UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2005

OR

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

For the transition period from     to

Commission file number 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 þ No o

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

Yes þ No o

     As of May 5, 2005 there were approximately 59,650,085 shares of the Registrant’s common stock outstanding.

TABLE OF CONTENTS
CORIXA CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 2005
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.

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CORIXA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

     We are a developer of innovative immunotherapeutic products that regulate innate immune responses. These products include:

	§	Vaccine Adjuvants – compounds or additives that, when combined with a vaccine, boost the body’s immune response to antigens contained in the vaccine; and
	§	TLR4 agonists and antagonists – compounds that interact with a type of cell surface receptor that recognizes distinct molecular signatures presented by invading pathogens and generate an immune response. These responses may be useful in the prevention and/or therapy of many conditions, including seasonal allergic rhinitis, broad infection prevention, chronic obstructive pulmonary disease and inflammatory conditions.

     We are a product development company with multiple product candidates, many in late-stage human clinical trials.

     We have reclassified amounts related to BEXXAR therapeutic regimen operations from approval (in June 2003) through March 31, 2005 to discontinued operations in connection with the transfer of those operations to GSK in December 2004.

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, 2004 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, 2004, 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 2 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 agencies with terms not exceeding 4 years. Such securities are stated at fair value, with the unrealized gains and losses reflected in stockholders’ equity. Interest earned on securities is included in interest income. The amortized cost of investments is adjusted for amortization of premiums and accretion of discounts to

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maturity. Such amortization and accretions are included in interest income. The cost of securities sold is calculated using the specific identification method.

     We regularly review the value of our investments. If the value of any of our investments falls below our cost basis in the investment, we analyze the decrease to determine whether it is an other-than-temporary decline in value. To make this determination for each security, we consider:

	•	how long and by how much the fair value has been below its cost;
	•	the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operation or earning potential;
	•	our intent and ability to keep the security long enough for it to recover its value;
	•	any downgrades of the security by a rating agency; and
	•	any reductions or eliminations of dividends, or non-payment of scheduled interest payments.

     Based on our analysis, we make a judgment as to whether the loss is other-than-temporary. If the loss is other-than-temporary, we record an impairment charge within interest income in our Consolidated Statements of Operations in the period that we make the determination.

     At March 31, 2005, securities available-for-sale included a certificate of deposit of $938,000 that secures a financing agreement, $14.6 million that secures our loan with NDC New Markets Investments IV, L.P., or NDC, $2.0 million that secures a letter of credit related to our leased properties in South San Francisco and a $5.3 million letter of credit that guarantees a portion of our obligations under a Seattle facilities lease agreement. In addition, deferred charges, deposits and other assets include a $3.5 million deposit that secures our obligations under the GE Capital loans.

Certain Concentrations

     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.

     We sell products to and record collaborative revenue from a limited number of pharmaceutical and biotechnology companies without requiring collateral. We periodically assess the financial strength of these customers and establish allowances for anticipated losses when necessary. As of March 31, 2005 accounts receivable included two customers that each accounted for 51% and 17% of accounts receivables respectively.

Inventories

     Inventories are stated at the lower of cost or market. Cost is determined using a standard costing approach, which approximates actual cost. If inventory costs exceed expected market value due to obsolescence, expected expiration or lack of demand, reserves are recorded for the difference between the cost and the market value. Inventories are included on the balance sheet in prepaid expenses and other current assets.

Impairment of Long-Lived Assets

     Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reports at the lower of carrying amount or fair value less cost to sell.

Revenue Recognition

     We generate revenue from technology licenses, adjuvant supply agreements, collaborative research and

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development arrangements, cost reimbursement contracts, and sales of research reagents. Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or guaranteed technology license fees, collaborative research funding, technology access fees, and various milestone and future product royalty or profit-sharing payments. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Payments received in advance of recognition as revenue are recorded as deferred 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 respective agreements, generally the research and development period. Revenue from substantive at-risk milestones and future product royalties is recognized upon completion of the milestones and adjuvant sales, as defined in the respective agreements. Revenue under cost reimbursement contracts is recognized as the related costs are incurred. Revenue from adjuvant sales is recognized upon customer acceptance of the product.

     We recognized 64% and 77% of our revenue from collaborative partners during the three months ended March 31, 2005 and March 31, 2004, respectively.

Stock-Based Compensation

     We have adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, or SFAS 123, and apply Accounting Principles Board Opinion No. 25, “Accounting for Stock issued to Employees”, or APB 25, and related interpretations in accounting for our stock option plans. Accordingly, our employee stock-based compensation expense is recognized based on the intrinsic value of the option on the date of grant.

     At March 31, 2005, we had two stock-based employee compensation plans under which we grant options and issue shares of stock. No stock-based employee compensation cost, other than compensation associated with options assumed in acquisitions, is reflected in net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if we had applied the fair value recognition of SFAS 123 to stock-based employee compensation.

     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.

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     During the three months ended March 31, 2005, approximately 11,000 common stock options were exercised. The weighted average fair value of common stock options granted for the three months ended March 31, 2005 was $3.64.

New Accounting Pronouncements

     On December 16, 2004, the FASB issued FAS 123R, “Share-Based Payment — An Amendment of FASB Statements No. 123 and 95”, (FAS 123R), which is effective for public companies no later than the beginning of the first fiscal year beginning after June 15, 2005. We will be required to implement the new standard no later than January 1, 2006. The cumulative effect of adoption, if any, applied on a modified prospective basis, would be measured and recognized on January 1, 2006. FAS 123R addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R would eliminate the ability to account for share-based compensation transactions using APB 25, and generally would require instead that such transactions be accounted for using a fair-value based method. Companies will be required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. We are currently evaluating option valuation methodologies and assumptions of FAS 123R related to employee stock options. Current estimates of option values using the Black-Scholes method may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

Reclassifications

     Certain reclassifications have been made to the prior year’s financial statements to conform to the 2005 presentation. Product sales, restructuring and manufacturing cost have been reclassified on the statement of operations as separate line items.

2. Comprehensive Loss

     For the three months ended March 31, 2005 and March 31, 2004, our comprehensive loss was as follows (in thousands):

3. Discontinued operations

     On December 31, 2004, we transferred to SmithKline Beecham Corporation (doing business as GlaxoSmithKline), or GSK, all of our rights and responsibilities, costs and certain assets associated with commercial and clinical development of BEXXAR therapeutic regimen on a worldwide basis. In return, GSK agreed to pay us development and sales milestones and royalties based on sales of BEXXAR therapeutic regimen in the United States, Canada and Australasia. We and GSK continue to equally share royalties on Zevalin sales according to the terms of the previous patent litigation settlement with Biogen Idec.

     We have reclassified amounts related to BEXXAR therapeutic regimen operations from approval in June 2003 through March 31, 2005 to discontinued operations in our statement of operations because:

•

we will not continue any of the revenue-producing or cost-generating activities related to BEXXAR therapeutic regimen subsequent to the disposal. The cash flows related to the development and sales

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		milestones and royalties are indirect cash flows as they are not part of the operating activities related to BEXXAR therapeutic regimen; and
	•	we will have no involvement in BEXXAR therapeutic regimen operations and no ability to influence operating policies or decisions.

     Discontinued operations for the quarters ended March 31, 2005 and March 31, 2004 include BEXXAR therapeutic regimen clinical reimbursement revenue and the cost of all commercial and development activities with separately identifiable cash flows that will no longer be present in the ongoing entity subsequent to the disposal. The following table includes the amounts classified as discontinued operations:

4. 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.

5. Subsequent Events

     On April 29, 2005, we signed a definitive merger agreement with GSK under which GSK has agreed to acquire us. Under the terms of the agreement, GSK will pay $4.40 in cash for each share of our common stock, or common stock equivalent, or approximately $300 million. GSK will assume our outstanding convertible notes, and after the transaction, the holders of these notes will have the right to cause GSK to redeem the notes for par plus accrued interest. Closing of this transaction is subject to customary conditions, including Hart-Scott-Rodino clearance and the approval of our stockholders.

     On May 3, 2005, a holder of our common stock on behalf of herself and purportedly on behalf of a class of our stockholders, filed an action in the Court of Chancery of the state of Delaware against us, our board of directors and GSK, seeking, among other things, to potentially enjoin us from consummating the proposed merger with GSK and seeking rescissory and compensatory damages if the proposed transaction is consummated.

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:

	•	statements about the expected closing of the acquisition by GSK;
	•	statements about the expected effect of the pending acquisition of Corixa by GSK on our business;
	•	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 revenue;
	•	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. There were no changes to our critical accounting policies during the three months ended March 31, 2005. 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, 2004, 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 applicable agreement, generally over 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 that regulate innate immune responses. These products include:

	§	Vaccine Adjuvants – compounds or additives that, when combined with a vaccine, boost the body’s immune response to antigens contained in the vaccine; and
	§	TLR4 agonists and antagonists – compounds that interact with a type of cell surface receptor that recognizes distinct molecular signatures presented by invading pathogens and generate an immune

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response. These responses may be useful in the prevention and/or therapy of many conditions, including seasonal allergic rhinitis, broad infection prevention, chronic obstructive pulmonary disease and inflammatory conditions.

     We are a product development company with multiple product candidates, many in late-stage human clinical trials.

     On April 29, 2005, we signed a definitive merger agreement with GSK under which GSK has agreed to acquire us. Under the terms of the agreement, GSK will pay $4.40 in cash for each share of our common stock, or common stock equivalent, or approximately $300 million. GSK will assume our outstanding convertible notes, and after the transaction, the holders of these notes will have the right to cause GSK to redeem the notes for par plus accrued interest. Closing of this transaction is subject to customary conditions, including Hart-Scott-Rodino clearance and the approval of our stockholders.

     On December 31, 2004, we transferred to GSK all worldwide rights and responsibilities related to the manufacturing, development and commercialization of the BEXXAR therapeutic regimen. According to the agreement we continue to receive development and sales milestones and royalties based on sales of BEXXAR therapeutic regimen in the United States, Canada and Australasia. We and GSK continue to equally share royalties on Zevalin sales according to the terms of the previous patent litigation settlement with Biogen Idec. We have recorded our BEXXAR therapeutic regimen activities as a discontinued operation in our statement of operations as discussed in Note 3 of Notes to Unaudited Consolidated Financial Statements.

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

     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 is recognized upon completion of the milestones and future product royalties are recognized when earned, as defined in the respective agreements. Revenue under cost reimbursement contracts is recognized as the related costs are incurred. Revenue from adjuvant sales is recognized upon customer acceptance of the product. Payments received in advance of recognition as revenue are recorded as deferred revenue.

     Revenue from collaborative agreements was 64% and 77% of total revenue for the three months ended March 31, 2005 and March 31, 2004 respectively. Revenue from product sales was 22% and 10% for the three months ended March 31, 2005 and March 31, 2004, respectively. Revenue from government grants and contracts was 14% and 13% of total revenue for the March 31, 2005 and March 31, 2004, respectively. As of March 31, 2005, we had total stockholders’ equity of $7.7 million.

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     Our significant collaborative agreements that provided us with funding during the first quarter of 2005 include the following:

	•	a license agreement with GenProbe, under which we granted GenProbe an exclusive worldwide license to develop molecular diagnostic test for genetic markers in the area of prostate, ovarian, cervical, kidney, lung and colon cancer;
	•	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;
	•	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
	•	two license and supply agreements with Wyeth, granting Wyeth licenses to certain adjuvants for use in vaccines for certain infectious disease fields that Wyeth is developing.

     As of March 31, 2005, our accumulated deficit was approximately $1.3 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 $21.1 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 for any of those research programs that we continue. 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 our 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

     We have reclassified amounts related to BEXXAR therapeutic regimen operations from approval (in June 2003) through March 31, 2005 to discontinued operations.

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Three Months Ended March 31, 2005 and March 31, 2004

Total Revenue

     Our revenue was $7.2 million for the three months ended March 31, 2005 compared to $6.0 million for the same period in 2004. The 2005 increase compared to 2004 is due primarily to revenue received from our license agreement with Gen-Probe, Inc., or Gen-Probe, of $1.6 million and increased product sales of $1.0 million. These increases were partially offset by decreased revenue from the anticipated expiration of the funded research phases of certain of our collaborative agreements, including our vaccine development agreement with GSK and our collaborative agreement with Beaufour Ipsen related to our proprietary ANERGIX vaccine platform.

     Product sales consist primarily of sales of adjuvants manufactured in our Montana facility.

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

Research and Development

     Our research and development expenses were $14.1 million for the three months ended March 31, 2005 compared to $16.7 million for the same period in 2004. The 2005 decrease compared with 2004 is due primarily to reduced early stage research and development expense of $2.6 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 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 number of research projects we have ongoing at any one time, and the ability to utilize resources across several projects, our research and development costs are not directly tied to any individual project and are allocated among multiple projects. We manage our projects by reviewing scientific data and by supplementing this data with our cost allocations. Our cost allocations are based primarily on human resource time incurred on each project. The costs allocated to a project as a result do not necessarily reflect the actual costs of the project. Accordingly, we do not maintain actual cost incurred information for our projects on a project-by-project basis. Costs attributed to research and preclinical projects largely represent our pipeline generating activities. Costs associated with clinical development programs represent the advancement of these activities into product candidates.

     Most of our product development programs are at an early stage and may not result in any approved products. Product candidates that may appear promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to pass through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. Furthermore, as part of our business strategy, we may enter into collaborative arrangements with third parties to complete the development and commercialization of our product candidates and it is uncertain which of our product candidates would be subject to future collaborative arrangements. The participation of a collaborative partner may accelerate the time to completion and reduce the cost to us of a product candidate or it may delay the time and increase the cost to us due to the alteration of our existing strategy. The risks and uncertainties associated

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with our research and development projects are discussed more fully in the section of this report titled “Important Factors That May Affect Our Businesses, 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.

     We expect research and development costs to fluctuate as we continue to develop a pipeline of potential products.

Sales, General and Administrative

     Our sales, general and administrative expenses, or SG&A expenses, were $2.3 million for the three months ended March 31, 2005 compared to $2.4 million for the same period in 2004. We expect SG&A expenses to fluctuate in the future.

Interest Income

     Our interest income was $563,000 for the three months ended March 31, 2005 compared with $955,000 for the same period in 2004. The 2005 decrease compared with 2004 is due primarily to lower average investment balances during the first three months of 2005.

Interest Expense

     Our interest expense was $1.4 million for the three months ended March 31, 2005 compared with $1.8 million for the same period in 2004. The 2005 decrease compared to 2004 is due primarily to lower debt balances.

Loss from Discontinued operations

     Our loss from discontinued operations was $901,000 for the three months ended March 31, 2005 compared to $6.4 million for the same period in 2004. We have recorded our BEXXAR therapeutic regimen activities as a discontinued operation in our statement of operations. Discontinued operations include clinical reimbursement revenue and the cost of all commercial activities with separately identified cash flows from the date of approval (in June 2003) through the date of disposition that will no longer be present in the ongoing entity subsequent to disposal.

Liquidity and Capital Resources

     At March 31, 2005, we had approximately $99.4 million in cash, cash equivalents and marketable securities as compared to approximately $116.2 million at December 31, 2004. Cash, cash equivalents and marketable securities includes $22.7 million that is restricted as to its use. 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.

     We believe that our existing capital resources, together with committed payments under our existing corporate partnerships, bank credit agreements, equipment financing and interest income will be sufficient to fund our current and planned operations over at least the next 18 months. However, if the transaction with GSK is not consummated, we intend to seek additional corporate partnerships, and also may seek additional funding through:

	•	public or private equity financings, which could result in significant dilution to our stockholders;
	•	public or private debt financings; and
	•	capital lease transactions.

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

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     If the transaction with GSK is not consummated, our future capital requirements will depend on many factors, including, among others:

	•	the time and costs involved in expanding our MPL adjuvant manufacturing capabilities;
	•	continued scientific progress in our discovery, research and product development programs;
	•	progress with preclinical studies and clinical trials;
	•	the ability of our partners to commercialize products containing technology we developed, including vaccines containing our MPL and RC-529 adjuvants;
	•	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;
	•	the potential need to develop, acquire or license new technologies and products; and
	•	other factors beyond our control.

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

Our business and results of operations are likely to be affected by our proposed merger with GSK.

     On April 29, 2005, we signed a definitive merger agreement with GSK, under which GSK has agreed to acquire us. The announcement of the merger could have an adverse effect on our business in the near term if current collaborative partners curtail their relationships with us pending consummation of the proposed merger. Activities relating to the proposed merger and related uncertainties could divert our management’s and our employees’ attention from our day-to-day business, cause disruptions among our relationships with customers and business partners, and cause employees to seek alternative employment, all of which could detract from our ability to grow revenue and minimize costs. In addition, we may be disadvantaged in our attempts to attract and retain personnel by our announcement of the proposed merger. The success of our business depends on our continued ability to attract and retain highly qualified management, scientific and manufacturing personnel. Competition for personnel among companies in the biotechnology and pharmaceutical industries is intense. If we are unable to attract and retain key employees and consultants, our business could be harmed. We have taken steps to alleviate the effect of the proposed merger on our hiring and retention efforts; however, we may be unable to attract and retain the personnel necessary to support the growth of our business.

If the conditions to the proposed merger with GSK set forth in the merger agreement are not met, the merger with GSK may not occur.

     Several conditions must be satisfied to complete the proposed merger with GSK. These conditions are set forth in detail in the merger agreement, which was filed with the SEC on May 2, 2005. We cannot assure you that each of the conditions will be satisfied. If the conditions are not satisfied or waived, the proposed merger will not occur or will be delayed, and we may lose some or all of the benefits of the proposed merger. For example, if either our or GSK’s representations and warranties are not true and correct and, with some exceptions, the failure to be true and correct has a material adverse effect at the closing, the other party may not be required to close.

     On May 3, 2005, a holder of our common stock on behalf of herself and purportedly on behalf of a class of our stockholders, filed an action in the Court of Chancery of the state of Delaware against us, our board of directors and GSK, seeking, among other things, to potentially enjoin us from consummating the proposed merger with GSK and seeking rescissory and compensatory damages if the proposed transaction is consummated. If the plaintiffs are successful in obtaining an injunction or if this litigation has a material adverse effect on Corixa, we may not be able to consummate the acquisition by GSK.

Failure to complete the proposed merger with GSK would negatively affect our future business and operations.

     If the proposed merger with GSK is not completed, we could suffer a number of consequences that may adversely affect our business, operating results of operations and stock price, including the following:

	•	activities relating to the proposed merger and related uncertainties may lead to a loss of revenue and progress with existing and potential corporate partners that we may not be able to regain if the proposed merger does not occur;
	•	the market price of our common stock could significantly decline following an announcement that the proposed merger has been abandoned;
	•	we may be required in specific circumstances to pay a termination fee of $10 million to GSK;
	•	we would remain liable for our costs related to the proposed merger;
	•	we may not be able to continue our present level of operations and therefore would have to scale back our present level of business and consider additional reductions in force;
	•	We may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and

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•

our board of directors may not be able to find another partner willing to pay an equivalent or more attractive price for another merger or business combination than that which would have been paid in the merger with GSK.

     In connection with the proposed merger, we intend to file a proxy statement with the SEC in connection with the special meeting of stockholders that we will hold for the stockholders to vote on the proposed merger. The proxy statement will be mailed to all holders of our stock and contains important information about us, GSK and the proposed merger, risks relating to the proposed merger and the combined company, and related matters. We urge all of our stockholders to read this proxy statement.

We are changing the focus and scale of our manufacturing efforts and may encounter problems or delays that could result in lost revenue.

     In connection with our agreement with GSK regarding the supply of MPL adjuvant 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 adjuvant, 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 adjuvant in later years, which may result in transfer of manufacturing to GSK and a related decrease in royalties payable to us by GSK on GSK’s vaccines that include our MPL adjuvant.

     Our manufacturing facilities must continually adhere to current good manufacturing practice, or cGMP, regulations enforced by the Food and Drug Administration, or FDA, and other regulatory agencies through their facilities inspection programs. If our existing or expanded facilities cannot pass a pre-approval or subsequent plant inspection, FDA approval or regulatory approval outside of the United States of our partners’ vaccine candidates may be delayed or denied. The consequent lack of supply of MPL adjuvant could delay our partners’ clinical programs, limit sales of commercial products that contain MPL adjuvant or result in the breach or termination of our agreements to supply MPL adjuvant to partners.

     Dedicating the facility to production of MPL adjuvant will also require us to out-source all other cGMP manufacturing to third-party contract manufacturing organizations. We intend to rely on third-party contract manufacturers to produce cGMP-grade RC-529 adjuvant and TLR4 agonists and antagonists for clinical trials and product commercialization. Either we or our contract manufacturers may be unable to manufacture these 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 or our partners’ 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 and other regulatory agencies through their facilities inspection programs. If the facilities of those manufacturers cannot pass a pre-approval plant inspection, the regulatory approval of our product candidates may be delayed or denied.

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

     We have experienced significant operating losses in each year since our inception on September 8, 1994. As of March 31, 2005, our accumulated deficit was approximately $1.3 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 $21.1 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, development and manufacturing programs and the purchase of technology. 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 and research grants. Our ability to achieve a consistent, profitable level of operations depends in large part on the manufacture and supply of our MPL adjuvant to GSK, 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

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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:

	•	manufacture and supply our proprietary adjuvants 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 our research and development programs and related operations or curtail commercialization of our product candidates. If the transaction with GSK is not consummated, our future capital requirements will depend on many factors, including:

	•	the time and costs involved in expanding our MPL adjuvant manufacturing capabilities;
	•	continued scientific progress in our discovery, research and product development programs;
	•	progress with preclinical studies and clinical trials;
	•	the ability of our partners to commercialize products containing technology we developed, including BEXXAR therapeutic regimen and vaccines containing our MPL and RC-529 adjuvants;
	•	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 adjuvant supply contracts and 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 18 months. If the transaction with GSK is not consummated, 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.

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     Additional financing may be unavailable on acceptable terms, if at all. If the transaction with GSK is not consummated and 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.

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.

     In December 2004, we transferred BEXXAR therapeutic regimen and substantially all of our assets related to BEXXAR therapeutic regimen to GSK in exchange for contingent royalty and milestone payments. BEXXAR therapeutic regimen was our primary approved product and after this sale, we are at an early stage in the development of the majority of our remaining product candidates. Three of our partners’ vaccine products that contain our adjuvants have been approved for sale: Berna Biotech’s prophylactic vaccine for the prevention of Hepatitis B infection contains our synthetic RC-529 adjuvant and has been approved for sale in Argentina, Allergy Therapeutic Ltd.’s, or ATL’s, allergy vaccine contains our MPL adjuvant and has been approved for sale on a named patient basis only in Germany, Spain, Italy and the United Kingdom, and GSK’s Fendrix prophylactic vaccine designed to prevent infection from Hepatitis B in high-risk groups such as pre-haemodialysis and haemodialysis patients contains our MPL adjuvant and has been approved for sale in the European Union. Other than these products, we have no existing approved products, and we may be unable to commercialize any additional products.

     Development of therapeutic and prophylactic immunology-based products is subject to risks of failure inherent in their development or commercial viability. Also, physicians, patients or the medical community generally may not accept or utilize any products that may be developed by our corporate partners or us. These risks include the possibility that any such products may:

	•	be found unsafe or cause harmful side effects during clinical trials;
	•	be found to be ineffective;
	•	take longer to progress through clinical trials than had been anticipated;
	•	fail to receive necessary regulatory approvals;
	•	be difficult or impossible to manufacture in commercial quantities at reasonable cost and with acceptable quality;
	•	be uneconomical to market;
	•	fail to be developed prior to the successful marketing of similar products by competitors;
	•	be impossible to market because they infringe on the proprietary rights of third parties or compete with products marketed by third parties that are superior;
	•	not be as effective as alternative treatment methods;
	•	not qualify for reimbursement from government and third-party payors; and
	•	fail to achieve market acceptance.

     Any products successfully developed by us or our corporate partners, if approved for marketing, may never achieve market acceptance. Such products will compete with products manufactured and marketed by other major pharmaceutical and other biotechnology companies. If we do not successfully develop and market our products, either alone or with our corporate partners, we will not generate revenue and our business will suffer.

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 March 31, 2005, we had outstanding loans to BNP Paribas, GE Capital and NDC New Markets Investments IV, L.P. totaling $21.7 million, which constitute a significant amount of debt and debt service obligations. If the transaction with GSK is not consummated and 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:

	•	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 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.

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     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 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;
	•	the claims of any patents that issue may not provide meaningful protection;
	•	we may be unable to develop additional proprietary technologies that are patentable;
	•	the patents licensed or issued to us may not provide a competitive advantage;
	•	other parties may challenge patents licensed or issued to us;
	•	disputes may arise regarding the invention and corresponding ownership rights in inventions and know-how resulting from the joint creation or use of intellectual property by us, our licensors, corporate partners and other scientific collaborators; and
	•	other 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 complete patient enrollment for our clinical trials on a timely basis, the development and commercialization of our product candidates will be delayed and, as a result, our business may be harmed.

     If we are unable to enroll patients in our clinical trials in sufficient numbers and on a timely basis, completion of these trials and approval of our product candidates will be delayed. 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;

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	•	the design of the trial;
	•	the proximity of patients to the clinical sites;
	•	the number of clinical sites;
	•	the eligibility criteria for the study;
	•	the availability of investigational agents;
	•	the existence of competing clinical trials; and
	•	the existence of alternative available products.

     Delays in patient enrollment can result in increased costs and longer development times. In addition, subjects may drop out of our clinical trials, and thereby impair the validity or statistical significance of the trials.

Our sale of BEXXAR therapeutic regimen and related assets and the subsequent restructuring of our business may prove unsuccessful.

     As a result of our sale of BEXXAR therapeutic regimen and related assets, we have shifted the focus of our business toward the manufacture and supply of our adjuvant products and toward research and product development of TLR4 agonists and antagonists. As a part of the related restructuring, we intend to eliminate other oncology-related product development over the course of the next several months. After further discussions with our current partners in our oncology programs, we intend to transfer our cancer vaccine and antibody target portfolios to either existing or new partners. If our current partners are not willing to acquire our interest in these programs or agree to the transfer of our interest to third parties, then our efforts to divest our oncology business may be delayed or prevented, resulting in efforts by our employees on de-prioritized programs and unbudgeted expenses. In addition, any of our oncology partners may take the position that our eliminating product development under the agreement with that partner was a breach of the agreement, resulting in potential unbudgeted expenses related to resolving such a dispute. We will not have the opportunity to capture any future commercial success of BEXXAR therapeutic regimen and our oncology programs, except to the extent of any remaining royalty and milestone payments. Our remaining programs on which we are focusing our resources may not result in any viable product candidates. We cannot be certain that we have chosen to focus on the best programs for near-term commercial success. In addition, we may not realize all of the expected cost savings associated with the transfer of BEXXAR therapeutic regimen, and the related restructuring.

Our restructuring may place additional strain on our resources and may harm the morale and performance of our personnel.

     Our restructuring in connection with our sale of BEXXAR therapeutic regimen and related assets resulted in an approximate 43% immediate reduction in our workforce, or the elimination of approximately 160 positions. Following the workforce reduction, we had approximately 220 employees at facilities in Seattle, Washington and Hamilton, Montana. Our restructuring plan may yield unanticipated consequences such as attrition beyond our planned reduction in workforce. This workforce reduction could place significant strain on our administrative, operational and financial resources and result in increased responsibilities for certain personnel. As a result, our ability to respond to unexpected challenges may be impaired and we may be unable to take advantage of new opportunities. In addition, many of the terminated employees possess specific knowledge or expertise, and that knowledge or expertise may prove to have been important to our operations. In that case, their absence may create significant difficulties. In addition, this headcount reduction may subject us to the risk of litigation, which could result in substantial costs to us and could divert management’s time and attention away from business operations.

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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 infectious and inflammatory diseases and cancer, 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.

     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;

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

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

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

     As a result of our sale of BEXXAR therapeutic regimen and related assets to GSK and a subsequent reduction in headcount, we no longer have sales or marketing personnel, we have distribution personnel only for our adjuvants, and do not plan to have sales, marketing or further distribution capabilities in the near future. As a result, we intend to rely on our corporate partners to commercialize products that incorporate our adjuvants and will likely rely on corporate partners to commercialize certain of our potential TLR4 agonist and antagonist products. 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. Moreover, in light of our recent reduction in headcount, we may have difficulty rebuilding our own sales and marketing team if we decide again to pursue sales and marketing in-house.

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

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•

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

     We may not be successful in obtaining regulatory approval for any of our 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. 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 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.

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

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

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

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

	•	regulatory approval may be withdrawn;
	•	reformulation of our products, additional clinical trials, changes in labeling of our products or changes to or re-approvals of our manufacturing facilities may be required;
	•	sales of the affected products may drop significantly;
	•	our reputation in the marketplace may suffer;
	•	lawsuits, including class action suits, may be brought against us; and
	•	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 result from our adjuvant supply contracts and corporate partnerships unless and until we are able to obtain approval for and successfully commercialize our TLR4 agonist or antagonist candidates. 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.

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     Since our inception, we have generated only limited revenue from diagnostic product sales and prophylactic and therapeutic product sales. We cannot predict when, if ever, our or our partners’ research and development programs will result in any additional commercially available immunotherapy-based products. We do not know when, if ever, we will receive any significant revenue from commercial sales of our or our partners’ approved products, including from GSK’s sales of BEXXAR therapeutic regimen, or any other of our or our partners’ 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 a 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 1,099,000 shares of our common stock. The price of the stock was 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.

     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.

     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 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.

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 significant part on our ability to enter into corporate partnerships and to manage effectively the relationships that may result from this strategy. For the years ended December 31, 2004, 2003 and 2002, approximately 68%, 85%, 89% of our revenue resulted from collaboration agreements. If our corporate partnerships are unsuccessful or if we are unable to establish additional corporate partnerships involving our vaccine adjuvants, our TLR4 agonists and antagonists, then we may be prevented from commercializing or recognizing meaningful revenue from our or our partners’ products or product candidates.

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     Our significant corporate partnerships include the following:

	•	a corporate partnership with GSK that includes a guaranteed MPL supply agreement with GSK under which we have a collaborative effort to scale-up and increase the efficiency of our MPL adjuvant production process and an obligation to supply minimum quantities of our MPL adjuvant to GSK through 2012, and several related license and supply agreements with GSK, which grant GSK licenses to MPL adjuvant; and
	•	adjuvant license and supply partnerships with ATL, Biomira International, Inc., Wyeth and Aventis Pasteur.

Further, our oncology business divestiture may result in multiple transactions involving obligations of our licensees to develop and commercialize oncology products based on technology and product candidates previously developed by us, such as our licenses with Genentech, Inc. and Gen-Probe.

     Management of our relationships with our corporate partners may require:

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

     Our corporate partners may terminate our current partnerships. Most of our license agreements may be terminated by our partners for our material breach or insolvency, or after a specified termination date.

     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.

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.

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.

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     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 is 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 this opposition proceeding. As a result, we may not receive trademark protection for CORIXA 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:

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

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

     In connection with our sale of BEXXAR therapeutic regimen and related assets to GSK, GSK agreed to pay royalty and milestone payments to us based on its successful commercialization 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 non-Hodgkins lymphoma patients to treatment centers to receive BEXXAR may prefer to treat such patients with conventional therapies, such as chemotherapy and non-radiolabeled biologics. If GSK cannot identify candidate patients and establish patient referrals to treatment centers, BEXXAR therapeutic regimen may not be able to gain market share and we may not realize substantial revenue from royalty and milestone payments.

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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. We may be disadvantaged in our attempt to attract and retain personnel by our announcement of the proposed merger. In January 2005, we entered into amended employment agreements with four of our executive officers that provide that if any of these executive officers resigns from Corixa for any reason at any time between July 1, 2005 and December 31, 2005, he or she will be entitled to receive the continued payment of his or her base salary for a period of twelve months following the date of termination, payment of one hundred percent of his or her annual discretionary bonus, regardless of Corixa’s or his or her achievement of their respective goals, and accelerated vesting of certain of his or her then unvested stock options. We do not maintain “key person” life insurance on any of our officers, employees or consultants.

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

If we 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, if the transaction with GSK is not consummated, we may acquire additional complementary companies, products and product candidates or technologies. Managing these acquisitions has entailed and may in the future entail numerous operational and financial risks and strains, including:

	•	exposure to unknown liabilities;
	•	higher-than-expected acquisition and integration costs;
	•	difficulty and cost in combining the operations and personnel of acquired businesses with our operations and personnel;
	•	disruption of our business and diversion of our management’s time and attention to integrating or completing the development or commercialization of any acquired technologies;
	•	impairment of relationships with key customers of acquired businesses due to changes in management and ownership;
	•	inability to retain key employees of acquired businesses; and
	•	increased amortization expenses if an acquisition results in significant intangible assets or potential write-downs of goodwill and other intangible assets due to impairment of the assets.

     For example, in December 2000 we acquired Coulter Pharmaceutical, Inc., or 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 biologics license application. As a result, goodwill and other intangibles were re-evaluated and we recognized a $161.1 million goodwill impairment charge. In May 2002, we sold specific preclinical assets and equipment that we acquired from Coulter to Medarex and, in connection with the asset sale, initiated a further headcount reduction. In December 2004, we sold BEXXAR therapeutic regimen and related assets, which constituted substantially all of the remaining assets we acquired in the Coulter acquisition, to GSK in exchange for certain royalty and milestone payments.

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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:

	•	announcements regarding the results of discovery efforts and preclinical and clinical activities by us or our competitors;
	•	progress or delay of our or our competitors’ regulatory approvals;

	•	announcements regarding the acquisition of technologies or companies by us or our competitors;
	•	changes in our existing corporate partnerships or licensing arrangements;
	•	establishment of additional corporate partnerships or licensing arrangements by us or our competitors;
	•	technological innovations or new commercial products developed by us or our competitors;
	•	changes in our or our competitors’ intellectual property portfolio;
	•	developments or disputes concerning our or our competitors’ proprietary rights;
	•	issuance of new or changed securities analysts’ reports and their recommendations regarding us or our competitors;
	•	changes in government regulations;
	•	economic and other external factors;
	•	additions or departures of any of our key personnel;
	•	operating losses by us; and
	•	actual or anticipated fluctuations in our quarterly financial and operating results and degree of trading liquidity in our common stock.

     Since the beginning of 2002 through May 5, 2005, our common stock traded as high as $15.84 and as low as $2.60. The last reported sales price of our common stock on May 5, 2005 was $4.34. 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.

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Item 3. Quantitative & Qualitative Disclosure about Market Risk

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. All of our cash equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly, are presented at fair value on our balance sheets. We generally invest our excess cash in A-rated or higher short- to intermediate-term fixed income securities and money market mutual funds. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. There have been no material changes in the reported market risks since December 31, 2004.

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 1. Legal Proceedings.

     On May 3, 2005, a holder of our common stock on behalf of herself and purportedly on behalf of a class of our stockholders, filed an action in the Court of Chancery of the state of Delaware against us, our board of directors and GSK, seeking, among other things, to potentially enjoin us from consummating the proposed merger with GSK and seeking rescissory and compensatory damages if the proposed transaction is consummated.

Item 5. Other Information.

     On April 12, 2005, our board of directors determined, after consulting with management, that it was in our best interests and the best interests of our stockholders not to proceed with our reincorporation from Delaware to Washington.

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

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