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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

OR

For the transition period from           to

Commission file number 0-22891

CORIXA CORPORATION

1124 Columbia Street, Suite 200
Seattle, WA 98104-2040
(206) 754-5711

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [   ]

     As of May 6, 2003, there were approximately 50,354,957 shares of the Registrant’s common stock outstanding.

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CORIXA CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 2003
INDEX

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Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

CORIXA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and per share amounts)

See accompanying notes.

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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

See accompanying notes.

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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes.

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CORIXA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

     For over eight years, we have been engaged in discovery and development of innovative immunotherapeutic products to address debilitating and life-threatening conditions caused by cancer, infectious disease and autoimmune disease. Creating successful immunotherapeutic products requires understanding and directing the body’s immune system to prevent and fight disease. Variations in disease-causing organisms and human genetics make immunotherapeutic product development a challenging, complex undertaking, but one that we believe will have a significant impact on human health in the coming years.

Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of our wholly owned subsidiary, Coulter Pharmaceutical, Inc., or Coulter. These statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and the rules and regulations of the Securities and Exchange Commission, or SEC, for interim financial information. Accordingly, we have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP and in accordance with SEC rules and regulations. All significant intercompany account balances and transactions have been eliminated in consolidation. In the opinion of our management, the accompanying consolidated balance sheets and related interim consolidated statements of operations and cash flows reflect all normal recurring adjustments necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The balance sheet at December 31, 2002 has been derived from audited financial statements at that date but does not include disclosures required by GAAP for complete financial statements. The accompanying consolidated financial statements and related footnotes should be read in conjunction with the audited consolidated financial statements and related footnotes for the year ended December 31, 2002, included in our annual report on Form 10-K filed with the SEC.

Securities Available-for-Sale

     Our investment portfolio is classified as available-for-sale and is segregated into current and non-current portions based on the remaining term of the instrument. Investments with outstanding maturity dates of two years or longer are classified as non-current. Our primary investment objectives are preservation of principal, a high degree of liquidity and a maximum total return. We invest primarily in the following (U.S. dollar denominated only): commercial paper; short and mid-term corporate notes/bonds, with no more than 10% of the portfolio in any one corporate issuer; and federal agencies with terms not exceeding four years. These securities are stated at fair value, with the unrealized gains and losses reflected in stockholders’ equity. Interest earned on securities is included in interest income. The amortized cost of investments is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretions are included in interest income. The cost of securities sold is calculated using the specific identification method. At March 31, 2003, noncurrent securities available-for-sale included a certificate of deposit of $6.2 million that secures a financing agreement and various other non-current securities that secure a $4.5 million letter of credit that guarantees a portion of our obligations under a facilities lease agreement. In addition, other assets include a $2.2 million certificate of deposit that secures a letter of credit related to our leased properties in South San Francisco, California.

Certain Concentrations

     Credit Risk. We are subject to concentrations of credit risk, primarily from our investments. Credit risk for investments is managed by the purchase of investment-grade securities, A1/P1 for money market instruments and A or better for debt instruments, and diversification of the investment portfolio among issuers and maturities.

     Suppliers. We have contracted with a third-party manufacturer, Boehringer Ingelheim Pharma GMBH & Co. KG, or BI Pharma KG, to produce bulk anti-B1 antibody tositumomab, or tositumomab, a key component of BEXXAR® therapy for use in ongoing clinical trials and to meet commercial requirements, as well as to provide for fill/finish and packaging services. We have committed to purchase minimum annual quantities of tositumomab from BI Pharma KG. In February 2003, we amended our Supply Agreement

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with BI Pharma KG to temporarily reduce our minimum annual order commitment for tositumomab following the potential commercial launch of BEXXAR therapy. The minimum annual order for 2003 is approximately $5.8 million. We have also contracted with a third-party manufacturer, MDS Nordion, Inc., or Nordion, for radiolabeling of the United States supply of the tositumomab component of BEXXAR therapy at Nordion’s centralized radiolabeling facility. This agreement expires on May 31, 2004. We are actively negotiating with Nordion to enter into a new agreement to radiolabel tositumomab. If we are unable to finalize a new agreement with Nordion on acceptable terms, we will need to secure a new source of radiolabeling. Although we are evaluating additional sources of radiolabeling, we may be unable to secure additional sources on commercially reasonable terms or on a timely basis, if at all.

Revenue Recognition

     We generate revenue from technology licenses, collaborative research and development arrangements, cost reimbursement contracts and sales of research adjuvants. Revenue under technology licenses and collaborative agreements typically consists of non-refundable and/or guaranteed technology license fees, collaborative research funding, technology access fees, and various milestone and future product royalty or profit-sharing payments.

     Revenue associated with up-front license, technology access and research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the respective agreements, generally the research and development period. Revenue from substantive at-risk milestones and future product royalties is recognized upon completion of the milestones and adjuvant sales, as defined in the respective agreements. Revenue under cost reimbursement contracts is recognized as the related costs are incurred. Revenue from adjuvant sales is recognized upon customer acceptance of the product. Payments received in advance of recognition as revenue are recorded as deferred revenue. We recognized 88% and 96% of our revenue from collaborative partners during the three months ended March 31, 2003 and March 31, 2002, respectively.

Acquisition-Related Intangible Assets

     Acquisition-related intangible assets at March 31, 2003, consist of adjuvant know-how and an acquired lease with balances of approximately $1.5 million and $11.9 million, respectively. Adjuvant know-how and the acquired lease are amortized on the straight-line method over periods of seven and ten years, respectively. Amortization of the acquired lease is recorded as additional rent expense. Amortization expense of our acquisition-related intangible assets for the first quarter of 2003 and 2002 was approximately $385,000 related to the acquired lease and $110,000 related to adjuvant know-how. The expected future annual amortization expense of our other acquisition-related intangible assets is as follows (in thousands):

     We expect to incur losses related to the acquired leases as we enter into sublease arrangements in the future in accordance with Statement of Financial Accounting Standard, or SFAS, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, or SFAS No. 144. These anticipated losses may be recognized at the time we enter into sublease agreements.

     Under SFAS No. 142 “Goodwill and Other Intangible Assets”, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test, or more frequently if impairment indicators arise. On March 12, 2002, we received a second complete review letter from the U.S. Food and Drug Administration, or FDA, regarding our Biologics License Application, or BLA, for BEXXAR therapy. In the complete review letter, the FDA stated that additional clinical studies would be required to provide sufficient evidence of the safety and net clinical benefit of BEXXAR therapy.

     Upon announcement on March 13, 2002 of the receipt of the complete review letter from the FDA, the value of our common stock declined. In management’s opinion, the decline in our stock price represented an indication of impairment of recorded goodwill. In accordance with SFAS No. 142, an interim test of goodwill impairment was performed as of March 13, 2002. The results of the

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impairment test indicated that no goodwill was present and accordingly, we recognized a $161.1 million goodwill impairment charge.

Reclassifications

     Certain reclassifications have been made to the prior year’s financial statements to conform to the 2003 presentation.

2. Comprehensive Loss

     For the three months ended March 31, 2003 and March 31, 2002, our comprehensive loss was as follows (in thousands):

3. GSK BEXXAR Relationship

     We have a collaborative agreement with GlaxoSmithKline, or GSK, for the development and commercialization of BEXXAR therapy, which is in late-stage development for the treatment of non-Hodgkin’s lymphoma, or NHL. Under the terms of the agreement, we and GSK will jointly market and sell BEXXAR therapy in the United States following regulatory approval and the two companies will share profits and losses equally. Additionally, the agreement provides that we and GSK will share certain costs related to clinical and manufacturing development activities and that we will receive additional payments from the achievement of certain clinical development and regulatory milestones. Development expenses are included in research and development expenses, and reimbursement revenue is included in revenue from collaborative agreements.

     We and GSK prepare a joint profit and loss statement to account for the sharing of sales, costs of goods sold and costs relating to selling, marketing, distribution and certain other BEXXAR therapy related activities. To date, such activities have principally consisted of pre-commercialization activities in anticipation of the potential commercial launch of BEXXAR therapy. Our share of the operating results is included in sales, general and administrative expenses. GSK may terminate our agreement at any time because BEXXAR therapy was not approved by the FDA on or before June 30, 2002.

4. Stock-Based Compensation

     In December 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, an amendment of FASB Statement No. 123, or SFAS No. 123. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123 we have elected to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for our stock-based compensation plans. We intend to continue to apply the disclosure only provisions of SFAS No. 123. Accordingly, our employee stock-based compensation expense is recognized based on the intrinsic value of the option on the date of grant.

     At March 31, 2003, we had two stock-based employee compensation plans under which we grant options or issue shares of stock. No stock-based employee compensation cost, other than compensation associated with options assumed in acquisitions, is reflected in net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share as if we had applied the fair value recognition of SFAS No. 123 to stock-based employee compensation.

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     Stock compensation expense for options granted to nonemployees has been determined in accordance with SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of options granted to nonemployees is periodically re-measured as the underlying options vest.

5. Commitments and Contingencies

     On September 10, 2001 IDEC Pharmaceuticals Corp., or IDEC, filed a complaint in the United States District Court, Southern District of California, against us and the Regents of the University of Michigan seeking declaratory judgment of non-infringement and invalidity of certain patents related to IDEC’s Zevalin™ product for the treatment of NHL. On September 12, 2001 we and GSK filed a lawsuit in the United States District Court, District of Delaware, alleging that IDEC’s activities because the Oncologics Drug Advisory Committee’s, or ODAC’s, recommendation for approval of Zevalin infringes our United States Patent Nos. 5,595,721, 6,015,542, 6,090,365 and 6,287,537. Issued claims in the subject patents cover imaging, composition of matter and methods-of-use in the treatment of NHL. Pursuant to our lawsuit against IDEC, we and GSK are requesting that the court declare that IDEC is willingly infringing our patents. In addition, we are seeking available remedies under the patent laws including monetary damages and permanent injunctive relief. On September 28, 2001, we and GSK amended the complaint to add the Regents of the University of Michigan as an additional plaintiff. On February 13, 2002, we, GSK and the Regents of the University of Michigan filed an answer and counterclaims to IDEC’s amended complaint in the United States District Court, Southern District of California. On February 25, 2002, the Delaware District Court ordered the case transferred to the United States District Court, Southern District of California. Litigation is ongoing and we are unable to predict and outcome at this time. However, an unfavorable outcome of this matter could have a materially adverse affect on our operating results from the sale of BEXXAR therapy, if BEXXAR therapy is approved.

     On February 25, 2003, IDEC filed a complaint in the United States District Court, Southern District of California, against us and GSK for patent infringement of United States Reissue Patent No. RE38,008 which claims, among other things, methods of enhancing the delivery of conjugated specific antibodies to solid tumor target cells. Litigation is ongoing and we are unable to predict an outcome at this time. However, an unfavorable outcome of this matter could have a materially adverse affect on our operating results from the sale of BEXXAR therapy, if BEXXAR therapy is approved.

     We are party to routine claims and litigation incidental to our business. We believe the ultimate resolution of these routine matters will not have a material adverse effect on our financial position and results of operations or cash flows.

6. Subsequent Events

     On May 5, 2003, we and GSK announced that the FDA has extended its review of the BEXXAR therapy application for up to an additional three months. As a result of this action, the new Prescription Drug User Fee Act, or PDUFA, goal date for the FDA to complete its review of BEXXAR therapy is August 1, 2003, but the FDA can take action at any time.

     On May 12, 2003, we announced that our partner, GSK, has filed for regulatory approval of Fendrix® with the European Agency for the Evaluation of Medicinal Products. Fendrix is a novel vaccine designed to prevent infection from Hepatitis B in high-risk groups such as pre-haemodialysis and haemodialysis patients and includes GSK’s Hepatitis B antigen and Corixa’s MPL® adjuvant.

     On April 23, 2003, we notified Amersham Health, pursuant to our October 2001 stock purchase agreement, of our exercise of our option to sell 721,814 shares of our common stock to Amersham Health at a price per share of $6.927, for a total purchase price of $5 million. Subject to standard closing conditions contained in the stock purchase agreement, we will sell the shares of common stock on May 14, 2003. In the event we sell the shares of common stock, we will issue them in a private placement exempt from registration under Rule 506 Regulation D and Section 4(2) of the Securities Act.

On April 4, 2003, we entered into a sublease agreement with Gryphon Therapeutics, Inc., or Gryphon, to sublet a portion of our laboratory, research and development, and general administration space in South San Francisco. Under the sublease, we sublet to

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Gryphon a gradually increasing amount of space until December 2003 and thereafter, they will sublet approximately 50,400 square feet. The sublease commenced on May 1, 2003 and continues for the entire remaining term of the master lease which expires in November 2010. Under the terms of the sublease and the master landlord’s consent to the sublease, Gryphon has the option to terminate the sublease if the master landlord fails to remediate the floor moisture issue in the ground floor of the building by October 1, 2003.

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

Special Note Regarding Forward-Looking Statements

     Our disclosure and analysis in this quarterly report on Form 10-Q and the documents incorporated by reference contain forward-looking statements, which provide our current expectations or forecasts of future events. Forward-looking statements include, without limitation:

	•		information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth;
	•		statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues;
	•		statements about our expectations for regulatory approval of any of our product candidates;
	•		statements about our future capital requirements and the sufficiency of our cash, cash equivalents, investments and available equity line facilities and bank borrowings to meet these requirements;
	•		statements about our future operational and manufacturing capabilities;
	•		statements regarding expected payments under collaboration agreements;
	•		statements about our product development schedule;
	•		other statements about our plans, objectives, expectations and intentions; and
	•		other statements that are not historical facts.

     Words such as “ believes,” “anticipates” and “intends” may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described below under “Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price.” You should carefully consider the factors described below under “Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price” in evaluating our forward-looking statements. Other factors besides those described in this quarterly report could also affect actual results.

     You should not unduly rely on these forward-looking statements, which speak only as of the date of this quarterly report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this quarterly report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the SEC after the date of this quarterly report.

Summary of Critical Accounting Policies

     In December 2001, the SEC requested that all registrants discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently

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uncertain. We believe the following accounting policies, in addition to those described in our annual report on Form 10-K for the year ended December 31, 2002, to be critical:

     Revenue

     Revenue associated with up-front license, technology access and research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the agreements, generally the research and development phase. Generally, our collaborative agreements have included a research and development phase that spans a specified time period. However, in certain cases the collaborative agreement specifies a research and development phase that culminates with the completion of a development work-plan but does not have a fixed date and requires us to estimate the time period over which to recognize revenue. Our estimated time periods are based on management’s estimate of the time required to achieve a particular development milestone considering experience with similar projects, level of effort and stage of development. If our estimate of the research and development time period increases, the amount of revenue we recognize related to up front license and technology access fees for a given period would decrease.

     Asset Impairment

     Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test, or more frequently if impairment indicators arise. On March 12, 2002, we received a second complete review letter from the FDA regarding our BLA for BEXXAR therapy. In the complete review letter, the FDA stated that additional clinical studies would be required to provide sufficient evidence of the safety and net clinical benefit of BEXXAR therapy.

     Upon announcement on March 13, 2002 of the receipt of the complete review letter from the FDA, the value of our common stock declined. In management’s opinion, the decline in our stock price represented an indication of impairment of recorded goodwill. In accordance with SFAS No. 142, an interim test of goodwill impairment was performed as of March 13, 2002. The results of the impairment test indicated that no goodwill was present and accordingly, we recognized a $161.1 million goodwill impairment charge.

     Our acquisition related intangible assets at March 31, 2003 consist of adjuvant know-how acquired in the RIBI ImmunoChem Research, Inc. acquisition and a facilities lease acquired in the Coulter acquisition, which were recorded at fair value on the acquisition date. We may record losses related to these leases as we enter into sublease arrangements in the future.

     Commitments and Contingencies

     We are involved in certain legal proceedings as discussed in Note 5 to the Unaudited Condensed Consolidated Financial Statements. We do not believe these legal proceedings will have a material adverse effect on our consolidated financial position, results of operations or cash flows. We have not accrued for any legal contingencies, as the probable outcomes of the cases are not known. However, an unfavorable outcome of the litigation with IDEC could have a materially adverse effect on our operating results from the sale of BEXXAR therapy, if BEXXAR therapy is approved.

Overview

     For over eight years, we have been engaged in discovery and development of innovative immunotherapeutic products to address debilitating and life-threatening conditions caused by cancer, infectious disease and autoimmune disease. Creating successful immunotherapeutic products requires understanding and directing the body’s immune system to prevent and fight disease. Variations in disease-causing organisms and human genetics make immunotherapeutic product development a challenging, complex undertaking, but one that we believe will have a significant impact on human health in the coming years. For the three-months ended March 31, 2003 approximately 88% of our revenue resulted from collaborative agreements, and approximately 12% of our revenue resulted from funds awarded through government grants. As of March 31, 2003, we had total stockholders’ equity of $109.8 million.

     We have entered into, and intend to continue to enter into, collaborative agreements at various stages in the research and development process. We believe that this active corporate partnering strategy provides four distinct advantages:

	•		it focuses on our fundamental strength in immunotherapeutic product discovery and selected product development;
	•		it capitalizes on our corporate partners’ strengths in product development, manufacturing and commercialization;

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	•		it may enable us to retain significant downstream participation in product sales; and
	•		it reduces our financing requirements.

     When entering into corporate partnering relationships, we seek to cover our research and development expenses through research funding, milestone payments, collaborative agreement credit lines, and technology and license fees. We also endeavor to retain significant downstream participation in product sales through either profit-sharing or product royalties paid on annual net sales.

     We generate revenue from technology licenses, collaborative research and development arrangements, cost reimbursement contracts and sales of research adjuvants. Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or guaranteed technology license fees, collaborative research funding, technology access fees and various milestone and future product royalty or profit-sharing payments.

     We recognize revenue associated with up-front license, technology access and research and development funding payments under collaborative agreements ratably over the relevant periods specified in the respective agreement, generally the research and development period. Revenue from substantive at-risk milestones and future product royalties is recognized upon completion of the milestones and adjuvant sales, as defined in the respective agreements. Revenue under cost reimbursement contracts is recognized as the related costs are incurred. Payments received in advance of recognition as revenue are recorded as deferred revenue. Revenue from adjuvant sales is recognized upon customer acceptance of the product.

     We remain focused on the development of proprietary vaccine products that induce specific and potent pathogen or tumor-reactive T cell responses and auto-antigen responses for the treatment and prevention of cancer, infectious diseases and autoimmune diseases. We also intend to broaden the scope of our partnership strategy to include other strategic relationships that complement our approach to immune system-based therapies for cancer, infectious diseases and autoimmune diseases.

     Our material collaborative agreements that continue to provide us with funding include the following:

	•		a corporate partnership with GSK to develop and commercialize BEXXAR therapy in the United States;
	•		a development and commercialization agreement with Kirin Brewery Company, Ltd., or Kirin, for potential WT-1 cancer vaccine products for the treatment of multiple forms of cancer, including leukemia, myelodysplasia and melanoma;
	•		an agreement with Amersham Health to develop and commercialize BEXXAR therapy in Europe;
	•		a commercialization and license agreement with Medicis Pharmaceutical Corporation, or Medicis, related to our candidate psoriasis immunotherapeutic product, PVAC™ treatment;
	•		a development and license agreement with Zenyaku Kogyo Co. Ltd., or Zenyaku, related to PVAC treatment;
	•		a corporate partnership with Zambon Group spa, or Zambon, for the research, development and commercialization of vaccine products aimed at preventing and/or treating lung cancer;
	•		a corporate partnership with GSK, that provides for tuberculosis vaccine discovery and development and vaccine discovery programs for two chronic infectious pathogens, Chlamydia trachomatis and Chlamydia pneumonia;
	•		a license and supply agreement with Wyeth, granting Wyeth licenses to certain adjuvants for use in vaccines for certain infectious disease fields that Wyeth is developing; and
	•		several license and supply agreements with GSK, granting GSK licenses to certain adjuvants for use in vaccines for infectious diseases, cancers and allergies that GSK is developing.

     The FDA is currently reviewing our BLA for BEXXAR therapy, our most advanced product candidate. On June 27, 2002, we announced that the FDA granted our appeal regarding the regulatory review status of BEXXAR therapy. As a result, we presented data on BEXXAR therapy at an ODAC meeting on December 17, 2002. ODAC agreed that the data from clinical trials of BEXXAR therapy provided substantial evidence of clinical benefit in rituximab-refractory patients and clinical utility in chemotherapy-

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refractory, low-grade and follicular NHL, with or without transformation. The FDA is not bound by ODAC’s action, but often takes ODAC’s recommendations into consideration when determining marketing approval of a new product. On May 5, 2003, we and GSK announced that the FDA has extended its review of the BEXXAR therapy application for up to an additional three months. As a result of this action, the new PDUFA goal date for the FDA to complete its review of BEXXAR therapy is August 1, 2003, but the FDA can take action at any time.

     GSK may terminate our agreement regarding BEXXAR therapy because BEXXAR therapy was not approved by the FDA on or before June 30, 2002.

     As of March 31, 2003, our accumulated deficit was approximately $1.1 billion, of which $679.4 million is attributable to the write-off of acquired in-process research and development costs associated with our acquisitions and $221.2 million is attributable to goodwill related charges. We may incur substantial additional operating losses over the next several years. Such losses have been and may continue to be principally the result of various costs associated with our discovery, research and development programs and the purchase of technology. The funded research phase of certain of our collaborative agreements has expired and we may bear a larger portion of the related research program cost in the future. Additionally, as research programs progress from early stages into clinical development the costs continue to increase. Substantially all of our revenue to date has resulted from corporate partnerships, other research, development and licensing arrangements, research grants and interest income. Our ability to achieve a consistent, profitable level of operations depends in large part on entering into corporate partnerships for product discovery, research, development and commercialization, obtaining regulatory approvals for our product candidates and successfully manufacturing and marketing our products once they are approved. Even if we are successful in the aforementioned activities, our operations may not be profitable. In addition, payments under corporate partnerships and licensing arrangements are subject to significant fluctuations in both timing and amounts, resulting in quarters of profitability and quarters of losses. Therefore, our operating results for any period may fluctuate significantly and may not be comparable to the operating results for any other period.

Results of Operations

Three Months Ended March 31, 2003 and March 31, 2002

Total Revenue

     Our revenue was $9.1 million for the three months ended March 31, 2003 compared to $15.6 million for the same period in 2002. The 2003 decrease compared to 2002 is due primarily to the anticipated expiration of the funded research phases of certain of our collaborative agreements, including $3.2 million related to our vaccine development collaborative agreement with GSK, $1.2 million related to our lung cancer vaccine partnership with Japan Tobacco, $750,000 related to our ex-vivo agreement with The Infectious Disease Research Institute and $742,000 related to our lung cancer vaccine partnership with Zambon. In addition, reimbursement revenue from our collaborative agreement for BEXXAR therapy with GSK decreased $1.6 million. The decrease was partially offset by increased research adjuvant sales of $1.4 million.

     Revenue under government grants and contracts for the three months ended March 31, 2003 was $1.1 million compared to $561,000 for the same period in 2002.

     We expect revenue to fluctuate in the future depending on our ability to enter into new collaborative agreements, timing and amounts of payments under our existing collaborative agreements and our ability to commercialize our potential products.

Research and Development

     Our research and development expenses were $25.2 million for the three months ended March 31, 2003 compared to $26.8 million for the same period in 2002. The 2003 decrease compared with 2002 is due primarily to a reduction in the purchase of third-party manufactured material of $1.8 million, payroll and personnel expenses of $1.3 million and a reduction in deferred compensation expense of $900,000 related to options assumed in the Coulter acquisition. These decreases were partially offset by an increase of $2.7 million of increased clinical and research and development activities.

     Our research and development activities can be divided into research and preclinical programs and clinical development programs. We estimate that the approximate costs associated with research and preclinical programs and clinical development programs were as follows (in millions):

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     Because of the large number of research projects we have ongoing at any one time, and the ability to utilize resources across several projects, the majority of our research and development costs are not directly tied to any individual project and are allocated among multiple projects. We manage our projects by reviewing scientific data and by supplementing this data with our cost allocations. Our cost allocations are based primarily on human resource time incurred on each project. The costs allocated to a project as a result do not necessarily reflect the actual costs of the project. Accordingly, we do not maintain actual cost incurred information for our projects on a project-by-project basis. Costs attributed to research and preclinical projects largely represent our pipeline generating activities. Costs associated with clinical development programs represent the advancement of these activities into product candidates.

     Most of our product development programs are at an early stage and may not result in any approved products. Product candidates that may appear promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to pass through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. Furthermore, as part of our business strategy, we may enter into collaborative arrangements with third parties to complete the development and commercialization of our product candidates and it is uncertain which of our product candidates would be subject to future collaborative arrangements. The participation of a collaborative partner may accelerate the time to completion and reduce the cost to us of a product candidate or it may delay the time and increase the cost to us due to the alteration of our existing strategy. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “— Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price.” Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.

Sales, General and Administrative

     Our sales, general and administrative expenses, or SG&A expenses, were $3.5 million for the three months ended March 31, 2003 compared to $5.2 million for the same period in 2002. The 2003 decrease compared to 2002 is due primarily to reduced marketing and sales expense of $1.5 million related to our workforce reduction in South San Francisco in the second quarter of 2002. We expect SG&A expenses to increase in the future to support the expansion of our business activities as we expand our sales and marketing capabilities.

Amortization and Goodwill Impairment

     Intangible amortization expense related to adjuvant know-how was $110,000 for the three months ended March 31, 2003 and March 31, 2002. Amortization of the acquired lease is recorded as additional rent expense. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test, or more frequently if impairment indicators arise. We continue to amortize an acquired facilities lease and adjuvant know-how over their useful lives.

     On March 12, 2002, we received a second complete review letter from the FDA regarding our BLA for BEXXAR therapy. In the complete review letter, the FDA stated that additional clinical studies will be required to provide sufficient evidence of the safety and net clinical benefit of BEXXAR therapy.

     Upon announcement on March 13, 2002 of the receipt of the complete review letter from the FDA, the value of our common stock declined. In management’s opinion, the decline in our stock price represented an indication of impairment of recorded goodwill. In accordance with SFAS No. 142, an interim test of goodwill impairment was performed as of March 13, 2002. The results of the impairment test indicated that no goodwill was present and accordingly, we recognized a $161.1 million goodwill impairment charge.

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Interest Income

     Our interest income was $825,000 for the three months ended March 31, 2003 compared with $1.2 million for the same period in 2002. The 2003 decrease compared with 2002 is due primarily to lower average investment balances and lower yields.

Interest Expense

     Our interest expense was $258,000 for the three months ended March 31, 2003 compared with $550,000 for the same period in 2002. The 2003 decrease compared to 2002 is due primarily to a rate adjustment reimbursement in the first quarter of 2003.

Other Income

     Other income was $448,000 for the three months ended March 31, 2003 compared with $322,000 for the same period in 2002. The 2003 increase compared to 2002 is due primarily to rental receipts related to short-term sublease of a portion of our South San Francisco facilities.

Liquidity and Capital Resources

     As of March 31, 2003, we had approximately $101.1 million in cash, cash equivalents and marketable securities, which includes a certificate of deposit of $6.2 million that secures a financing agreement and various securities that secure a letter of credit of $4.5 million that guarantees a portion of our obligations under a facilities lease agreement. We have available to us approximately $72.4 million under the equity line facility with BNY Capital Markets, Inc., or CMI, subject to certain conditions related to minimum stock price and trading volume. We invest primarily in the following (U.S. denominated only): commercial paper; short and mid-term corporate notes and bonds, with no more than 10% of the portfolio in any one corporate issuer; and federal agencies, with terms not exceeding four years.

     We believe that our existing capital resources, committed payments under existing corporate partnerships, bank credit arrangements, the CMI equity line facility, equipment financing and interest income will be sufficient to fund our current and planned operations over at least the next 18 months. Our future capital requirements will depend on many factors, including, among others:

	•		continued scientific progress in our discovery, research and product development programs;
	•		progress with preclinical studies and clinical trials;
	•		the magnitude and scope of our discovery, research and development programs;
	•		our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;
	•		the time and costs involved in obtaining regulatory approvals;
	•		the time and costs involved in expanding and maintaining our manufacturing facilities;
	•		the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
	•		the potential need to develop, acquire or license new technologies and products; and
	•		other factors not within our control.

     In addition, we intend to seek additional funding through corporate partnerships, and also may seek additional funding through the following:

	•		public or private equity financings;
	•		public or private debt financings; and
	•		additional capital lease transactions.

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     However, additional financing may be unavailable on acceptable terms, if at all. If sufficient capital is not available, we may be forced to limit some or all of our research and development programs and related operations, curtail commercialization of our product candidates and, ultimately, cease operations.

Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price.

We are at an early stage of product development and may not be able to successfully commercialize our product candidates.

     We are at an early stage in the development of the majority of our therapeutic, prophylactic and diagnostic product candidates. The development of safe and effective therapies for treating people with cancer, infectious diseases or autoimmune diseases is highly uncertain and subject to numerous risks. Product candidates that may appear to be promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to progress through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals, may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality or may fail to achieve market acceptance.

     We have not commercialized any products, other than MELACINE vaccine, our melanoma vaccine, which is approved for sale in Canada, and an immunotherapeutic product that has been approved on a named-patient basis in Germany, Spain, Italy and the U.K. which product incorporates our MPL adjuvant, our proprietary adjuvant, added to the product to heighten the immune response to the product’s antigens.

     The FDA is currently reviewing our BLA for BEXXAR therapy, our most advanced product candidate. On December 17, 2002, we presented data on BEXXAR therapy at an ODAC meeting. ODAC agreed that the data from clinical trials of BEXXAR therapy provided substantial evidence of clinical benefit in rituximab-refractory patients and clinical utility in chemotherapy-refractory, low-grade and follicular NHL, with or without transformation.

     The FDA is not bound by ODAC’s action, but often takes ODAC’s recommendations into consideration when determining marketing approval of a new product. We may not be successful in obtaining regulatory approval for BEXXAR therapy or any of our other product candidates, or in commercializing these product candidates if approval is obtained.

	Our product candidates are subject to a government regulatory approval process that is uncertain, time-consuming and expensive and may not result in any approved products.

     Any products that we develop are subject to regulation by federal, state and local governmental authorities in the United States, including the FDA, and by similar agencies in other countries. Any product that we develop must receive all relevant regulatory approvals or clearances before it may be marketed in a particular country.

     The regulatory process, which includes extensive preclinical studies and clinical trials of each product candidate in order to study its safety and efficacy, is uncertain, can take many years and requires the expenditure of substantial resources. Clinical trials of our product candidates may not demonstrate safety and efficacy to the extent necessary to obtain regulatory approvals for the indications being studied, if at all. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. The failure to demonstrate adequately the safety and efficacy of any of the product candidates by us could delay or prevent regulatory approval of the product candidate.

     The timing and completion of current and planned clinical trials of our product candidates depend on, among other factors, the rate at which patients are enrolled, which is a function of many factors, including:

	•		the size of the patient population;
	•		the proximity of patients to the clinical sites;
	•		the number of clinical sites;
	•		the eligibility criteria for the study;

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	•		the existence of competing clinical trials; and
	•		the existence of alternative available products.

     Delays in patient enrollment in clinical trials may occur, which may result in increased costs, program delays or both.

     Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Data from a Phase III clinical trial of MELACINE vaccine, with the primary endpoint being the comparison of disease-free survival between patients with Stage II melanoma who, following surgical removal, received MELACINE vaccine versus observation only, showed no statistically significant difference in disease-free survival of the eligible patient population. Recent discussions with the FDA regarding the outcome of this trial have determined that approval of MELACINE vaccine in the United States will require an additional clinical trial. In addition, we may encounter delays, or the FDA may reject our product candidates, based on changes in regulatory policy during the period of product development, extension of the period of review of any application for regulatory approval or other factors beyond our control. Delays in obtaining regulatory approvals

	•		would adversely affect the marketing of any products we develop;
	•		could impose significant additional costs on us;
	•		would diminish any competitive advantages that we may attain; and
	•		could adversely affect our ability to receive royalties and generate revenues and profits.

     For example, we filed our BLA for BEXXAR therapy in June 1999 and almost four years later, we have not obtained regulatory approval for BEXXAR therapy. Most recently, on May 5, 2003, we and GSK announced that the FDA has extended its review of the BEXXAR therapy application for up to an additional three months. As a result of this action, the new PDUFA goal date for the FDA to complete its review of BEXXAR therapy is August 1, 2003. We may not be successful in obtaining regulatory approval for BEXXAR therapy or any of our other product candidates, or in commercializing these product candidates if approval is obtained.

     Regulatory approval, if granted, may entail limitations on the indicated uses for which the approved product may be marketed. These limitations could reduce the size of the potential market for the product. Product approvals, once granted, may be withdrawn if problems occur after initial marketing. Further, manufacturers of approved products are subject to ongoing regulation, including compliance with FDA regulations governing GMP. Failure to comply with manufacturing regulations can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

We have limited experience in manufacturing and may encounter problems or delays that could result in lost revenue.

     Our current manufacturing facilities may not be sufficient to support our needs for clinical quantities of our product candidates or commercial quantities of our current products. We have no experience producing commercial quantities of any product, with the exception of limited experience producing MELACINE vaccine for sale in Canada, and we have limited experience in producing clinical-grade amounts of our proprietary immunotherapeutic products, including recombinant proteins or antibodies. We currently manufacture only limited quantities of some antigens and several adjuvants.

     If we are unable to manufacture our product candidates in accordance with clinical GMP regulations, the consequent lack of supply of the product candidates could delay our clinical programs, limit our sales of commercial products or result in the breach or termination of our agreements to supply products or product candidates to third parties. We intend to rely on third-party contract manufacturers to produce larger quantities of recombinant protein or other cell culture-based biologicals for clinical trials and product commercialization. Either we or our contract manufacturers may be unable to manufacture our proprietary antigen vaccines or other immunotherapeutic products at a cost or in quantities necessary to make them commercially viable. Third-party manufacturers also may be unable to meet our needs with respect to timing, quantity or quality. If we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays or difficulties in our relationships with these manufacturers, our preclinical and clinical testing would be delayed, thereby delaying submission of products for regulatory approval, or the market introduction and commercial sale of the products. Moreover, contract manufacturers that we may use must continually adhere to current GMP regulations enforced by the FDA through its facilities inspection program. If the facilities of those manufacturers cannot pass a pre-approval plant inspection, the FDA approval of our product candidates may be delayed or denied.

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Even if BEXXAR therapy receives FDA approval, we may be unable to manufacture commercial quantities for sale.

     BEXXAR therapy contains a radiolabeled antibody, which is an antibody linked to an isotope. We have no existing internal capacity or experience with respect to manufacturing radiolabeled antibodies for large-scale clinical trials or commercial purposes. We have entered into an agreement with BI Pharma KG to produce bulk tositumomab and fill the individual product vials with tositumomab. We have contracted with BI Pharma KG and a third-party supplier for labeling and packaging services. These manufacturers have limited experience producing, labeling and packaging tositumomab, and they may be unable to produce our requirements in commercial quantities or with acceptable quality.

     We have entered into an agreement with Nordion, for radiolabeling for United States supply the tositumomab component of BEXXAR therapy at Nordion’s centralized radiolabeling facility. This agreement expires on May 31, 2004. We are actively negotiating with Nordion to enter into a new agreement to radiolabel tositumomab. If we are unable to finalize a new agreement with Nordion on acceptable terms, we will need to secure a new source of radiolabeling. Although we are evaluating additional sources of radiolabeling, we may be unable to secure additional sources on commercially reasonable terms or on a timely basis, if at all. Under our agreement with Amersham Health, Amersham Health is responsible for radiolabeling the European supply of the tositumomab component of BEXXAR therapy. Neither Nordion nor Amersham Health may be able to produce sufficient radiolabeled antibodies to meet our clinical requirements and, if BEXXAR therapy is approved and is successful in the market, our commercial requirements for the respective territories.

     We are aware of only a limited number of manufacturers capable of producing tositumomab in commercial quantities or radiolabeling the antibody with the (131) I radioisotope on a commercial scale. To establish and qualify a new facility to centrally radiolabel antibodies could take three years or longer. Accordingly, if we are unable to reach a satisfactory agreement with Nordion or to establish a new source of radiolabeling before the expiration of our existing agreement with Nordion, our ability to market BEXXAR therapy in the United States could be harmed, if BEXXAR therapy is approved for sale in the United States at that time.

     Even if we reach a satisfactory agreement with Nordion or another partner, Nordion or that partner may be unable to produce our requirements in commercial quantities or with acceptable quality. Radiolabeled antibody cannot be stockpiled against future shortages due to the 8-day half-life of the (131) I radioisotope. Accordingly, any interruption in supply from Nordion or another supplier could harm our sales of BEXXAR therapy if and when it is approved for sale.

	Even if BEXXAR therapy receives FDA approval, if we are unable to establish or maintain distribution capabilities, we may not successfully commercialize the product.

     The unique properties of BEXXAR therapy require tightly controlled distribution of the product. We may be unable to maintain or establish relationships with third parties or build in-house distribution capabilities to meet requirements for North America. If we are unable to establish or maintain these capabilities, we may not be able to successfully commercialize the product in North America. Due to its radioactive component, BEXXAR therapy is shipped in shielded containers and must arrive at its destination within 24-48 hours of production. BEXXAR therapy must also be temperature controlled during shipment. We will rely on many third party suppliers to process orders and to package, store and ship BEXXAR therapy. We are working with suppliers to minimize risk and loss of inventory and provide efficient service to customers in the event BEXXAR therapy is approved for commercial sale. These third party suppliers may be unable to handle BEXXAR therapy in a manner that will minimize loss of or damage to inventory.

	Acceptance of BEXXAR therapy in the marketplace is uncertain and failure to achieve market acceptance will limit our potential revenue from sales of BEXXAR therapy.

     If BEXXAR therapy is approved, it would require medical personnel to handle radioactive materials. Doctors may prefer to continue to treat NHL patients with conventional therapies, in this case chemotherapy and biologics. Further, oncologists and hematologists are not typically licensed to administer radioimmunotherapies such as BEXXAR therapy and will need to engage a nuclear medicine physician or receive specialty training to administer BEXXAR therapy. Nuclear Regulatory Commission regulations permit BEXXAR therapy to be administered on an outpatient basis in most cases that we currently contemplate. Market acceptance could, however, be adversely affected to the extent hospitals are required under applicable state, local or individual hospital regulations to administer BEXXAR therapy on an in-patient basis.

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	Because we have limited sale and distribution capabilities, we may be unable to successfully commercialize BEXXAR therapy or our other product candidates.

     As a result of our reduction in force in May 2002, we no longer have a direct sales force for the potential launch of BEXXAR therapy. Our ability to market and sell BEXXAR therapy, if approved, will be contingent upon recruiting, training and deploying the necessary sales force, as well as GSK’s performance under our BEXXAR collaboration agreement. Developing an effective sales force will require a significant amount of our financial resources and time. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating sales of BEXXAR therapy or other product candidates.

     We intend to rely on our corporate partners to market our products outside the United States and, in the case of infectious and autoimmune disease products, worldwide. Our corporate partners may not have effective sales forces and distribution systems. If we are unable to maintain or establish relationships and are required to market any of our products directly, we will need to build a sales and marketing force with technical expertise and with supporting distribution capabilities. We may be unable to maintain or establish relationships with third parties or build in-house sales and distribution capabilities.

	If reimbursement is unavailable for our products, or if laws are adopted restricting the prices we may charge for our products, our revenues may be substantially reduced.

     In both domestic and foreign markets, sales of our products will depend in part on the availability of reimbursement from third-party payors such as:

	•		government health administration authorities;
	•		private health insurers;
	•		health maintenance organizations;
	•		pharmacy benefit management companies; and
	•		other healthcare-related organizations.

If reimbursement is not available for our products, demand for these products may be limited.

     Federal and state governments in the United States and foreign governments continue to propose and pass new legislation designed to contain or reduce the cost of healthcare. Existing regulations affecting the pricing of pharmaceuticals and other medical products may also change before any of our products are approved for marketing. Cost control initiatives could decrease the price that we receive for any product we may develop in the future. In addition, third-party payors are increasingly challenging the price and cost- effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, including pharmaceuticals. BEXXAR therapy faces particular uncertainties because third-party payors have very little experience upon which to model pricing and reimbursement decisions. Further, if BEXXAR therapy is not administered in most cases on an outpatient basis, as is contemplated currently by us, the projected cost of the therapy will be higher than we anticipate. Our products may not be considered cost effective, and adequate third-party reimbursement may be unavailable to enable us to maintain price levels sufficient to realize a return on our investment.

	Any claims relating to our improper handling, storage or disposal of hazardous materials could be time-consuming and costly.

     The manufacture and administration of BEXXAR therapy requires the handling, use and disposal of (131) I isotope, a radioactive isotope of iodine. These activities must comply with various state and federal regulations. Violations of these regulations could significantly delay completion of clinical trials and commercialization of BEXXAR therapy. For our ongoing clinical trials and for commercial-scale production, we currently rely on Nordion to radiolabel the tositumomab with (131) I radioisotope at a single location in Canada. Violations of safety regulations could occur with Nordion, and there is a risk of accidental contamination or injury. In the event of any regulatory noncompliance or accident, the supply of radiolabeled tositumomab for use in clinical trials or commercial sales could be interrupted.

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     Our research and development involves the controlled use of hazardous and radioactive materials and biological waste. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, we could be held liable for damages or penalized with fines, and this liability could exceed our resources. We may have to incur significant costs to comply with future environmental laws and regulations.

	We may be required to perform additional clinical trials or change the labeling of our products if we or others identify side effects after our products are on the market, which could harm sales of the affected products.

     If we or others identify side effects after any of our products are on the market, or if manufacturing problems occur,

	•		regulatory approval may be withdrawn;
	•		reformulation of our products, additional clinical trials, changes in labeling of our products or changes to or re-approvals of our manufacturing facilities may be required;
	•		sales of the affected products may drop significantly;
	•		our reputation in the marketplace may suffer;
	•		lawsuits, including class action suits, may be brought against us; and
	•		this could result in the breach or termination of our agreements to supply product candidates to third parties.

     Any of the above occurrences could harm or prevent sales of the affected products or could increase the costs and expenses of commercializing and marketing these products.

	Because we have limited sources of revenue, our results of operations are uncertain and may fluctuate significantly, which could cause the market price of our common stock to decrease.

     To date, almost all of our revenue has resulted from payments made under agreements with our corporate partners, and we expect that most of our revenue will continue to result from corporate partnerships until approval and commercialization of products. Payments under corporate partnerships and licensing arrangements are subject to significant fluctuations in both timing and amount. We may not receive anticipated revenue under existing corporate partnerships, and we may be unable to enter into any additional corporate partnerships.

     Since our inception, we have generated only minimal revenue from diagnostic product sales and no significant revenue from therapeutic or prophylactic product sales. With the exception of MPL adjuvant, which has been approved for sale as part of an immunotherapeutic product on a named-patient basis in Germany, Spain, Italy and the U.K. and MELACINE vaccine, which is available for sale in Canada, we cannot predict when, if ever, our research and development programs will result in commercially available immunotherapeutic products. We do not know when, if ever, we will receive any significant revenue from commercial sales of these products.

     As a result of our limited sources of revenue, our operating results have varied significantly from quarter to quarter and year to year in the past and we expect them to continue to fluctuate. Because of these fluctuations, we believe that period-to-period comparisons of our operating results are not meaningful. In addition, our operating results for a particular quarter or year may fall below the expectations of securities analysts and investors, which could result in a decrease in our stock price.

	We expect to incur future operating losses and may never achieve profitability.

     We have experienced significant operating losses in each year since our inception on September 8, 1994. As of March 31, 2003, our accumulated deficit was approximately $1.1 billion, of which $679.4 million is attributable to the write-off of in-process research and development costs associated with our acquisitions and $221.2 million is attributable to goodwill related charges. We may incur substantial additional operating losses over at least the next several years. Operating losses have been and may continue to be

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principally the result of the various costs associated with our acquisition activities, including the expenses associated with the write-off of in-process research and development, research and development programs, preclinical studies and clinical activities. We may never achieve profitability, and our ability to achieve a consistent, profitable level of operations depends in large part on our ability to successfully

	•		enter into agreements with corporate partners for product discovery, research, development and commercialization;
	•		obtain regulatory approvals for our product candidates; and
	•		manufacture and market our products once they are approved for sale.

     Even if we are successful in the above activities, our operations may not be profitable.

	We will need additional capital, and our ability to implement our existing financing plans and secure additional funding is uncertain.

     We may be unable to raise on acceptable terms, if at all, the substantial capital resources necessary to conduct our operations. If we are unable to raise the required capital, we may be forced to limit some or all of our research and development programs and related operations, curtail commercialization of our product candidates and, ultimately, cease operations. Our future capital requirements will depend on many factors, including:

	•		continued scientific progress in our discovery and research programs;
	•		progress with preclinical studies and clinical trials;
	•		the magnitude and scope of our discovery, research and development programs;
	•		our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;
	•		the time and costs involved in obtaining regulatory approvals;
	•		the time and costs involved in expanding and maintaining our manufacturing facilities;
	•		the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
	•		the potential need to develop, acquire or license new technologies and products;
	•		the potential costs of building and maintaining a marketing and sales force;
	•		the potential costs of marketing a product; and
	•		other factors beyond our control.

     We have in place a $75 million equity line facility with CMI, of which we have drawn down $2.6 million. However, CMI is not obligated to purchase shares of our common stock unless a number of conditions have been satisfied. First, CMI generally has no obligation to purchase shares to the extent that the volume weighted average price of our common stock during the specified valuation period following the exercise of our right to sell shares to CMI under the equity line facility is below $5.00 per share. In the future, the price of our common stock may not meet this minimum trading price condition to enable us to draw down funds under the equity line facility. Second, CMI is only obligated at any given request to purchase shares in a minimum aggregate amount of $500,000 and in a maximum aggregate amount of $3.5 million. Furthermore, CMI has no obligation to purchase shares on a given day if our daily trading volume falls below a specified minimum. Finally, on trading days where the common stock is not listed and approved for trading on the principal trading exchange of our common stock or where trading is restricted, we might not have the right to sell any shares to CMI.

     In addition to any funds available under the CMI equity line facility, we intend to seek additional funding through corporate partnerships, and also may seek additional funding through:

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	•		public or private equity financings;
	•		public or private debt financings; and
	•		capital lease transactions.

     We believe that our existing capital resources, committed payments under existing corporate partnerships and licensing arrangements, bank credit arrangements, the CMI equity line facility, proceeds of our recent private placement of equity securities with certain institutional and other accredited investors equipment financing and interest income will be sufficient to fund our current and planned operations over at least the next 18 months. However, a substantial number of the payments to be made by our corporate partners and other licensors depend on us achieving development and regulatory milestones. Failure to achieve these milestones may reduce the period during which we will be able to fund operations without additional capital resources.

	Our equity line facility and other transactions may result in dilution and a decline in the price of our common stock.

     Under the equity line facility with CMI, we may, subject to certain conditions, sell to CMI up to an additional $72.4 million of our common stock from time to time before December 3, 2003. The number of shares and price per share will depend on the market price and trading volume of the shares during the applicable one- to twenty-day draw down period for any sale. The sale of shares pursuant to the equity line facility will have a dilutive effect on the ownership percentage of our existing stockholders. Subsequent sales of these shares in the open market by CMI may also have the effect of lowering our stock price, thereby increasing the number of shares issuable under the equity line facility (should we choose to sell additional shares to CMI) and consequently further diluting our outstanding shares. These sales could have an immediate adverse effect on the market price of the shares and could result in dilution to the holders of our shares.

     In the event that we draw down the remaining maximum amount of approximately 7,760,000 shares under the facility, and issue the additional 100,000 shares subject to warrants issued to the placement agent in connection with the facility, these shares would represent approximately 15.4% of our currently outstanding shares. The perceived risk associated with the possible sale of a large number of shares issued under the equity line facility at prices as low as $4.90 per share, which is 98% of the $5.00 floor share price at which CMI has agreed to purchase our shares, could cause some of our stockholders to sell their stock, thus causing the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock under the equity line facility could cause some institutions or individuals to engage in short sales of our common stock, which may itself cause the price of our stock to decline.

     In August 2002, as part of a private placement of approximately 7.3 million shares of our common stock, we also issued warrants to purchase approximately 1.2 million shares of our common stock at an exercise price of $6.13 per share to selected institutional and other accredited investors. If these warrants are exercised, the issuance of shares of common stock will have a dilutive effect on the ownership percentage of our existing stockholders.

     In addition to any dilution resulting from issuances under the equity line facility or upon exercise of warrants, we are also obligated, or in some cases have the option, to issue additional shares of our common stock under collaboration and other strategic agreements.

     Under a loan agreement with GSK, at our option, we may choose to pay the outstanding principal amount of $15 million which is due in October 2003, together with all accrued unpaid interest thereon, in cash or shares of our common stock valued at the closing price of our common stock on the last trading day preceding the payment date to GSK. In addition, under a collaborative agreement with GSK, we have an outstanding loan in the amount of $5 million, which is due in September 2003. At GSK’s option, GSK may choose to receive the outstanding principal and accrued unpaid interest in cash or shares of our common stock at an undisclosed premium to the then current fair market value of our common stock.

     On December 4, 2002, we sold 636,173 shares of our common stock to Amersham Health for a total purchase price of $5 million in cash. This sale was made pursuant to a previously disclosed October 2001 agreement with Amersham Health. Pursuant to the terms of the agreement, on April 23, 2003, we notified Amersham Health of our exercise of our option to sell 721,814 shares of our common stock to Amersham Health at a price per share of $6.927, for a total purchase price of $5 million. Subject to standard closing conditions contained in the stock purchase agreement, we will sell the shares of common stock on May 14, 2003.

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     Under a license assignment agreement between Coulter, Beckman Coulter, Inc., InterWest Partners V, L.P. and InterWest Investors V, relating to portions of the technology underlying BEXXAR therapy, Beckman Coulter, Inc. is entitled to receive the first $4.5 million of royalties upon commercial sale of BEXXAR therapy, if any, derived from the licenses that were assigned to Coulter, thereafter, any such royalties shall be payable to Dana-Farber Cancer Institute. Beckman Coulter, Inc. has the option, in lieu of receiving cash for such royalties, to receive shares of our common stock valued at the then current fair market value of our common stock.

     We are also required to pay dividends on our outstanding preferred stock. The dividend can be paid in cash or common stock, at our option. The maximum amount of cash that would be paid in a year would be $2.5 million and the maximum number of shares of common stock that would be issued is 146,828.

     If we issue additional stock under these agreements, as dividends on our preferred stock or pursuant to other transactions, it will have a dilutive effect on the ownership percentage of our existing stockholders. From time to time, we expect to enter into new partnerships, acquisitions and other strategic transactions in which we may agree to issue additional common stock.

	Transactions by CMI may adversely affect the price of our common stock.

     From time to time, within limitations specified in the CMI equity line facility and subject to applicable laws, CMI may engage in short sales, short sales against the box, puts and calls and other transactions in our common stock, and may sell and deliver shares of our common stock issued under the equity line facility in connection with these transactions. If CMI engages in such transactions, the result will be advance sales of additional shares into the market for our common stock, which could create downward pressure on our stock price.

	If our corporate partnerships are unsuccessful or if we are unable to establish corporate partnerships in the future, our revenue growth and product development may be limited.

     The success of our business strategy depends in part on our ability to enter into multiple corporate partnerships and to manage effectively the numerous relationships that may result from this strategy. We recognized 88% and 96% of our revenue from research and development and other funding under our existing corporate partnerships for the three months ended March 31, 2003, and March 31, 2002, respectively. If our corporate partnerships are unsuccessful or if we are unable to establish corporate partnerships, we may be prevented from commercializing our product candidates or effectively partnering our product candidates.

     Our licenses, in combination with our proprietary discoveries, enable us to enter into partnerships to progress some of our product candidates. Our corporate partnerships generally provide our partners with the right to use technologies owned or licensed by us in research, development and commercialization activities. Our material corporate partnerships include the following:

	•		a corporate partnership with GSK to develop and commercialize BEXXAR therapy in the United States;
	•		a corporate partnership with Amersham Health to develop and commercialize BEXXAR therapy in Europe;
	•		a development, commercialization and license agreement with Medicis related to our candidate psoriasis immunotherapeutic product, PVAC treatment;
	•		a development and license agreement with Zenyaku related to PVAC treatment;
	•		a corporate partnership with Kirin for the research, development and commercialization of vaccine products aimed at treating multiple forms of cancer, including leukemia, myelodysplasia and melanoma;
	•		a corporate partnership with Zambon for the research, development and commercialization of vaccine products aimed at preventing and/or treating lung cancer; and
	•		a corporate partnership with GSK that provides for vaccine development of breast, prostate and colon cancer vaccines, and vaccine discovery and development programs, for two chronic infectious pathogens, chlamydia and tuberculosis.

     Management of our relationships with our corporate partners requires:

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	•		significant time and effort from our management team;
	•		coordination of our research with the research priorities of our corporate partners;
	•		effective allocation of our resources to multiple projects; and
	•		an ability to attract and retain key management, scientific and other personnel.

     Our corporate partners may terminate our current partnerships. Our agreements with GSK for commercialization of BEXXAR therapy in the United States, Amersham Health for marketing BEXXAR therapy in Europe and Medicis for commercialization of PVAC treatment contain milestone-based termination provisions, which provide that if we fail to meet specified development or regulatory milestones, the licensor may terminate the agreement. For example, GSK may terminate the agreement for commercialization of BEXXAR therapy at any time because BEXXAR therapy did not receive FDA approval before June 30, 2002. In addition, all of these license agreements may be terminated by the licensor for our material breach or insolvency, or after a specified termination date. Some of our corporate partners have options to license aspects of our technology. Any of these corporate partners may not exercise its option to license this technology.

     The process of establishing new corporate partnerships is difficult and time-consuming. Our discussions with potential partners may not lead to the establishment of new corporate partnerships on favorable terms, if at all. If we successfully establish new corporate partnerships, such partnerships may never result in the successful development of our product candidates or the generation of significant revenue.

     Because we generally enter into research and development collaborations with corporate partners at an early stage of product development, our success largely depends on the performance of our corporate partners. We do not directly control the amount or timing of resources devoted by our corporate partners to collaborative activities. Our corporate partners may not commit sufficient resources to our research and development programs or the commercialization of our products and product candidates. If any corporate partner fails to commit sufficient resources, our preclinical or clinical development related to the corporate partnership could be delayed or terminated. Also, our current corporate partners or future corporate partners, if any, may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us.

	Our inability to license technology from third parties or our inability to maintain exclusive licenses may impair our ability to develop and commercialize our product candidates.

     Our success also depends on our ability to enter into and maintain licensing arrangements with commercial or academic entities to obtain technology that is advantageous or necessary to developing and commercializing our product candidates. If we cannot obtain or maintain these licenses on acceptable terms, we may be required to expend significant time and resources to develop or in-license similar technology. If we are unable to do so, we may be prevented from developing and commercializing our product candidates.

     We currently have various license agreements that provide us rights to use technologies owned or licensed by third parties in research, development and commercialization activities. Our material third-party licensing arrangements include the following:

	•		a license with the Dana-Farber Cancer Institute for the use of the anti-B1 antibody used in BEXXAR therapy; and
	•		a license with the University of Michigan for the use of BEXXAR therapy.

     Many of our third-party license agreements contain milestone-based termination provisions, in which case our failure to meet any agreed milestones may allow the licensor to terminate the agreement. Further, we may be unable to negotiate additional license agreements in the future on acceptable terms, if at all. Many of our license agreements grant us exclusive licenses to the underlying technologies. If we are unable to maintain the exclusivity of our exclusive licenses, we may be unable to commercialize our product candidates.

	If we are unable to obtain, protect and enforce our patent rights, we may be unable to effectively protect or exploit our proprietary technology, inventions and improvements.

     Our success depends in part on our ability to obtain, protect and enforce commercially valuable patents. If we fail to obtain and maintain patent protection for our proprietary technology, inventions and improvements, our competitors could develop and

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commercialize products that would otherwise infringe our patents. We try to protect our proprietary positions by filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to developing our business.

     Our patent position is generally uncertain and involves complex legal and factual questions. Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical fields are still evolving. Accordingly, the degree of future protection for our patent rights is uncertain. The risks and uncertainties that we face with respect to our patents include the following:

	•		the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;
	•		the claims of any patents that issue may not provide meaningful protection;
	•		we may be unable to develop additional proprietary technologies that are patentable;
	•		the patents licensed or issued to us may not provide a competitive advantage;
	•		other companies may challenge patents licensed or issued to us;
	•		disputes may arise regarding the invention and corresponding ownership rights in inventions and know-how resulting from the joint creation or use of intellectual property by us, our licensors, corporate partners and other scientific collaborators; and
	•		other companies may design around our patented technologies.

     We have licensed several patent applications from SRI related to our microsphere encapsulation technology. One of these patent applications is currently the subject of opposition proceedings before the European Patent Office. The European Patent Office has revoked the previously issued European patent. Although SRI has appealed this decision, it is uncertain whether SRI will prevail in this opposition proceeding. As a result, this patent may not issue in Europe.

     IDEC has challenged the validity of several of our patents related to BEXXAR therapy by seeking declaratory judgment of invalidity of these patents. IDEC is also seeking a declaratory judgment that its Zevalin product for the treatment of NHL is not infringing the patents. We, GSK, our collaboration partner for BEXXAR therapy in the United States, and the Regents of the University of Michigan are parties to a lawsuit against IDEC alleging patent infringement of certain of our patents by Zevalin and seeking monetary damages and permanent injunctive relief. Claims in the patents at issue in the litigation cover composition of matter and methods-of-use in the treatment of NHL. If IDEC is successful in these proceedings, IDEC would be able to market its Zevalin product without the need to license from us any of our patents and could be awarded monetary damages and permanent injunctive relief. An unfavorable outcome of this matter could have a materially adverse effect on our operating results from the sale of BEXXAR therapy, if it is approved.

     In addition, on February 25, 2003, IDEC filed a complaint in the United States District Court, Southern District of California, against us and GSK for patent infringement of United States Reissue Patent No. RE38,008 which claims, among other things, methods of enhancing the delivery of conjugated specific antibodies to solid tumor target cells. If IDEC is successful in these proceedings, IDEC could be awarded monetary damages and permanent injunctive relief, which relief could prevent us from marketing BEXXAR therapy. An unfavorable outcome of this matter could have a materially adverse effect on our operating results from the sale of BEXXAR therapy, if it is approved.

	If we are unable to gain access to patent and proprietary rights of others, we may be unable to compete effectively.

     Our success depends in part on our ability to gain access to third-party patent and proprietary rights and to operate our business without infringing on third-party patent rights. We may be required to obtain licenses to patents or other proprietary rights from third parties to develop, manufacture and commercialize our product candidates. Licenses required under third-party patents or proprietary rights may not be available on terms acceptable to us, if at all. If we do not obtain the required licenses, we could encounter delays in product development while we attempt to redesign products or methods or we could be unable to develop, manufacture or sell products requiring these licenses.

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	If we are unable to protect our trade secrets, we may be unable to protect our interests in proprietary know-how that is not patentable or for which we have elected not to seek patent protection.

     Our success depends in part on our ability to protect trade secrets that are not patentable or for which we have elected not to seek patent protection. To protect our trade secrets, we rely primarily on confidentiality agreements with employees and third parties, and protective contractual provisions such as those contained in license agreements and research agreements. Nevertheless, other companies may develop similar or alternative technologies or duplicate our technologies that are not protected by patents, or otherwise obtain and use information that we regard as proprietary. Other parties may breach confidentiality agreements and other protective contracts we have entered into, and we may not become aware of, or have adequate remedies in the event of, any breach. Any material leak of confidential data into the public domain or to third parties could harm our competitive position.

	If we are unable to protect our trademarks, we may be unable to compete effectively.

     We try to protect our trademarks by applying for United States and foreign registrations for marks that are important to developing our business. However, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and effective trademark protection may not be available in other jurisdictions. If we are unable to protect our trademarks, we may be unable to establish brand awareness for our products, which could limit our ability to compete effectively. Of our trademarks, MPL adjuvant is currently the subject of an opposition proceeding before the Office for the Harmonization in the Internal Market, which handles initial prosecution and opposition of European trademarks. We may not ultimately prevail in this opposition proceeding. As a result, we may not receive trademark protection for MPL adjuvant in Europe.

	Litigation regarding intellectual property rights owned or used by us may be costly and time-consuming.

     As a result of litigation, interferences, opposition proceedings and other administrative proceedings in which we are or may become involved, including the IDEC litigation, we may incur substantial expense and the proceedings may divert the efforts of our technical and management personnel. An adverse determination in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products without obtaining a license from us, or require us to seek licenses from third parties that may not be available on commercially reasonable terms, if at all. If we cannot obtain such licenses, we may be restricted or prevented from developing and commercializing our product candidates.

     The enforcement, defense and prosecution of intellectual property rights, United States Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and elsewhere involve complex legal and factual questions. As a result, these proceedings are costly and time-consuming, and their outcome is uncertain. Litigation may be necessary to:

	•		assert claims of infringement;
	•		enforce our issued and licensed patents;
	•		protect our trade secrets or know-how; or
	•		determine the enforceability, scope and validity of the proprietary rights of others.

	If we do not successfully integrate potential future acquisitions, we may incur unexpected costs and disruptions to our business.

     We have completed several acquisitions of complementary technologies, product candidates and businesses. In the future, we may acquire additional complementary companies, products and product candidates or technologies. Managing these acquisitions has entailed and may in the future entail numerous operational and financial risks and strains, including:

	•		exposure to unknown liabilities;
	•		higher-than-expected acquisition and integration costs;
	•		difficulty and cost in combining the operations and personnel of acquired businesses with our operations and personnel;
	•		disruption of our business and diversion of our management’s time and attention to integrating or completing the development or

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			commercialization of any acquired technologies;
	•		impairment of relationships with key customers of acquired businesses due to changes in management and ownership;
	•		inability to retain key employees of acquired businesses; and
	•		increased amortization expenses if an acquisition results in significant intangible assets or potential write-downs of goodwill and other intangible assets due to impairment of the assets.

     For example, in December 2000 we acquired Coulter, a publicly held biotechnology company specializing in, among other things, the development of therapeutic antibodies, including BEXXAR therapy. As a result of our acquisition of Coulter, we acquired direct sales and marketing personnel in preparation for the launch of BEXXAR therapy. In an effort to minimize expenses during the delay in the FDA review of BEXXAR therapy, we initiated expense reductions, including a 15% reduction in total headcount in March 2001. The majority of these reductions took place in the operations that we acquired from Coulter. During the first quarter of 2002 we experienced a decrease in the value of our common stock subsequent to receiving the complete review letter from the FDA regarding the BEXXAR BLA. As a result, goodwill and other intangibles were re-evaluated and we recognized a $161.1 million goodwill impairment charge. Regulatory approval by the FDA for BEXXAR therapy may be further delayed or rejected, in which case we may not gain substantial benefit from the Coulter acquisition. In May 2002, we sold specific preclinical assets and equipment that we acquired from Coulter to Medarex, Inc. and, in connection with the asset sale, initiated a further headcount reduction.

	We depend heavily on the principal members of our management and scientific staff, the loss of any of whom could impair our ability to compete.

     The loss of the services of any of the principal members of our management and scientific staff could significantly delay or prevent the achievement of our scientific or business objectives. Competition among biotechnology and biopharmaceutical companies for qualified employees is intense, and the ability to retain and attract qualified individuals is critical to our success. We may be unable to attract and retain these individuals currently or in the future on acceptable terms, if at all. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants.

     We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research, development or clinical strategy. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these scientific collaborators and can generally expect these individuals to devote only limited amounts of time to our activities. Failure of any of these persons to devote sufficient time and resources to our programs could harm our business. In addition, these collaborators may have arrangements with other companies to assist the companies in developing technologies that may compete with our products.

	If we are unable to compete effectively in the highly competitive biotechnology and biopharmaceutical industries, our business will fail.

     The biotechnology and biopharmaceutical industries are intensely competitive, and we may be unable to compete effectively in these industries. Many companies and institutions compete with us in developing alternative therapies to treat or prevent cancer, infectious diseases and autoimmune diseases, including:

	•		pharmaceutical companies;
	•		biotechnology companies;
	•		academic institutions; and
	•		research organizations.

     Moreover, technology controlled by third parties that may be advantageous to our business may be acquired or licensed by our competitors, thereby preventing us from obtaining technology on commercially reasonable terms, if at all.

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     Many of the companies developing competing technologies and products have significantly greater financial resources and expertise in research and development, manufacturing, preclinical and clinical development, obtaining regulatory approvals and marketing than we do. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for research and development, manufacturing, and preclinical and clinical development, and obtain regulatory approval and market of products similar to ours. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring and developing technologies complementary to our programs. We will face competition with respect to:

	•		product efficacy and safety;
	•		timing and scope of regulatory approvals;
	•		availability of resources;
	•		reimbursement coverage;
	•		product price; and
	•		patent position.

     Competitors may develop more effective or more affordable products, or may achieve earlier patent protection or product commercialization, than we do. These competitive products may achieve a greater market share or render our products obsolete.

     IDEC’s product, Zevalin, received FDA approval for commercial sale in the United States in February 2002. Zevalin has been approved and is being marketed for the treatment of NHL in the United States, the indication for which we are seeking approval to sell BEXXAR therapy in the United States. Consequently, IDEC could have a significant advantage over us in sales and marketing of products for the treatment of NHL in the United States.

	Our stock price could be very volatile and your shares may suffer a decline in value.

     The market prices for securities of biotechnology companies have in the past been, and are likely to continue in the future to be, very volatile. As a result of the fluctuations in the price of our common stock you may be unable to sell your shares at or above the price you paid for them. The market price of our common stock may be subject to substantial volatility depending on numerous factors, many of which are beyond our control, including:

	•		announcements regarding the results of discovery efforts and preclinical and clinical activities by us or our competitors;
	•		progress or delay of our or our competitors’ regulatory approvals;
	•		announcements regarding the acquisition of technologies or companies by us or our competitors;
	•		changes in our existing corporate partnerships or licensing arrangements;
	•		establishment of additional corporate partnerships or licensing arrangements by us or our competitors;
	•		technological innovations or new commercial products developed by us or our competitors;
	•		changes in our or our competitors’ intellectual property portfolio;
	•		developments or disputes concerning our or our competitors’ proprietary rights;
	•		issuance of new or changed securities analysts’ reports and their recommendations regarding us or our competitors;
	•		changes in government regulations;

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	•		economic and other external factors;
	•		additions or departures of any of our key personnel;
	•		operating losses by us; and
	•		actual or anticipated fluctuations in our quarterly financial and operating results and degree of trading liquidity in our common stock.

     Our common stock has traded as high as $72.00 and as low as $4.48 since the beginning of 2000. The last reported sales price of our common stock on March 31, 2003 was $6.84. If our stock price declines significantly, we may be unable to raise additional capital. Significant declines in the price of our common stock could also impede our ability to attract and retain qualified employees and reduce the liquidity of our common stock.

	Product liability claims may damage our reputation and if insurance proves inadequate, the product liability claims may harm our financial position.

     Our business exposes us to the risk of product liability claims inherent in manufacturing, testing and marketing therapies for treating people with cancer, infectious diseases and autoimmune diseases. A product liability claim may damage our reputation by raising questions about a product’s safety and efficacy and could limit our ability to sell one or more products by preventing or interfering with product commercialization. Although we have product liability and clinical trial liability insurance that we believe is commercially reasonable, this coverage may be inadequate or may be unavailable in the future on acceptable terms, if at all. Defending a suit, regardless of its merit, could be costly and could divert management attention.

	State laws and our certificate of incorporation may inhibit potential acquisition bids that could be beneficial to our stockholders.

     Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware and Washington law, will make it more difficult for a third party to acquire us, even if doing so would be beneficial for our stockholders. This could limit the price that certain investors might be willing to pay in the future for our shares of common stock. For example, certain provisions of our certificate of incorporation or bylaws:

	•		allow our board to issue preferred stock without any vote or further action by the stockholders;
	•		eliminate the right of stockholders to act by written consent without a meeting;
	•		eliminate cumulative voting in the election of directors;
	•		specify a supermajority requirement for stockholders to call a special meeting;
	•		specify restrictive procedures for director nominations by stockholders; and
	•		specify a supermajority requirement for stockholders to change the number of directors.

     We are subject to certain provisions of Delaware and Washington law, which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years unless specific conditions are met. Similarly, Chapter 23B.19 of the Washington Business Corporation Act prohibits corporations based in Washington from engaging in certain business combinations with any interested stockholder for a period of five years unless specific conditions are met.

     In addition, certain provisions of Delaware and Washington law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

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Item 3. Quantitative & Qualitative Disclosure about Market Risk

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. All of our cash equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly, are presented at fair value on our balance sheets. We generally invest our excess cash in A-rated or higher short- to intermediate-term fixed income securities and money market mutual funds. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

Item 4. Controls and Procedures.

     Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934) as of a date within 90 days before the filing date of this quarterly report, have concluded that as of the time of such evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in this quarterly report is accumulated and communicated by our management, to allow timely decisions regarding required disclosure.

     There were no significant changes in our internal controls or other factors that could significantly affect our disclosure controls and procedures subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     On September 10, 2001 IDEC filed a complaint in the United States District Court, Southern District of California, against us and the Regents of the University of Michigan seeking declaratory judgment of non-infringement and invalidity of certain patents related to IDEC’s Zevalin product for the treatment of NHL. On September 12, 2001 we and GSK filed a lawsuit in the United States District Court, District of Delaware, alleging that IDEC’s activities because the ODAC’s recommendation for approval of Zevalin infringes our United States Patent Nos. 5,595,721, 6,015,542, 6,090,365 and 6,287,537. Issued claims in the subject patents cover imaging, composition of matter and methods-of-use in the treatment of NHL. Pursuant to our lawsuit against IDEC, we and GSK are requesting that the court declare that IDEC is willingly infringing our patents. In addition, we are seeking available remedies under the patent laws including monetary damages and permanent injunctive relief. On September 28, 2001, we and GSK amended the complaint to add the Regents of the University of Michigan as an additional plaintiff. On February 13, 2002, we, GSK and the Regents of the University of Michigan filed an answer and counterclaims to IDEC’s amended complaint in the United States District Court, Southern District of California. On February 25, 2002, the Delaware District Court has ordered the case transferred to the United States District Court, Southern District of California. Litigation is ongoing and we are unable to predict and outcome at this time. However, an unfavorable outcome of this matter could have a materially adverse affect on our operating results from the sale of BEXXAR therapy, if BEXXAR therapy is approved.

     On February 25, 2003, IDEC filed a complaint in the United States District Court, Southern District of California, against us and GSK for patent infringement of United States Reissue Patent No. RE38,008 which claims, among other things, methods of enhancing the delivery of conjugated specific antibodies to solid tumor target cells. Litigation is ongoing and we are unable to predict an outcome at this time. However, an unfavorable outcome of this matter could have a materially adverse affect on our operating results from the sale of BEXXAR therapy, if BEXXAR therapy is approved.

     We are party to routine claims and litigation incidental to our business. We believe the ultimate resolution of these routine matters will not have a material adverse effect on our financial position and results of operations or cash flows.

Item 5. Other Information

     On May 5, 2003, we and GSK announced that the FDA has extended its review of the BEXXAR therapy application for up to an additional three months. As a result of this action, the new PDUFA goal date for the FDA to complete its review of BEXXAR therapy is August 1, 2003, but the FDA can take action at any time.

     On May 12, 2003, we announced that our partner, GSK, has filed for regulatory approval of Fendrix with the European Agency for the evaluation of Medicinal Products. Fendrix is a novel vaccine designed to prevent infection from Hepatitis B in high-risk groups such as pre-haemodialysis and haemodialysis patients and includes GSK’s Hepatitis B antigen and Corixa’s MPL adjuvant.

     On April 23, 2003, we notified Amersham Health, pursuant to our October 2001 stock purchase agreement, of our exercise of our option to sell 721,814 shares of our common stock to Amersham Health at a price per share of $6.927, for a total purchase price of $5 million. Subject to standard closing conditions contained in the stock purchase agreement, we will sell the shares of common stock on May 14, 2003. In the event we sell the shares of common stock, we will issue them in a private placement exempt from registration under Rule 506 Regulation D and Section 4(2) of the Securities Act.

     On April 4, 2003, we entered into a sublease agreement with Gryphon to sublet a portion of our laboratory, research and development, and general administration space in South San Francisco. Under the sublease, we sublet to Gryphon a gradually increasing amount of space until December 2003 and thereafter, they will sublet approximately 50,400 square feet. The sublease commenced on May 1, 2003 and continues for the entire remaining term of the master lease that expires in November 2010. Under the terms of the sublease and the master landlord’s consent to the sublease, Gryphon has the option to terminate the sublease if the master landlord fails to remediate the floor moisture issue in the ground floor of the building by October 1, 2003.

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Item 6. Exhibits and Reports on Form 8-K.

     (a)  See Index to Exhibits.

     (b)  Reports on Form 8-K.

(1)

On February 25, 2003, we filed a Current Report on Form 8-K regarding our announcement that, following the favorable opinion of the European Agency for the Evaluation of Medicinal Products (adopted by the Committee of Orphan Medicinal Products), the European Commission granted Orphan Medicinal Product designation for BEXXAR therapy for the treatment of follicular lymphoma.

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SIGNATURE

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

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CERTIFICATIONS

I, Steven Gillis, Ph.D., certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Corixa Corporation;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

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I, Michelle Burris, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Corixa Corporation;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

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EXHIBIT INDEX

(A)		Incorporated herein by reference to Corixa’s Form S-1, as amended (File No. 333-32147), filed with the Securities and Exchange Commission on September 20, 1997.
(B)		Incorporated herein by reference to Corixa’s Form 10-Q for the quarter ended June 30, 2000 (File No. 0-22891), filed with the Securities and Exchange Commission on August 14, 2000.
(C)		Incorporated herein by reference to Corixa’s Form 8-K (File No. 0-22891), filed with the Securities and Exchange Commission on April 23, 1999.
(D)		Incorporated herein by reference to Corixa’s Form 8-K (File No. 0-22891), filed with the Securities and Exchange Commission on January 4, 2001.
(E)		Incorporated herein by reference to Corixa’s Form 8-A/A (File No. 0-22891), filed with the Securities and Exchange Commission on March 6, 2003.
(F)		Incorporated herein by reference to the Corixa’s Form 10-K (File No. 000-22891), filed with the Securities and Exchange Commission on March 30, 2001.
†		Filed herewith.
*		Confidential treatment sought by Corixa Corporation from the Securities and Exchange Commission.

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