

The Company faces substantial competition in the development of products for cancer and other diseases. This competition, from other manufacturers of the same products and from manufacturers of different products designed for the same uses, is expected to continue in both U.S. and ex-U.S. markets. Cancer vaccines, oncolytic viruses and gene therapies, the three primary focus areas of the Company, are rapidly evolving areas of the biotechnology industry and are expected to undergo many changes in the coming years as a result of technological advances. Cell Genesys is aware of a number of groups that are developing cancer vaccines, oncolytic viruses and gene therapies including early-stage and established biotechnology companies, pharmaceutical companies, academic institutions, government agencies and research institutions. The Company faces competition from these groups in areas such as recruiting employees, acquiring technologies that might enhance the Company's ability to market products, establishing relationships with certain research or academic institutions, enrolling patients in clinical trials and in partnering certain of its programs with larger pharmaceutical companies. It is possible that the Company's competitors could achieve earlier market commercialization, could have superior patent protection, or could have safer, more effective or more cost-effective products. These factors could render the Company's potential products less competitive, which could have a material adverse effect on its business.

As of December 31, 2001, Cell Genesys employed 262 persons, of whom 36 hold Ph.D. degrees and seven hold M.D. degrees. Approximately 202 employees are engaged in research and development, and 60 support business development, intellectual property, finance and other administrative functions. Many of Cell Genesys' management have had prior product development experience in the biotechnology and pharmaceutical industries.

Cell Genesys' success will depend in large part upon its ability to attract and retain employees. Cell Genesys faces competition in this regard from other companies, research and academic institutions, government entities and other organizations. Cell Genesys believes that it maintains good relations with its employees.

The executive officers of Cell Genesys and their ages as of March 31, 2002 are as follows:

Dr. Sherwin has served as chief executive officer and a director of Cell Genesys since March 1990. Dr. Sherwin also served as president until July, 2001 at which time Joseph J. Vallner, Ph.D. was appointed president. In March 1994, he was elected to the additional position of chairman of the board. From 1983 to 1990, Dr. Sherwin held various positions at Genentech, Inc., a biotechnology company, most recently as vice president of clinical research. Prior to 1983, Dr. Sherwin was on the staff of the National Cancer Institute. Dr. Sherwin currently serves as the chairman of the board of Ceregene, Inc., a majority-owned subsidiary of Cell Genesys. He is also a director of Abgenix, Inc., Neurocrine Biosciences, Inc., Rigel Pharmaceuticals, Inc. and privately owned Calyx Therapeutics, Inc. Dr. Sherwin holds a B.A. in biology from Yale University and an M.D. from Harvard Medical School and is board-certified in internal medicine and medical oncology.

Dr. Vallner joined Cell Genesys in October 1999 as executive vice president and chief operating officer. Effective July 2001, Dr. Vallner became president of the Company. He currently manages the research, development, clinical, regulatory, manufacturing and operations departments at Cell Genesys. Prior to joining Cell Genesys, Dr. Vallner was with SEQUUS Pharmaceuticals for seven years where he was instrumental in the product launch of two products including Doxil^®, a liposome-based cancer therapeutic. In addition, Dr. Vallner helped transition SEQUUS through its merger with ALZA Corporation. Prior to that, he held various positions with Syntex Corporation and G.D. Searle and Company, and was an associate professor of pharmaceutics at the University of Georgia. Dr. Vallner received his Ph.D. in pharmaceutics, his M.S. in physical chemistry and his B.S. in pharmacy from the University of Wisconsin, Madison.

Mr. Pfeffer joined Cell Genesys in June 1996 as director of finance and was appointed chief financial officer in September 1998 and vice president in April 1999. From 1989 to 1996, Mr. Pfeffer held a variety of positions at Diasonics Ultrasound, Inc., most recently as corporate controller. From 1987 to 1989, he was in the finance department at ComputerLand Corporation. From 1981 to 1987, Mr. Pfeffer was in the audit and consulting groups at Price Waterhouse, where he obtained his CPA certificate. Mr. Pfeffer graduated with a B.S. degree in business administration from the University of California, Berkeley.

Dr. Ando, vice president, clinical research, joined Cell Genesys in July 1997. Dr. Ando brings over nine years of clinical development and research experience to Cell Genesys, including three years at Cetus Corporation and six years at Chiron Corporation. Most recently he has served as director of clinical gene therapy for Chiron Technologies at Chiron. His experience includes clinical development of biological therapeutics and gene therapy for both cancer and HIV infection. Dr. Ando began his career as a faculty member at the UCLA School of Medicine in the division of rheumatology. He received his M.D. and Internal Medicine training at the University of Michigan and a B.S. in Chemistry from Stanford University.

Dr. McKay joined Cell Genesys in November 2000 as vice president, quality and regulatory affairs. Prior to joining Cell Genesys, from 1996-2000, Dr. McKay was vice president of regulatory affairs at Celtrix Pharmaceuticals. For over nine years, Dr. McKay also held various management positions in the regulatory affairs and quality assurance areas with other biotechnology companies including COR Therapeutics, Berlex Biosciences and Triton Biosciences. Dr. McKay holds a Ph.D. in biochemistry from the University of London and a B.S. in biology from the University of Portsmouth in Hampshire, UK.

Ms. McKinley, vice president, human resources, joined Cell Genesys in l994. From 1986 to 1994, she was responsible for human resources at Nellcor Puritan Bennett, Inc.. Previously, Ms. McKinley also worked at Genentech, Inc. for seven years in various human resource positions. She received a B.A. in psychology from the University of California, Santa Barbara.

Mr. Ramsay joined Cell Genesys in January 2002 and serves as vice president of manufacturing operations. Prior to joining Cell Genesys, Mr. Ramsay served three years as a vice president of manufacturing at ALZA Corporation. Mr. Ramsay also held various positions during seven years with SEQUUS Pharmaceuticals, including vice president of manufacturing operations, as well as various positions at Syntex Corporation focusing on manufacturing, product development and regulatory affairs. Mr. Ramsay holds a Bachelor of Pharmacy degree from the University of Nottingham in the United Kingdom.

Mr. Tidwell joined Cell Genesys in August 2000 as vice president, corporate development. Prior to joining Cell Genesys, from 1998-2000, Mr. Tidwell was vice president of business development at Calydon, Inc. Mr. Tidwell has also held various management positions with such companies as Boston Life Sciences where he served as chief operating officer for one year, Genetics Institute where he was vice president of marketing and business development for five years, and Eli Lilly and Company where he held various positions including director of worldwide pharmaceutical licensing. Mr. Tidwell holds an M.B.A from The Ohio State Graduate School of Business and a Bachelor of Pharmacy from The Ohio State School of Pharmacy.

Dr. Working joined Cell Genesys in September 2001 as vice president, research and development. Prior to joining Cell Genesys, from 1999 - 2000, Dr. Working served as vice president of analytical and non-clinical sciences and principal scientist at ALZA Corporation. Dr. Working has also held various positions with SEQUUS Pharmaceuticals, where from 1997-1999 he served as vice president of research and development, as well as Genentech, Inc. where he served four years as a senior toxicologist and head of the Experimental Toxicology Group in the Department of Safety Evaluation. Dr. Working holds Ph.D., M.S. and B.S. degrees from the University of California, Davis and an M.A. degree from the University of California, San Francisco.

Cell Genesys has established a prominent scientific advisory board that includes several leaders in the fields of cancer immunotherapy and gene therapy. As of March 31, 2002, the board consists of the following individuals:

Cell Genesys occupies administrative offices and research laboratories covering approximately 106,477 square feet of space in a research and development office park located in Foster City, California. In February 2001, the Company extended the lease agreement in the Foster City location to January 31, 2006. Cell Genesys' laboratories are equipped for biochemical and tissue culture research and development. In March 2001, the Company signed a build-to-suit lease with purchase option for a new building to be constructed in South San Francisco, California. The proposed building is expected to contain approximately 154,000 square feet of research and development and administrative space, and is planned to serve as the Company's future corporate headquarters. Construction is under way, and the new headquarters office is expected to be ready for occupancy in mid 2003. After moving to its South San Francisco facility, the Company expects to sublease its facilities in Foster City.

A 41,000 square feet leased facility in Hayward, California is being constructed to become a manufacturing facility for the clinical production requirements for Phase III studies and potential product launch of non patient-specific GVAXÒ cancer vaccine products. This GMP manufacturing facility is expected to be fully validated and on-line by late 2002. In February 2002, the Company signed a new build-to-suit lease for a two-story building consisting of approximately 50,000 square feet in the Hayward location with a fifteen-year term. The lease in the existing Hayward location will be coterminous with this new lease. The second building in the Hayward location is being constructed to provide support services for the Company's GMP facility. As of December 31, 2001, construction costs in the Hayward GMP manufacturing facility totaled approximately $35 million. The Company expects to incur approximately $30 to $35 million of additional costs associated with the construction and validation of the facility during 2002.

	High	Low
Calendar Year 2000
First Quarter	$ 52.00	$ 11.81
Second Quarter	$ 28.50	$ 14.75
Third Quarter	$ 33.56	$ 21.31
Fourth Quarter	$ 28.48	$ 19.63
Calendar Year 2001
First Quarter	$ 22.44	$ 12.50
Second Quarter	$ 20.50	$ 12.61
Third Quarter	$ 20.97	$ 13.79
Fourth Quarter	$ 24.80	$ 15.60

                                                              Year Ended December 31,
                                             ------------------------------------------------------
                                               2001       2000       1999        1998       1997
                                             ---------  ---------  ---------  ----------  ---------
                                                         (in thousands, except per share data)
Consolidated Statement of Operations Data:
Total Revenue.............................. $  28,317     24,209  $  33,607  $   24,146  $  23,806
Operating expenses:
  Research and development.................    50,752     30,474     24,538      37,932     36,830
  General and administrative...............    11,850      6,984      4,833       8,204     10,659
  Charge for purchased in-process
   technology..............................    18,042        --         --          --      72,270
  Restructuring charge related to
   acquisition.............................       --         --         --          --       6,576
  Charge for cross-license and settlement
   (includes $11,250 equity in losses of
   Xenotech joint venture associated with
   cross-license and settlement)...........       --         --         --          --      22,500
  Merger termination costs.................       --         --      15,382         --         --
                                             ---------  ---------  ---------  ----------  ---------
          Total operating expenses.........    80,644     37,458     44,753      46,136    148,835
                                             ---------  ---------  ---------  ----------  ---------
Operating loss.............................   (52,327)   (13,249)   (11,146)    (21,990)  (125,029)
Equity in loss of Abgenix..................       --         --      (3,083)     (2,917)       --
Gain on sale of stock of Abgenix...........       --     239,660        --        7,020        --
Interest income, net.......................    17,878     13,172      2,235       1,567      1,500
                                             ---------  ---------  ---------  ----------  ---------
Income (loss) before minority interest,
  income tax and cumulative effect of
  change in accounting.....................   (34,449)   239,583    (11,994)    (16,320)  (123,529)
Loss attributed to minority interest.......       264        --         --        4,192        --
                                             ---------  ---------  ---------  ----------  ---------
Income (loss) before income tax and
  cumulative effect of change in
  accounting...............................   (34,185)   239,583    (11,994)    (12,128)  (123,529)
Benefit (provision) for income tax.........     5,512    (64,203)       --          --         --
                                             ---------  ---------  ---------  ----------  ---------
Income (loss) before effect of
  cumulative change in accounting..........   (28,673)   175,380    (11,994)    (12,128)  (123,529)
Cumulative effect of change in
  accounting principle, net of tax(1)......       --      (6,460)       --          --         --
                                             ---------  ---------  ---------  ----------  ---------
Net income (loss)..........................   (28,673)   168,920    (11,994)    (12,128)  (123,529)
Deemed dividend to preferred stockholders..       785        756        392       1,088        --
                                             ---------  ---------  ---------  ----------  ---------
Net income (loss) attributed to
  common stockholders...................... $ (29,458)   168,164  $ (12,386) $  (13,216) $(123,529)
                                             =========  =========  =========  ==========  =========

Basic income (loss) per common share....... $   (0.85) $    4.99  $   (0.39) $    (0.46) $   (5.33)
                                             =========  =========  =========  ==========  =========

Diluted income (loss) per common share..... $   (0.85) $    4.55  $   (0.39) $    (0.46) $   (5.33)
                                             =========  =========  =========  ==========  =========

Weighted average shares of common
  stock outstanding - basic................    34,746     33,716     31,682      28,607     23,172
                                             =========  =========  =========  ==========  =========

Weighted average shares of common
  stock outstanding - diluted..............    34,746     36,952     31,682      28,607     23,172
                                             =========  =========  =========  ==========  =========

                                                          2000       1999        1998       1997
                                                        ---------  ---------  ----------  ---------
Pro forma:
  Net income (loss)........................            $ 175,380  $ (10,257) $  (22,277) $(122,729)
  Earnings (loss) per share-diluted........            $    4.75  $   (0.32) $    (0.78) $   (5.30)


                                                                   December 31,
                                             ------------------------------------------------------
                                               2001       2000       1999        1998       1997
                                             ---------  ---------  ---------  ----------  ---------
                                                                  (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
  investments.............................. $ 258,649    259,647  $  50,287  $   53,243  $  88,816
Working capital............................   420,779    549,985    334,646      44,080     51,804
Total assets...............................   615,310    793,716    489,683      65,799    106,887
Total current liabilities..................   149,690    239,002    150,430       9,964     39,955
Long-term obligations......................    60,000      1,350      3,198       4,860     11,082
Redeemable convertible preferred stock.....    17,970     17,185      7,679      12,083     19,817
Accumulated deficit........................   (63,557)   (34,883)  (203,803)   (191,809)  (179,563)
Stockholders' equity.......................   387,554    536,179    328,376      38,892     18,641

                                                                            2001
                                           ---------------------------------------------------------------------
                                             March 31       June 30     September 30  December 31      Total
                                           ------------   ------------  ------------  ------------  ------------
                                                           (in thousands, except per share amounts)
Quarterly Results Of Operations (1)
               (Unaudited)
Revenue.................................. $      5,973   $      4,036  $      4,635  $     13,673  $     28,317
Research and development.................       10,726         11,010        12,362        16,654        50,752
General and administrative...............        2,700          2,839         2,786         3,525        11,850
Charge for purchased in-process
  technology.............................          --             --         18,042           --         18,042
Net income (loss)........................ $       (203)  $     (4,678) $    (22,384) $     (1,408) $    (28,673)
Basic income (loss) per common share..... $      (0.01)  $      (0.14) $      (0.64) $      (0.06) $      (0.85)
Diluted income (loss) per common share... $      (0.01)  $      (0.14) $      (0.64) $      (0.06) $      (0.85)



                                                                            2000
                                           ---------------------------------------------------------------------
                                             March 31       June 30     September 30  December 31      Total
                                           ------------   ------------  ------------  ------------  ------------
                                                           (in thousands, except per share amounts)
Quarterly Results Of Operations
               (Unaudited)
Revenue.................................. $      4,600   $      4,985  $      5,112  $      9,512  $     24,209
Research and development.................        6,400          7,747         7,448         8,879        30,474
General and administrative...............        1,659          1,574         1,860         1,891         6,984
Cumulative effect of change in
  accounting                                     6,460            --            --            --          6,460
Net income (loss)........................ $    130,307 * $       (434) $       (308) $     39,355  $    168,920
Basic income (loss) per common share..... $       3.92   $      (0.01) $      (0.01) $       1.14  $       4.99
Diluted income (loss) per common share... $       3.56   $      (0.01) $      (0.01) $       1.05  $       4.55

                                                Operating      Debt
                                                  Leases     Financing
                                                ----------  ----------- 
Years ending December 31:
  2002........................................ $    8,810  $     1,759
  2003........................................     13,548       13,610
  2004........................................     16,116       13,262
  2005........................................     16,406       12,913
  2006 and beyond.............................    120,197       24,783
                                                ----------  -----------
  Total minimum lease payment................. $  175,077       66,327
                                                ==========
Less: Amount representing interest........................      (6,327)
                                                            -----------
Present value of future lease payments.................... $    60,000
                                                            ===========

                                                                                                    Fair
                                                                                                    Value
                                                                             There-               Dec. 31,
 (in thousands)                   2002       2003       2004       2005       after      Total      2001
                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
Total Investments
  Securities.................. $  66,766  $  52,082  $  43,326  $  12,883  $   2,586  $ 177,643  $ 179,287
  Average Interest Rate.......      2.00%      3.89%       --         --         --        3.10%
Long-term Debt, including
  Current Portion............. $     --   $  12,000  $  12,000  $  12,000  $  24,000  $  60,000  $  60,000
  Average Interest Rate.......       --         --         --         --         --         --         2.9%

                                                                 December 31,
                                                           ---------------------
                                                             2001        2000
                                                           ---------  ----------
                           ASSETS
Current assets:
  Cash and cash equivalents including restricted cash
    of $66,382 and $349 for 2001 and 2000, respectively . $ 143,055  $   21,747
  Short-term investments.................................   115,594     237,900
  Investment in Abgenix common stock, at fair value......   301,217     528,858
  Prepaid expenses and other current assets..............    10,603         482
                                                           ---------  ----------
          Total current assets...........................   570,469     788,987
Property and equipment, net..............................    43,217       4,439
Deposits and other assets................................     1,624         290
                                                           ---------  ----------
                                                          $ 615,310  $  793,716
                                                           =========  ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable....................................... $   1,978  $      520
  Accrued compensation and benefits......................     2,637       1,323
  Deferred revenue from related parties..................     3,756       5,503
  Accrued legal expenses.................................       549         492
  Accrued acquisition and related costs..................     1,535         --
  Accrued clinical trial costs...........................       928         418
  Other accrued liabilities..............................     7,405         599
  Income tax payable.....................................    13,094      24,820
  Deferred tax liability.................................   117,808     204,300
  Current portion of property and equipment financing....       --        1,027
                                                           ---------  ----------
          Total current liabilities......................   149,690     239,002

Noncurrent portion of property and equipment financing...    60,000       1,350

Commitments and contingencies

Minority interest in equity of subsidiary................        96         --

Redeemable convertible preferred stock, $.001 par value:
  5,000,000 shares authorized; 1,569 shares issued
  and outstanding in 2001 and 2000, respectively.........    17,970      17,185

Stockholders' equity:
  Common stock, $.001 par value:  84,859,199 shares
     authorized; 35,596,446 and 34,123,771 shares
     issued and outstanding in 2001 and 2000,
     respectively........................................        36          34
  Additional paid-in capital.............................   274,365     256,007
  Accumulated comprehensive income, principally
    unrealized gains on investment in Abgenix, net
    of taxes.............................................   176,710     315,021
  Accumulated deficit....................................   (63,557)    (34,883)
                                                           ---------  ----------
          Total stockholders' equity.....................   387,554     536,179
                                                           ---------  ----------
                                                          $ 615,310  $  793,716
                                                           =========  ==========

                                                         Year Ended December 31,
                                                  -------------------------------
                                                    2001       2000       1999
                                                  ---------  ---------  ---------

Revenue under collaborative agreements.......... $  28,317     24,209  $  33,607
Operating expenses:
  Research and development......................    50,752     30,474     24,538
  General and administrative....................    11,850      6,984      4,833
  Charge for purchased in-process technology        18,042        --         --
  Merger termination costs......................       --         --      15,382
                                                  ---------  ---------  ---------
         Total operating expenses...............    80,644     37,458     44,753
                                                  ---------  ---------  ---------
Operating loss..................................   (52,327)   (13,249)   (11,146)

Equity in loss of Abgenix.......................       --         --      (3,083)
Gain on sale of stock of Abgenix................       --     239,660        --
Interes and other income........................    18,378     13,558      3,059
Interest expense................................      (500)      (386)      (824)
                                                  ---------  ---------  ---------
Income (loss) before minority interest, income
   tax and cumulative effect of change in
   accounting...................................   (34,449)   239,583    (11,994)
Loss attributed to minority interest............       264        --         --
                                                  ---------  ---------  ---------
Income (loss) before income tax and cumulative
   effect of accounting change..................   (34,185)   239,583    (11,994)
Benefit (provision) for income tax..............     5,512    (64,203)       --
                                                  ---------  ---------  ---------
Income (loss) before cumulative effect of
   change in accounting.........................   (28,673)   175,380    (11,994)
Cumulative effect of change in accounting
   principle, net of tax........................       --      (6,460)       --
                                                  ---------  ---------  ---------
Net income (loss)...............................   (28,673)   168,920    (11,994)
Deemed dividend to preferred stockholders.......       785        756        392
                                                  ---------  ---------  ---------
Net income (loss) attributed to
   common shareholders.......................... $ (29,458)   168,164  $ (12,386)
                                                  =========  =========  =========

Basic income (loss) per common share............ $   (0.85)      4.99  $   (0.39)
                                                  =========  =========  =========

Diluted income (loss) per common share.......... $   (0.85)      4.55  $   (0.39)
                                                  =========  =========  =========

Weighted average shares of common stock
   outstanding -- basic.........................    34,746     33,716     31,682
                                                  =========  =========  =========
Weighted average shares of common stock
   outstanding -- diluted.......................    34,746     36,952     31,682
                                                  =========  =========  =========

Pro forma amounts assuming the new revenue
    recognition policy was applied
    retroactively (unaudited)
Net Income (loss)............................... $     --   $ 175,380  $ (10,257)

                                                                 Accumulated
                                                                Comprehensive
                                                                Income(loss),
                                                                 Principally                    Total
                                                    Additional  Unrealized Gain                Stock-
                                           Common    Paid-in    on Investment  Accumulated    holders'
                                           Stock     Capital     of Abgenix      Deficit       Equity
                                          --------  ----------  -------------  ------------  -----------
Balances at December 31, 1998........... $     31  $  230,557  $         113  $   (191,809) $    38,892

  Net loss..............................      --          --             --        (11,994)     (11,994)
  Change in net unrealized
    holding loss on available
    for sale securities.................      --          --            (713)          --          (713)
  Unrealized gain on investment
    in Abgenix, net of taxes of
    $137,000 (restated).................      --          --         284,491           --       284,491
                                                                                             -----------
  Comprehensive income (loss)...........      --          --             --            --       271,784
                                                                                             -----------
  Adjustment to carrying
    amount of Abgenix
    investment resulted
    from March 4, 1999 Abgenix
    common stock offering...............      --        9,835            --            --         9,835
  Issuance of 516,970
   shares of common stock
   upon exercise of stock
   options and pursuant to
   the 1992 Employee Stock
   Purchase Plan........................        1       3,332            --            --         3,333
  Issuance of 34,780 shares
   of common stock upon
   exercise of warrants.................      --          127            --            --           127
  Conversion of 462 shares
   of Series B redeemable
   preferred into 1,149,081
   shares of common stock ..............        1       4,796            --            --         4,797
  Deemed dividend to
   preferred stockholders  .............      --         (392)           --            --          (392)
                                          --------  ----------  -------------  ------------  -----------
Balances at December 31, 1999...........       33     248,255        283,891      (203,803)     328,376
  Net income............................      --          --             --        168,920      168,920
  Change in net unrealized
    holding loss on available
    for sale securities.................      --          --           3,118           --         3,118
  Unrealized gain on investment
    in Abgenix, net of taxes of
    $208,000 ...........................      --          --          28,012           --        28,012
                                                                                             -----------
  Comprehensive income..................      --          --             --            --       200,050
                                                                                             -----------
  Issuance of 1,537,515
   shares of common stock
   upon exercise of stock
   options and pursuant to
   the 1992 Employee Stock
   Purchase Plan........................        1       8,508            --            --         8,509
  Deemed dividend to
   preferred stockholders ..............      --         (756)           --            --          (756)
                                          --------  ----------  -------------  ------------  -----------
Balances at December 31, 2000...........       34     256,007        315,021       (34,883)     536,179
  Net loss..............................      --          --             --        (28,673)     (28,673)
  Change in net unrealized
    holding loss on available
    for sale securities.................      --          --            (865)          --          (865)
  Unrealized gain on investment
    in Abgenix, net of taxes of
    $117,808 ...........................      --          --        (137,446)          --      (137,446)
                                                                                             -----------
  Comprehensive loss....................      --          --             --            --      (166,984)
                                                                                             -----------
  Issuance of 909,199
   shares of common stock
   upon acquisition of Calydon..........        1      16,421            --            --        16,421
  Issuance of 563,476
   shares of common stock
   upon exercise of stock
   options and pursuant to
   the 1992 Employee Stock
   Purchase Plan........................        1       2,722            --            --         2,723
  Deemed dividend to
   preferred stockholders ..............      --         (785)           --            --          (785)
                                          --------  ----------  -------------  ------------  -----------
Balances at December 31, 2001........... $     36  $  274,365  $     176,710  $    (63,557) $   387,554
                                          ========  ==========  =============  ============  ===========

                                                          Year Ended December 31,
                                                    --------------------------------
                                                      2001        2000       1999
                                                    ---------  ----------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss........................................ $ (28,673) $  168,920  $ (11,994)
  Adjustments to reconcile net income (loss)
     to net cash used by operating activities:
     Depreciation and amortization................     3,410       2,211      2,986
     Gain on disposal of property and equipment...       --          --         (34)
     Equity in losses of Abgenix..................       --          --       3,083
     Gain on sale of shares of Abgenix............       --     (239,660)       --
     Purchased in-process technology..............    18,042         --         --
  Changes to:
     Prepaid expenses and other assets............   (10,546)        991       (645)
     Accounts payable.............................     1,458        (574)        21
     Accrued compensation and benefits............       796        (733)       768
     Deferred revenue.............................    (1,747)      1,308      3,492
     Accrued legal expenses.......................      (335)       (220)        61
     Accrued acquisition and related costs........     1,535      (1,068)       136
     Other accrued liabilities....................    10,067        (612)      (123)
     Accrued tax provision........................   (11,726)     21,120        --
                                                    ---------  ----------  ---------
          Net cash used in operating activities...   (17,719)    (48,317)    (2,249)
                                                    ---------  ----------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of short-term investments.............  (333,640)   (347,396)   (55,628)
  Maturities of short-term investments............    20,433      30,844     48,716
  Sales of short-term investments.................   434,652     126,759        --
  Capital expenditures............................   (42,188)     (2,373)       (13)
  Proceeds from disposal of property and equipment       --           31         82
  Exercise of Abgenix warrants....................       --         (730)       --
  Net proceeds from sale of Abgenix shares........       --      243,860        --
  Minority interest in equity of subsidiary.......        96         --         --
                                                    ---------  ----------  ---------
          Net cash provided by (used in)
            investing activities..................    79,353      50,995     (6,843)
                                                    ---------  ----------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of convertible
    preferred stock...............................       --        8,750        --
  Proceeds from issuances of common stock.........     2,772       8,517      3,461
  Proceeds from long-term debt financing..........    60,000         --         --
  Payments under equipment financing obligations..    (3,098)     (3,498)    (3,524)
                                                    ---------  ----------  ---------
          Net cash provided by (used in)
            financing activities..................    59,674      13,769        (63)
                                                    ---------  ----------  ---------
Net increase (decrease) in cash and cash
  equivalents.....................................   121,308      16,447     (9,155)
Cash and cash equivalents at beginning of year....    21,747       5,300     14,455
                                                    ---------  ----------  ---------
Cash and cash equivalents at end of year.......... $ 143,055  $   21,747  $   5,300
                                                    =========  ==========  =========

                                           Year Ended December 31,
                                          ----------------------
                                             2000        1999
                                          ----------  ----------              
As reported:
  Net income (loss)..................... $  168,164  $   11,994
  Net income (loss) per share- diluted.. $     4.57  $    (0.38)

Pro forma amounts with change in
  accounting related to revenue
  recognition applied retroactively
  (unaudited):
  Net income (loss)..................... $  175,380  $  (10,257)
  Net income (loss) per share- diluted.. $     4.75  $    (0.32)

                                                       Year ended December 31,
                                                  -------------------------------
                                                    2001       2000       1999
                                                  ---------  ---------  ---------
Net income (loss) attributable to
   common stockholders ......................... $ (29,458) $ 168,164  $ (12,386)
                                                  =========  =========  =========

Weighted-average shares outstanding:
   Denominator for basic earnings (loss)
      per common share..........................    34,746     33,716     31,682
   Potential common shares:
       - stock options..........................       --       2,000        --
       - convertible preferred stock............       --       1,236        --
                                                  ---------  ---------  ---------
   Denominator for diluted earnings
      (loss) per share..........................    34,746     36,952     31,682
                                                  =========  =========  =========
Net income (loss) per common share:
   Basic........................................ $   (0.85) $    4.99  $   (0.39)
                                                  =========  =========  =========

   Diluted...................................... $   (0.85) $    4.55  $   (0.39)
                                                  =========  =========  =========

                                                      2001        2000       1999
                                                    ---------  ----------  ---------
Cash paid for interest............................ $     500  $      386  $     824
Cash paid for income taxes........................ $   2,500  $   40,000  $     --

                                                      2001        2000       1999
                                                    ---------  ----------  ---------
Furniture and equipment acquired under
  financing....................................... $     --   $      --   $     973
Charge for purchased in-process technology........ $  18,042  $      --   $     --

                                                  Gross        Gross     Estimated
                                    Amortized   Unrealized  Unrealized     Fair
                                       Cost       Gains       Losses       Value
                                    ----------  ----------  -----------  ---------
2001                                                                              
Commercial paper.................. $   70,944  $      109  $       --   $  71,053
Corporate notes...................     53,864       1,085          --      54,949
U.S. Government and its agencies..     52,836         449          --      53,285
Abgenix common stock..............      8,287     292,930          --     301,217
                                    ----------  ----------  -----------  ---------
Short-term investments............ $  185,931  $  294,573  $       --   $ 480,504
                                    ==========  ==========  ===========  =========


Classified as:
Cash equivalents.................. $   63,693  $      --   $       --   $  63,693
Short-term investments............    113,951       1,643          --     115,594
Abgenix common stock..............      8,287     292,930          --     301,217
                                    ----------  ----------  -----------  ---------
                                   $  185,931  $  294,573  $       --   $ 480,504
                                    ==========  ==========  ===========  =========

                                                  Gross        Gross     Estimated
                                    Amortized   Unrealized  Unrealized     Fair
                                       Cost       Gains       Losses       Value
                                    ----------  ----------  -----------  ---------
2000                                                                              
Commercial paper.................. $   22,975  $      --   $       --   $  22,975
Corporate notes...................     24,725         224          --      24,949
Municipal bonds...................    186,288       2,164          --     188,452
U.S. Government and its agencies..     17,281          88          --      17,369
Abgenix common stock..............      8,287     520,571          --     528,858
                                    ----------  ----------  -----------  ---------
Short-term investments............ $  259,556  $  523,047  $       --   $ 782,603
                                    ==========  ==========  ===========  =========


Classified as:
Cash equivalents.................. $   15,845  $      --   $       --   $  15,845
Short-term investments............    235,424       2,476          --     237,900
Abgenix common stock..............      8,287     520,571          --     528,858
                                    ----------  ----------  -----------  ---------
                                   $  259,556  $  523,047  $       --   $ 782,603
                                    ==========  ==========  ===========  =========

                                                             Estimated
                                                Amortized      Fair
                                                   Cost        Value
                                                ----------  -----------           
Due in one year or less....................... $   66,766  $    66,766
Due in one to seven years.....................    119,164      413,738
                                                ----------  -----------
                                               $  185,930  $   480,504
                                                ==========  ===========

                                                   2001        2000        1999
                                                ----------  -----------  ---------
Furniture and equipment under capital
  lease....................................... $      --   $     4,872  $   8,893
Machinery and equipment.......................     23,003       12,902      7,788
Leasehold improvements under capital lease....        --         5,463      5,463
Leasehold improvements........................     12,945        3,420      2,561
Construction in progress......................     34,856          271        126
                                                ----------  -----------  ---------
                                                   70,804       26,928     24,831
Accumulated depreciation and amortization.....    (27,587)     (22,489)   (20,633)
                                                ----------  -----------  ---------
                                               $   43,217  $     4,439  $   4,198
                                                ==========  ===========  =========

                                                Operating      Debt
                                                  Leases     Financing
                                                ----------  -----------
Years ending December 31:
  2002........................................ $    8,810  $     1,759
  2003........................................     13,548       13,610
  2004........................................     16,116       13,262
  2005........................................     16,406       12,913
  2006 and beyond.............................    120,197       24,783
                                                ----------  -----------
  Total minimum lease payment................. $  175,077       66,327
                                                ==========
Less: Amount representing interest........................      (6,327)
                                                            -----------
Present value of future lease payments.................... $    60,000
                                                            ===========

                                                     Outstanding Stock Options
                                                    ------------------------
                                                                  Weighted-
                                                                   Average
                                         Shares      Number of     Exercise
                                        Available      Shares       Price
                                       -----------  ------------  ----------
Balances, December 31, 1998..........       2,358         3,275  $     4.88
     Authorized......................         --
     Granted.........................      (1,296)        1,296  $     7.65
     Exercised.......................         --           (296) $     4.08
     Expired.........................      (1,289)          --
     Canceled........................         424          (424) $     6.41
                                       -----------  ------------
Balances, December 31, 1999..........         197         3,851  $     5.69
     Authorized......................       1,500           --
     Granted.........................        (792)          792  $    23.64
     Exercised.......................         --         (1,031) $     4.28
     Expired.........................        (118)          --
     Canceled........................         395          (395) $     7.75
                                       -----------  ------------
Balances, December 31, 2000..........       1,182         3,217  $    10.33
     Authorized......................       2,300           --
     Granted.........................      (1,834)        1,834  $    18.95
     Exercised.......................         --           (385) $     5.47
     Expired.........................         (25)          --
     Canceled........................         281          (281) $    17.23
                                       -----------  ------------
Balances, December 31, 2001..........       1,904         4,385  $    13.92
                                       ===========  ============

Exercisable at December 31, 2001..................        2,136  $     9.37
                                                    ============

Exercisable at December 31, 2000..................        1,670  $     5.75
                                                    ============

Exercisable at December 31, 1999..................        1,997  $     4.77
                                                    ============

Weighted average fair value of options granted during 2001...... $    14.26
Weighted average fair value of options granted during 2000...... $    18.34
Weighted average fair value of options granted during 1999...... $     4.77

                          Options Outstanding             Options Exercisable
                   -----------------------------------  ----------------------
                                Weighted-
                                 Average     Weighted-               Weighted-
                     Number     Remaining     Average     Number      Average
      Range of     Outstanding Contractual   Exercise   Exercisable  Exercise
   Exercise Prices    (000)    Life (Years)    Price       (000)       Price
- ------------------ ----------- ------------  ---------  -----------  ---------
  $3.00 -    5.75         949          6.1  $    4.61          921  $    4.60
  $5.88 -    9.50       1,035          7.1  $    7.78          723  $    7.55
 $11.00 -   19.05         942          9.1  $   16.91          141  $   15.48
 $19.63 -   20.50         878          9.2  $   19.87          207  $   19.89
 $21.31 -   42.63         581          9.0  $   26.24          144  $   27.91
- --------           -----------                          -----------
                        4,385                                2,136
                   ===========                          ===========

                                                                Weighted-
                                                                 Average
                                                                 Exercise
                                                                  Price
                                                   Number of       Per
                                                     Shares       Share
                                                  ------------  ----------
                                                  (in thousand
Authorized and Outstanding at December 31, 1998..         729  $     9.01
  Granted........................................         --          --
  Exercised......................................        (221) $     7.92
  Canceled.......................................         (14) $    15.83
                                                  ------------
Authorized and Outstanding at December 31, 1999..         494  $     9.30
  Granted........................................         --          --
  Exercised......................................        (400) $     9.31
  Canceled.......................................          (3) $    15.44
                                                  ------------
Authorized and Outstanding at December 31, 2000..          91  $     9.07
  Granted........................................         --          --
  Exercised......................................         (30) $     0.73
  Canceled.......................................         --          --
                                                  ------------
Authorized and Outstanding at December 31, 2001..          61  $    13.18
                                                  ============

Exercisable at December 31, 2001.................          61  $    13.18
Exercisable at December 31, 2000.................          91  $     9.07
Exercisable at December 31, 1999.................         491  $     9.26


Weighted average remaining contractual
  life at December 31, 2001......................   2.86 years

                                                  Year Ended December 31,
                                          ----------------------------------
                                             2001        2000        1999
                                          ----------  ----------  ----------  
                                        (in thousands, except per share data)    
Net income (loss):
  As reported........................... $  (28,673) $  168,920  $  (11,994)
  Pro forma............................. $  (40,630) $  162,354  $  (16,274)

Net income (loss) per share- diluted:
  As reported........................... $    (0.85) $     4.55  $    (0.39)
  Pro forma............................. $    (1.17) $     4.39  $    (0.51)

                                                  Year Ended December 31,
                                          ----------------------------------
                                             2001        2000        1999
                                          ----------  ----------  ----------  
 Current:
    Federal............................. $    4,262  $  (52,707) $      --
    State...............................        --      (15,196)        --
                                          ----------  ----------  ----------
                                              4,262     (67,903)        --
                                          ----------  ----------  ----------
 Deferred:
    Federal.............................      1,250       3,700         --
    State...............................        --          --          --
                                          ----------  ----------  ----------
                                              1,250       3,700         --
                                          ----------  ----------  ----------
Provision for income taxes.............. $    5,512  $  (64,203) $      --
                                          ==========  ==========  ==========

                                                Year Ended December 31,
                                          ----------------------------------
                                             2001        2000        1999
                                          ----------  ----------  ----------  
Tax at U.S. statutory rate of 35%....... $   11,965  $  (83,854) $    4,198
State taxes, net of federal benefit.....        --       (9,877)        --
Net operating losses utilized
  (not benefited).......................     (1,177)     25,585      (4,198)
Change in valuation allowance...........      1,250       3,700         --
Research and development tax credits
  utilized..............................        --        1,300         --
In process research and development.....     (6,315)        --          --
Other...................................       (211)     (1,057)        --
                                          ----------  ----------  ----------
Income tax benefit (provision) ......... $    5,512  $  (64,203) $      --
                                          ==========  ==========  ==========

                                                            December 31,
                                                      ----------------------
                                                         2001        2000
                                                      ----------  ----------
Deferred Tax Assets:                                                          
Net operating loss carryforwards.................... $   15,000  $   19,400
Research credit carryforwards.......................        500         800
Capitalized research and development................      1,000       1,400
Other accruals and reserves.........................      2,450       5,400
                                                      ----------  ----------
Net deferred tax assets.............................     18,950      27,000
Valuation allowance ................................    (14,000)    (23,300)
                                                      ----------  ----------
Net deferred tax assets.............................      4,950       3,700
                                                      ----------  ----------

Deferred Tax Liabilities:                                                     

Unrealized gain on investment in Abgenix............   (122,758)   (208,000)
                                                      ----------  ----------
Net deferred tax liability.......................... $ (117,808) $ (204,300)
                                                      ==========  ==========