UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from       to

Commission file number 0-22891

CORIXA CORPORATION

1900 9th Avenue, Suite 1100
Seattle, WA 98101
(206) 366-3700

(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 November 2, 2004, there were approximately 59,362,180 shares of the Registrant’s common stock outstanding.

TABLE OF CONTENTS
CORIXA CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 2004
INDEX

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Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

CORIXA CORPORATION

See accompanying notes.

3

CORIXA CORPORATION

See accompanying notes.

4

CORIXA CORPORATION

See accompanying notes.

5

CORIXA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

     We are a developer of innovative immunotherapeutic products designed to affect the immune system and treat debilitating and life-threatening conditions caused by cancer and infectious disease.

     Originally founded to pursue development of leading, proprietary antigen discovery technology, we are emerging as a product development company with multiple product candidates, many in late-stage human clinical trials. Our development efforts are focused on core areas of immunotherapy expertise, including monoclonal antibodies, vaccines and adjuvants, and small molecules called TLR4 agonists and antagonists that stimulate innate immunity.

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 adjustments, consisting only of 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, 2003 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, 2003, 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 (United States 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 agency securities with terms not exceeding four years. Such securities are stated at fair value, with the unrealized gains and losses reflected as accumulated other comprehensive income in stockholders’ equity. Interest earned on securities is included in interest income, net. 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 September 30, 2004, current securities available-for-sale included a certificate of deposit of $1.9 million that secures a financing agreement and non-current securities available-for-sale included $14.6 million that secures our loan with NDC New Markets Investments IV, L.P., or NDC, $2.2 million that secures a letter of credit related to our leased properties in South San Francisco and a $4.5 million letter of credit that guarantees a portion of our obligations under a facilities lease agreement. In addition, deferred charges, deposits and other assets includes a $3.5 million deposit that secures our obligations under the GE Capital loans.

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.

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     Suppliers. We have contracted with a third-party manufacturer, Boehringer Ingelheim Pharma GMBH & Co. KG, or BI Pharma KG, to produce bulk anti-B1monoclonal antibody, or Tositumomab, a key component of BEXXAR® therapeutic regimen 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 with BI Pharma KG to temporarily reduce our minimum annual order commitment for Tositumomab following the commercial launch of BEXXAR therapeutic regimen. We have fulfilled our minimum annual order with BI Pharma KG for 2004. We have also contracted with a third-party manufacturer, MDS Nordion, Inc., or Nordion, for radiolabeling supply of the Tositumomab component of BEXXAR therapeutic regimen at Nordion’s centralized radiolabeling facility. Our remaining minimum annual order with Nordion for 2004 is $517,000.

Revenue Recognition

     We generate revenue from technology licenses, collaborative research and development arrangements, cost reimbursement contracts, co-promotion revenues under our agreement with GlaxoSmithKline plc, or GSK, for BEXXAR therapeutic regimen and sales of 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. Co-promotion revenue or expense under our agreement with GSK for BEXXAR therapeutic regimen is determined based on the calculation of joint profit or loss (as defined in the agreement). For the three months and nine months ended September 30, 2004, we recorded co-promotion revenue resulting from the joint profit or loss calculation. 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 92% and 95% of our revenue from collaborative partners during the three months ended September 30, 2004 and September 30, 2003, respectively and 90% and 95% of our revenue from collaborative partners during the nine months ended September 30, 2004 and September 30, 2003, respectively.

Acquisition-Related Intangible Assets

     In the second and third quarters of 2003 we subleased approximately 117,000 square feet of our leased facilities in South San Francisco. 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, long-lived assets must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those long-lived assets might not be recoverable. Upon entering into the sublease agreements an estimate of the undiscounted future cash flows attributable to the subleases was performed and was determined to be less than the carrying amount of the intangible asset acquired lease, related leasehold improvements and furniture and fixtures. Because the carrying value exceeded the fair value, we recognized an impairment charge of $12.6 million and $5.9 million in the second and third quarters of 2003, respectively, related to these assets.

Stock-Based Compensation

     Our employee stock-based compensation expense is recognized based on the intrinsic value of the option on the date of grant.

     At September 30, 2004, 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 loss per common share as if we had applied the fair value recognition of SFAS No. 123, “Accounting for Stock Based Compensation,” or 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.

     During the nine months ended September 30, 2004, approximately 250,000 common stock options were exercised. The weighted average fair value of common stock options granted for the three months ended September 30, 2004 and September 30, 2003 was $3.49 and $6.55, respectively. The weighted average fair value of common stock options granted for the nine months ended September 30, 2004 and September 30, 2003 was $4.34 and $5.23, respectively.

Reclassifications

     Certain reclassifications have been made to the prior year’s financial statements to conform to the 2004 presentation.

2. Comprehensive Loss

     For the three months and nine months ended September 30, 2004 and September 30, 2003, our comprehensive loss was as follows (in thousands):

3. GSK BEXXAR Relationship

     We have a collaborative agreement with GSK for the development and commercialization of BEXXAR therapeutic regimen, which is approved by the U.S. Food and Drug Administration, or FDA, for the treatment of patients with CD20 positive, follicular, non-Hodgkin’s lymphoma, or NHL, with and without transformation, whose disease is refractory to Rituximab and has relapsed following chemotherapy. Under the terms of the agreement, both companies contribute to the commercialization efforts of BEXXAR therapeutic regimen in the United States and share profits and losses from sales of BEXXAR therapeutic regimen equally.

     We recognize the costs we incur associated with BEXXAR therapeutic regimen related activities such as the cost of co-promotion revenue and sales and promotion costs in our statement of operations. We and GSK then prepare a quarterly calculation of the joint profit or loss which considers all revenue and costs associated with BEXXAR therapeutic regimen commercial activities incurred by us and GSK and the equal sharing of the joint profit or loss. If the quarterly joint profit or loss calculation results in a reimbursement to be made to Corixa, we record that amount as revenue. If the quarterly joint profit or loss calculation results in a payment to be made by us, we record that

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amount as additional operating expense. Prior to commercialization, we recorded our share of the net reimbursement or payment from the joint profit or loss calculation in sales, general and administrative expenses. For the three months and the nine months ended September 30, 2004 our commercial costs related to BEXXAR therapeutic regimen are included in SG&A expenses. For the three months ended September 30, 2004, we recorded co-promotion revenue of $1.1 million resulting from the joint profit or loss calculation. For the nine months ended September 30, 2004, we recorded $1.1 million of co-promotion revenue and approximately $400,000 of co-promotion expense resulting from the joint profit or loss calculation. Cost associated with third party contract production of BEXXAR therapeutic regimen was approximately $7.0 million for the nine months ended September 30, 2004.

     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.

4. Other Income

     The other income for the nine months ended September 30, 2004, was primarily attributable to a $20 million upfront patent litigation settlement payment from Biogen Idec, Inc., or Biogen Idec, to us net of the portion of the settlement payable to other parties including a $9.9 million payment by us to GSK for their portion of the settlement. The settlement provided for Biogen Idec to pay us and GSK a $20 million upfront settlement payment, as well as a one-time milestone payment based on future Zevalin sales performance, and royalty payment payments on Zevalin sales from January 1, 2004, until such time as all BEXXAR patents expire.

5. Commitments and Contingencies

     From time to time, 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 Event

     On October 3, 2004, we issued 3,482,433 shares of our common stock to GSK in connection with the repayment of $15 million outstanding under a loan agreement between our wholly-owned subsidiary Coulter and SmithKline Beecham Corporation, or SKB, a wholly-owned subsidiary of GSK. The loan agreement, as amended, permitted us to repay the outstanding balance either in cash or registered shares of our common stock, at our discretion.

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 regarding expected payments under collaboration agreements;

•

statements about our expectations for regulatory approval of any of our product candidates;

•

statements about our product development schedule;

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•

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;

•

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.

Summary of Critical Accounting Policies

     The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. We believe the following accounting policy, in addition to those described in our annual report on Form 10-K for the year ended December 31, 2003, 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 agreement, generally the research and development period. Generally, our collaborative agreements include a research and development phase that spans a specified time period. However, in certain cases the collaborative agreement specifies a research and development phase which 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 the work plan will be performed and therefore, the period over which revenue should be recognized. 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.

Overview

     We are a developer of innovative immunotherapeutic products designed to affect the immune system and treat debilitating and life-threatening conditions caused by cancer and infectious disease.

     Originally founded to pursue development of leading, proprietary antigen discovery technology, we are emerging as a product development company with multiple product candidates, many in late-stage human clinical trials. Our development efforts are focused on core areas of immunotherapy expertise, including monoclonal antibodies, vaccines and adjuvants, and small molecules called TLR4 agonists and antagonists that stimulate innate immunity. For the nine months ended September 30, 2004, approximately 90% of our revenue resulted from

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collaborative agreements, and approximately 10% of our revenue resulted from funds awarded through government grants. As of September 30, 2004, we had total stockholders’ equity of $30 million.

     We generate revenue from technology licenses, collaborative research and development arrangements, cost reimbursement contracts, co-promotion revenues under our agreement with GSK for BEXXAR therapeutic regimen and research adjuvants. Revenue under technology licenses and collaborative agreements typically consist 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 arrangements.

     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. Co-promotion revenue or expense under our agreement with GSK for BEXXAR therapeutic regimen is determined based on the calculation of joint profit or loss (as defined in the agreement). For the three months ended September 30, 2004, we recorded co-promotion revenue of $1.1 million resulting from the joint profit or loss calculation. For the nine months ended September 30, 2004, we recorded $1.1 million of co-promotion revenue and approximately $400,000 of co-promotion expense resulting from the joint profit or loss calculation. 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 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’ expertise in product development, manufacturing and commercialization;

•

it may enable us to retain significant downstream participation in product sales; and

•

it reduces our financing requirements.

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

•

a corporate partnership with GSK to develop and commercialize BEXXAR therapeutic regimen in the United States. Sales of BEXXAR therapeutic regimen in the third quarter of 2004 were $2.5 million. These sales are included in the calculation of the joint or loss statement with GSK;

•

a license and supply agreement with GSK Canada to commercialize BEXXAR therapeutic regimen in Canada;

	•		a license and supply agreement with Australian Nuclear Science and Technology Organization, or ANSTO, to develop, market and sell BEXXAR therapeutic regimen in certain countries within Australasia, including Australia, New Zealand, Singapore, India, Indonesia and China;
	•		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;

•

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;

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•

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;

•

several license and supply agreements with GSK, granting GSK licenses to MPL® adjuvant, our proprietary adjuvant, which is added to a vaccine product to heighten the immune response to the product’s allergens, and certain other adjuvants for use in vaccines for infectious diseases, cancers and allergies that GSK is developing; and

•

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.

     As of September 30, 2004, our accumulated deficit was approximately $1.2 billion, of which $679.4 million is attributable to the write-off of acquired in-process research and development costs associated with our acquisitions, $221.2 million is attributable to goodwill related charges and $18.5 million is attributable to lease-related impairment 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 and commercialization 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 other product candidates and successfully manufacturing, marketing and selling 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 and Nine Months Ended September 30, 2004 and September 30, 2003

Total Revenue

     Our revenue was $8.9 million for the three months ended September 30, 2004 compared to $7.4 million for the same period in 2003. The 2004 increase compared to 2003 is due primarily to increased researched product sales of $1.7 million and co-promotion revenue from our collaborative agreement for BEXXAR therapeutic regimen of $1.1 million. These increases were partially offset by decreased revenue from our collaborative agreement with Medicis Pharmaceutical Corporation, or Medicis, of $786,000 due to discontinuing development of PVAC in December 2003.

     Our revenue was $22.0 million for the nine months ended September 30, 2004 compared to $36.5 million for the same period in 2003. The 2004 decrease compared to 2003 is due primarily to decreased revenue received from our collaborative agreements with GSK, under which we received a significant milestone payment in 2003, the majority of which resulted from approval milestone revenue under our agreement for BEXXAR therapeutic regimen in 2003, decreased revenue from our collaboration agreement with Medicis of $2.4 million due to discontinuing development of PVAC in December 2003.

     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 future sales of BEXXAR therapeutic regimen and our ability to commercialize other products and product candidates.

Research and Development

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     Our research and development expenses were $18.0 million for the three months ended September 30, 2004 compared to $21.0 million for the same period in 2003. The 2004 decrease compared with 2003 is due primarily to reduced early stage research and development expense of $3.0 million, due to our focus in 2004 on programs that we believe have the highest chance of near-term commercial success.

     Our research and development expenses were $55.6 million for the nine months ended September 30, 2004 compared to $69.9 million for the same period in 2003. The 2004 decrease compared with 2003 is due primarily to reduced early stage research and development expense of $5.2 million due to our focus in 2004 on programs that we believe have the highest chance of near-term commercial success, reduced cost of production of BEXXAR therapeutic regimen for clinical development activities prior to the commercialization of $3.8 million, a reduction in South San Francisco facilities expense of $3.8 million due to buildings that we subleased in 2003 and a reduction in license fees of $1.6 million due to discontinuing development of PVAC in December 2003.

     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):

     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.

     Many 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 $9.9 million for the three months ended September 30, 2004 compared to $6.6 million for the same period in 2003. The 2004 increase compared to 2003 is due primarily to the cost associated with the commercialization of BEXXAR therapeutic regimen. We expect SG&A expenses to remain relatively stable over the next twelve months.

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     Our SG&A expenses were $24.9 million for the nine months ended September 30, 2004 compared to $15.2 million for the same period in 2003. The 2004 increase compared to 2003 is due primarily to the cost associated with the commercialization of BEXXAR therapeutic regimen.

     We recognize our costs associated with BEXXAR therapeutic regimen commercial related activities such as the cost of co-promotion revenue and sales and promotion costs in our statement of operations. We and GSK then prepare a calculation of the joint profit or loss which considers all revenue and costs associated with BEXXAR therapeutic regimen commercial activities incurred by us and GSK and the equal sharing of the joint profit or loss (as defined in the agreement). If the joint profit or loss calculation results in a reimbursement to be made to us, we record that amount as revenue. If the joint profit or loss calculation results in a payment to be made by us, we record that amount as additional operating expense. Prior to commercialization, we recorded our share of the net reimbursement or payment from the joint profit or loss calculation in SG&A expense. For the three months and nine months ended September 30, 2004 our commercial costs related to BEXXAR therapeutic regimen are included in SG&A expenses. Cost associated with third party contract production of BEXXAR therapeutic regimen was approximately $7.0 million for the nine months ended September 30, 2004.

Asset Impairment

     In the third quarter of 2003 we subleased approximately 17,000 square feet of our leased facilities in South San Francisco. In accordance with SFAS No. 144, long-lived assets must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those long-lived assets might not be recoverable. Upon entering into the sublease agreements an estimate of the undiscounted future cash flows attributable to the subleases was performed and was determined to be less than the carrying amount of the intangible asset acquired lease, related leasehold improvements and furniture and fixtures. Because the carrying value exceeded the fair value, we recognized an impairment charge of $5.9 million in the third quarter of 2003 related to these assets.

Interest Income

     Our interest income was $559,000 for the three months ended September 30, 2004 compared with $954,000 for the same period in 2003. Our interest income was $2.4 million for the nine months ended September 30, 2004 compared with $2.5 million for the same period in 2003. The 2004 decrease compared with 2003 is due primarily to lower average investment balances during the first nine months of 2004.

Interest Expense

     Our interest expense was $1.8 million for the three months ended September 30, 2004 compared with $1.7 million for the same period in 2003. Our interest expense was $5.4 million for the nine months ended September 30, 2004 compared with $2.5 million for the same period in 2003. The 2004 increase compared to 2003 is due primarily to higher debt balances as a result of our convertible subordinated note financing completed in 2003.

Other (Loss) Income, Net

     Other loss, net was $31,000 for the three months September 30, 2003 compared with $866,000 for the same period in 2003. The 2004 decrease compared to 2003 is primarily due to a reclassification of sublet rental income to reduce rental expense of approximately $879,000. Other income, net was $9.9 million for the nine months ended September 30, 2004 compared with $31,000 for the same period in 2003. The other income for the nine months ended September 30, 2004, was attributable to a $20 million patent litigation settlement payment from Biogen Idec to us net of the portion of the settlement payable to other parties including a $9.9 million payment by us to GSK for their portion of the settlement.

Liquidity and Capital Resources

     At September 30, 2004, we had approximately $134.4 million in cash, cash equivalents and marketable securities as compared to approximately $192.0 million at December 31, 2003. Cash, cash equivalents and marketable securities include $1.9 million in certificates of deposit securing a financing agreement, $14.6 million that secures our loan with NDC, $2.2 million that secure letters of credit related to our leased properties in South San Francisco

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and a $4.5 million letter of credit that guarantees a portion of our obligations under a facilities lease agreement. 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 agency securities, with terms not exceeding four years.

     The following are contractual commitments at September 30, 2004 associated with debt obligations, lease obligations, credit lines and minimum purchase commitments (in thousands):

     Our contract with Nordion allows for termination after 2007 and accordingly, we have not included purchase commitments after that time. The purchase commitments to BI Pharma and Nordion are shared equally with GSK under our collaborative agreement for BEXXAR therapeutic regimen.

     Included in short-term obligations is a $15 million line of credit that was fully paid on October 3, 2004 in shares of our common stock. Additionally, short-term obligations include a $5 million loan from GSK that, provided we timely complete modifications to our MPL manufacturing facility, we may repay at our option in either cash or shares of our common stock.

     We believe that our existing capital resources together with committed payments under existing corporate partnerships, bank credit arrangements, equipment financing and interest income will be sufficient to fund our current and planned operations over at least the next 12 months.

     However, we intend to seek additional corporate partnerships, and may also seek additional funding through,

•

public or private equity financings, which could result in significant dilution to our stockholders;

•

public or private debt financings; and

•

additional capital lease transactions.

     Additional financing may be unavailable on acceptable terms, if at all. If we are unable to raise any additional capital as may be required, we may be forced to limit some or all of our research and development programs and related operations or curtail commercialization of our product or product candidates.

     Our future capital requirements will depend on many factors, including, among others:

•

successful commercialization of BEXXAR therapeutic regimen including sales and marketing expenses and cost of post-approval clinical trials;

•

the cost of building and maintaining a marketing and sales force;

•

the cost of marketing a product;

	•		the time and costs involved in expanding our MPL manufacturing capabilities;
	•		continued scientific progress in our discovery, research and product development programs;

•

the time and costs involved in in-licensing an additional late stage (Phase II or beyond) oncology product opportunity;

15

•

the potential need to develop, acquire or license new technologies necessary or useful to support our products and product candidates;

•

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 costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, and the cost of any judgment that may be enforced against us for legal fees or other costs of other parties to such claims; and

•

other factors not within our control.

Important Factors That May Affect Our Businesses, Our Results of Operations and 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 September 30, 2004, our accumulated deficit was approximately $1.2 billion, of which $679.4 million is attributable to the write-off of in-process research and development costs associated with our acquisitions, $221.2 million is attributable to goodwill-related charges and $18.5 million is attributable to lease-related impairment charges. We may incur substantial additional operating losses over at least 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 other product candidates and successfully manufacturing, marketing and selling 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. 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:

•

commercialize BEXXAR therapeutic regimen;

•

manufacture and supply our proprietary adjuvant to our commercial partners;

•

enter into corporate partnerships for product discovery, research, development and commercialization; and

•

obtain regulatory approvals for our product candidates.

     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, additional capital resources necessary to conduct our operations. If we are unable to raise additional capital as will be required, we will be forced to limit some or all of

16

our research and development programs and related operations or curtail commercialization of our product candidates. Our future capital requirements will depend on many factors, including:

•

commercialization of BEXXAR therapeutic regimen, including sales and marketing and costs of post-approval clinical trials;

•

the costs of building and maintaining a marketing and sales force;

•

the costs of marketing a product;

•

the time and costs involved in expanding our MPL manufacturing capabilities;

•

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 product 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 costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, and the cost of any judgment that may be enforced against us for legal fees or other costs of other parties to such claims;

•

the potential need to develop, acquire or license new technologies and products; and

•

other factors beyond our control.

     We believe that our existing capital resources, together with committed payments under existing corporate partnerships, bank credit arrangements, equipment financing and interest income, will be sufficient to fund our current and planned operations over at least the next 12 months. However, we intend to seek additional funding through corporate partnerships, and also may seek additional funding through:

•

public or private equity financings;

•

public or private debt financings; and

•

capital lease transactions.

     Additional financing may be unavailable on acceptable terms, if at all. If we are unable to raise any additional capital as may be required, we may be forced to limit some or all of our research and development programs and related operations or curtail commercialization of our products and product candidates.

Acceptance of BEXXAR therapeutic regimen in the marketplace is uncertain and failure to achieve market acceptance will limit our potential co-promotion revenue from sales of BEXXAR therapeutic regimen.

     BEXXAR therapeutic regimen requires the establishment of patient referrals between the physician and treatment center and involves significant coordination between the prescribing physician, the treatment center and the radiopharmacy. In addition, doctors that can potentially refer NHL patients to treatment centers to receive BEXXAR may prefer to treat such patients with conventional therapies, such as chemotherapy and non-radiolabeled biologics. If we cannot identify candidate patients and establish patient referrals to treatment centers, we may not be able to gain market share.

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     BEXXAR therapeutic regimen requires medical personnel at treatment sites to handle radioactive materials and requires patient-specific dosing calculations. Oncologists and hematologists are not typically licensed to administer radioimmunotherapies such as BEXXAR therapeutic regimen and will either need to engage a trained nuclear medicine physician or a radiation oncologist, or alternatively, receive specialty training to administer BEXXAR therapeutic regimen. In addition, radiopharmacists, nuclear medicine physicians, radiation oncologists may prefer alternative treatment options that do not involve (131) I radioisotope or patient-specific dosing.

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, acquiring or in-licensing alternative therapies to treat or prevent cancer and infectious 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.

     Biogen Idec’s product, Zevalin, received FDA approval for commercial sale in the United States in February 2002, approximately 16 months before BEXXAR therapeutic regimen received FDA approval. Zevalin has been approved and is being marketed for the treatment of certain types of NHL in the United States. In addition, in January 2004, the Committee for Proprietary Medicinal Products, a scientific committee that reviews drug product applications for the European Union, approved the commercial sales of Zevalin in Europe. Consequently, Biogen Idec could have a significant advantage over us in sales and marketing of products for the treatment of NHL in the United States and the European Union, and to date Zevalin sales have exceeded sales of BEXXAR therapeutic regimen in each quarter since approval of BEXXAR therapeutic regimen in the United States.

     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 of and market 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

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•

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.

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

     Following the approval of BEXXAR therapeutic regimen in June of 2003, we have built our direct sales force for BEXXAR therapeutic regimen. Our ability to market and sell BEXXAR therapeutic regimen will be contingent on the performance of our sales force, as well as performance by GSK under our BEXXAR therapeutic regimen collaboration agreement. Developing and maintaining an effective sales force will require a significant amount of our financial resources and time. We may be unable to manage an effective sales force in a timely or cost-effective manner, if at all, and our sales force may not be capable of generating sales of BEXXAR therapeutic regimen 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 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 inadequate or unavailable for BEXXAR therapeutic regimen, demand for, or prices of, BEXXAR therapeutic regimen may be limited and our revenues may be substantially reduced.

     The affordability to patients and customers of BEXXAR therapeutic regimen depends substantially on whether government health administration authorities, private health insurers, health maintenance organizations, pharmacy benefit management companies and other healthcare funders will reimburse most of the cost of the product to our customers. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products like BEXXAR therapeutic regimen because third-party payors have very little experience upon which to model pricing and reimbursement decisions. Although we have received notification from several major third-party payors that they plan to reimburse our customers for BEXXAR therapeutic regimen, including the Center for Medicare and Medicaid Services, which has published reimbursement codes specific to BEXXAR therapeutic regimen, in most cases we still do not know the degree to which such third-party payors will reimburse the cost of BEXXAR therapeutic regimen.

     In addition, federal and state governments in the United States, as well as foreign governments, continue to propose and pass new legislation designed to contain or reduce the costs of healthcare. Government cost-control initiatives could decrease the reimbursement for BEXXAR therapeutic regimen. For example, the U.S. Medicare program announced in December of 2003 that it is considering whether to cut reimbursement for certain off-label uses for BEXXAR therapeutic regimen. Inadequate reimbursement levels would reduce the demand for BEXXAR therapeutic regimen or could force us to reduce the price of BEXXAR therapeutic regimen to customers, or a combination of both. Reduced demand for BEXXAR therapeutic regimen, or reduced price, would limit our co-promotion revenues from BEXXAR therapeutic regimen.

We rely on single source manufacturing and we may be unable to consistently manufacture and supply BEXXAR therapeutic regimen for sale.

     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 Nordion is unable to consistently produce sufficient radiolabeled antibodies to meet our commercial requirements, our ability to market BEXXAR therapeutic regimen in the United States could be harmed.

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     BEXXAR therapeutic regimen 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 agreements with Nordion for radiolabeling the Tositumomab component of BEXXAR therapeutic regimen at Nordion’s centralized radiolabeling facility and for supplying the (131) I radioisotope, which Nordion gets from a single-source supplier. Under our agreements with Amersham Health, a subsidiary of Amersham plc. and ANSTO, Amersham Health and ANSTO are responsible for radiolabeling the European and Australasian supplies of the Tositumomab component of BEXXAR therapeutic regimen. In addition, 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, Amersham Health, ANSTO or another supplier could harm sales of BEXXAR therapeutic regimen in the United States and in other countries if and when it is approved for sale in such other countries. Nordion’s BEXXAR therapeutic regimen radiolabeling facility will be shutdown for approximately two weeks each year during November and/or December for routine preventative maintenance. This annual shutdown will be scheduled but we anticipate that it may have a negative impact on sales of BEXXAR therapeutic regimen during the period encompassing the shutdown.

     We have also 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.

If we are unable to establish or maintain distribution capabilities for BEXXAR therapeutic regimen, we may not successfully commercialize the product.

     The unique properties of BEXXAR therapeutic regimen 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 product supply. If we are unable to establish or maintain these capabilities, we may not be able to successfully commercialize the product. Due to its radioactive component, BEXXAR therapeutic regimen is shipped in shielded containers and must arrive at its destination within 24-48 hours after production. BEXXAR therapeutic regimen must also be temperature controlled during shipment. We rely on many third-party suppliers to process orders and to package, store and ship BEXXAR therapeutic regimen. We are working with suppliers to minimize risk and loss of inventory and to provide efficient service to customers. These third-party suppliers may be unable to handle BEXXAR therapeutic regimen in a manner that will minimize loss of or damage to inventory.

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

     We are at an early stage in the development of the majority of our product candidates. The development of safe and effective therapies for treating people with cancer and infectious 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.

     On June 30, 2003, we and GSK announced that the FDA had approved BEXXAR therapeutic regimen for the treatment of patients with CD20 positive, follicular, NHL, with and without transformation whose disease is refractory to Rituximab and has relapsed following chemotherapy. We also have an immunotherapeutic product that incorporates MPL that has been approved on a named-patient basis in Germany, Spain, Italy and the United Kingdom. In addition, we have received approval in Argentina to sell RC-529 adjuvant as part of a prophylactic vaccine for the prevention of Hepatitis B infection. RC-529 adjuvant is added to the product to heighten the immune response to the product’s antigens.

     We may not be successful in obtaining regulatory approval for any of our other product candidates. In addition, we may not successfully commercialize BEXXAR therapeutic regimen or any product candidates for which approval is obtained.

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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 approval 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 our product candidates could delay or prevent regulatory approval of the product candidate.

     Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. 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 could:

•

adversely affect the marketing of any products we develop;

•

impose significant additional costs on us;

•

diminish any competitive advantages that we may attain; and

•

adversely affect our ability to receive royalties and generate revenues and profits.

     For example, we filed our biologics license application, or BLA, for BEXXAR therapeutic regimen in June 1999 and did not receive regulatory approval for BEXXAR therapeutic regimen until June 27, 2003. We may not be successful in obtaining regulatory approval for any of our other product candidates, or in commercializing any product candidates for which approval has been or is in the future 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. For example, BEXXAR therapeutic regimen has only been approved for treatment of patients with CD20 positive, follicular, NHL, with and without transformation whose disease is refractory to Rituximab and has relapsed following chemotherapy. 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 current good manufacturing practice, or cGMP. Failure to comply with manufacturing regulations, or other FDA 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.

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

     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;

21

•

the number of clinical sites;

•

the eligibility criteria for the study;

•

the existence of competing clinical trials; and

•

the existence of alternative available products.

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 limited experience producing commercial quantities of any product or 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. Moreover, our manufacturing facilities must continually adhere to cGMP regulations enforced by the FDA through its facilities inspection program. If our facilities cannot pass a pre-approval plant inspection, the FDA approval of our product candidates that we manufacture in-house may be delayed or denied. In connection with our letter agreement with GSK regarding the supply of MPL that we announced on July 26, 2004, or the MPL Supply Agreement, we have determined to dedicate our Hamilton, Montana manufacturing facility to the manufacturing of MPL, including upgrading the facility and increasing output. If we are unsuccessful in increasing output, we may not be able to supply GSK the full guaranteed minimum amounts of MPL in later years. Dedicating the facility to MPL will also require us to out-source all other cGMP manufacturing to third party contract manufacturing organizations.

     If we are unable to manufacture, or have manufactured, our product candidates in accordance with cGMP 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 cGMP 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.

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 therapeutic regimen requires the handling, use and disposal of (131) I radioisotope, 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 therapeutic regimen. 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.

     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

22

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

•

breach or termination of our agreements to supply product candidates to third parties may result.

     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 unless we are able to successfully commercialize BEXXAR therapeutic regimen or obtain approval for and successfully commercialize other 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 prophylactic product sales. We cannot predict when, if ever, our research and development programs will result in any additional commercially available immunotherapeutic products. We do not know when, if ever, we will receive any significant revenue from commercial sales of our approved products or any other of our product candidates that may be approved for sale in the future.

     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.

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

     Under our collaborative agreement for BEXXAR therapeutic regimen with GSK, GSK provided us with a $15 million credit line that was fully drawn by Coulter in December 2000 and which we are electing to repay with 3,482,433 shares of our common stock that are covered by a registration statement on Form S-3 filed with the SEC on October 4, 2004. Under a different collaborative agreement with GSK, we have an outstanding loan from GSK in the principal amount of $5 million. In connection with the MPL Supply Agreement with GSK that we announced on July 26, 2004, GSK agreed that we may elect to repay this loan in either cash or shares of our common stock. Should

23

we elect to repay the loan using our common stock, the price of the stock will be calculated as the average per share closing price of our common stock on The Nasdaq National Market as reported in the Wall Street Journal for the 30 day trading period immediately preceding but not including the effective date of the MPL Supply Agreement. Under the MPL Supply Agreement with GSK, we and GSK will agree on a date by which Corixa will make certain modifications to our MPL manufacturing facility. If we have not completed the modifications by 120 days after the agreed date, the loan must be repaid in cash not more than 15 days later.

     We have outstanding $100 million aggregate principal amount of convertible notes due in 2008. The holders of these notes have the option of converting the principal and unpaid interest on the notes, at any time prior to the maturity date, into common stock at a fixed conversion rate of $9.175 per share. If the notes were converted in full, 10,899,180 shares of our common stock would be issued to the noteholders; this issuance would have a dilutive effect on the ownership percentage of our existing stockholders.

     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. In addition, in June 2003, as part of a private placement of approximately 3.7 million shares of our common stock, we issued warrants to purchase approximately 670,000 shares of our common stock at an exercise price of $8.044 per share to institutional 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 upon exercise of warrants or conversion of convertible notes, 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 an assignment agreement between Coulter, Beckman Coulter, Inc., InterWest Partners V, L.P. and InterWest Investors V, relating to portions of the technology underlying BEXXAR therapeutic regimen, Beckman Coulter, Inc. is entitled to receive the first $4.5 million of royalties upon commercial sale of BEXXAR therapeutic regimen, if any, that would otherwise have been due to Dana-Farber Cancer Institute, or DFCI, under the licenses that were sublicensed to Coulter; thereafter, any such royalties shall be payable to DFCI. 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.

     The issuance of additional stock under these agreements, as dividends on our preferred stock or pursuant to other transactions, 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 shares of common stock.

We have a significant amount of debt, which could adversely affect our financial condition.

     We have outstanding $100 million aggregate principal amount of convertible notes bearing interest at 4.25% and due in 2008 and as of September 30, 2004, we had outstanding loans to BNP Paribas, GE Capital and NDC totaling $24.1 million, which constitute a significant amount of debt and debt service obligations. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on such debt, including from cash and cash equivalents on hand, we will be in default under the terms of the loan agreements, or indentures, which could, in turn, cause defaults under our other existing and future debt obligations. This debt also could have a negative effect on our earnings per share, depending on the rate of interest we earn on cash balances.

     Even if we are able to meet our debt service obligations, the amount of debt we have could adversely affect us in a number of ways, including by:

24

•

limiting our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes;

•

limiting our flexibility in planning for, or reacting to, changes in our business;

•

placing us at a competitive disadvantage relative to our competitors who have lower levels of debt;

•

making us more vulnerable to a downturn in our business or the economy generally; or

•

requiring us to use a substantial portion of our cash to pay principal and interest on our debt, instead of contributing those funds to other purposes such as working capital and capital expenditures.

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 90% of our revenue from research and development and other funding under our existing corporate partnerships for the three months ended September 30, 2004. For the years ended December 31, 2003, 2002 and 2001, approximately 95% of our revenue resulted from collaboration agreements. If our corporate partnerships are unsuccessful or if we are unable to establish corporate partnerships, we may be prevented from commercializing our products or product candidates or effectively partnering our products or 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 therapeutic regimen in the United States;

•

a license and supply agreement with GSK Canada to commercialize BEXXAR therapeutic regimen in Canada;

•

a license and supply agreement with ANSTO to develop, market and sell BEXXAR therapeutic regimen in certain countries within Australasia, including Australia, New Zealand, Singapore, India, Indonesia and China;

•

a corporate partnership with Amersham Health to develop and commercialize BEXXAR therapeutic regimen in Europe;

•

several license and supply agreements with GSK, which grant GSK licenses to MPL and several other adjuvants for use in vaccines for infectious diseases, cancers and allergies that GSK is developing, and which provide for GSK purchasing minimum quantities of MPL through 2012;

•

a corporate partnership with Kirin for potential WT-1 cancer vaccine products for the treatment of 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 treating lung cancer;
	•		corporate partnerships with GSK that provides for vaccine development of breast and prostate cancer vaccines, vaccine discovery and development for tuberculosis, and vaccine discovery programs for two chronic infectious pathogens, Chlamydia trachomatis and Chlamydia pneumonia; and

25

•

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.

     Management of our relationships with our corporate partners requires:

•

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 therapeutic regimen in the United States, Amersham Health for marketing BEXXAR therapeutic regimen in Europe and GSK Canada for marketing BEXXAR therapeutic regimen in Canada contain milestone-based termination provisions pursuant to which our partners may terminate the agreement if we fail to meet specified development or regulatory milestones. In addition, all of these license agreements, and most of our other license agreements, may be terminated by our partners 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 DFCI for the use of the anti-B1 antibody used in BEXXAR therapeutic regimen; and
	•		a license with the University of Michigan related to using anti-CD20 antibodies in radioimmunotherapy of Lymphoma.

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     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 or face competition from other parties that may obtain licenses to the same technologies.

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. 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. However, if we fail to obtain and maintain patent protection for our proprietary technology, inventions and improvements, our competitors could develop and commercialize products that would otherwise infringe our patents.

     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;

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the claims of any patents that issue may not provide meaningful protection;

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we may be unable to develop additional proprietary technologies that are patentable;

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the patents licensed or issued to us may not provide a competitive advantage;

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other parties may challenge patents licensed or issued to us;

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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 parties may design around our patented technologies.

     We have licensed several patent applications from Southern Research Institute, or 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.

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 parties 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, CORIXA and MPL are currently the subject of opposition proceedings 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 these opposition proceedings. As a result, we may not receive trademark protection for CORIXA and MPL in Europe.

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

     We may incur substantial expenses as a result of litigation, interferences, opposition proceedings and other administrative proceedings in which we are or may become involved 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. As a result, an adverse determination could have a materially adverse effect on our business, financial condition and operating results.

     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:

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defend against third-party claims of infringement;

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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;

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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 commercialization of any acquired technologies;

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impairment of relationships with key customers of acquired businesses due to changes in management and ownership;

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inability to retain key employees of acquired businesses; and

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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 therapeutic regimen. As a result of our acquisition of Coulter, we acquired direct sales and marketing personnel in preparation for the launch of BEXXAR therapeutic regimen. In an effort to minimize expenses during the delay in the FDA review of BEXXAR therapeutic regimen, 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 therapeutic regimen BLA. As a result, goodwill and other intangibles were re-evaluated and we recognized a $161.1 million goodwill impairment charge. BEXXAR therapeutic regimen may not be successful in the marketplace, 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.

Our stock price could be very volatile and shares of our common stock 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:

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announcements regarding the results of discovery efforts and preclinical and clinical activities by us or our competitors;

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progress or delay of our or our competitors’ regulatory approvals;

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announcements regarding the acquisition of technologies or companies by us or our competitors;

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changes in our existing corporate partnerships or licensing arrangements;

•

establishment of additional corporate partnerships or licensing arrangements by us or our competitors;

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technological innovations or new commercial products developed by us or our competitors;

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changes in our or our competitors’ intellectual property portfolio;

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developments or disputes concerning our or our competitors’ proprietary rights;

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issuance of new or changed securities analysts’ reports and their recommendations regarding us or our competitors;

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changes in government regulations;

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economic and other external factors;

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additions or departures of any of our key personnel;

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operating losses by us; and

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actual or anticipated fluctuations in our quarterly financial and operating results and degree of trading liquidity in our common stock.

     Since the beginning of 2002 through November 2, 2004, our common stock traded as high as $15.84 and as low as $3.26. The last reported sales price of our common stock on November 2, 2004 was $3.81. If our stock price remains at current levels, we may be unable to raise additional capital on acceptable terms. 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 and infectious 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. In addition, 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;

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eliminate cumulative voting in the election of directors;

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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 an “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 an “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.

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. There have been no material changes in the reported market risks since December 31, 2003.

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-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this quarterly report, have concluded that as of that date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in this report that we file or submit under the Exchange Act is accumulated and communicated by our management, to allow timely decisions regarding required disclosure.

     There were no significant changes in our internal controls during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal controls.

PART II. OTHER INFORMATION

Item 6. Exhibits

(a) See Index to Exhibits.

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SIGNATURE

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

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EXHIBIT INDEX

*		Confidential treatment has been requested for portions of this exhibit; the omitted material has been separately filed with the Securities and Exchange Commission.
(A)		Incorporated herein by reference to Corixa’s Form 10-K for the year ended December 31, 2003 (File No. 000-22891), filed with the Securities and Exchange Commission on March 9, 2004.

(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.

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(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.
(G)		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.
(H)		Incorporated herein by reference to Corixa’s Form 8-K (File No. 0-22891), filed with the Securities and Exchange Commission on June 18, 2003.
(I)		Incorporated herein by reference to Corixa’s Form 8-K (File No. 0-22891), filed with the Securities and Exchange Commission on September 24, 2004.
†		Filed herewith.

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