DENDREON CORP - 10-Q Quarterly Report

(Address, including zip code, of registrant’s principal executive offices and telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. þ Yes No ¨

Indicate by check mark whether the registrant (1) is an accelerated filer (as defined in Rule 12b-2 of the Act). þ Yes No ¨

The number of shares of the registrant’s common stock, $.001 par value, outstanding as of May 2, 2005 was 59,232,477.

We were founded in 1992 as a Delaware corporation headquartered in Mountain View, California. We relocated to Seattle, Washington in 1999.

We are a biotechnology company focused on the discovery, development and commercialization of targeted therapies for cancer. Our portfolio includes product candidates to treat a wide range of cancers using active immunotherapy, monoclonal antibodies and small molecules. Our most advanced product candidate is Provenge^®, an active immunotherapy for the treatment of prostate cancer.

The consolidated financial statements include the accounts of Dendreon and its wholly-owned subsidiary. All material intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from the accompanying statements. These interim financial statements should be read in conjunction with the audited financial statements and related notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”). The accompanying financial information as of December 31, 2004 has been derived from audited financial statements. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of future results that may be expected for the year ending December 31, 2005.

We periodically review and refine the methodology used to allocate certain corporate overhead cost to operating expense categories. Certain prior year items have been reclassified from as originally reported in the Company’s March 31, 2004 Quarterly Report on Form 10-Q to conform to the methodology used for the 2004 fiscal year as previously disclosed and reported for each of the 2004 fiscal quarters in Note 13 of the notes to financial statements included in the 2004 Form 10-K. We have reclassified $506,000 previously reported as research and development expenses to general and administrative expenses for the three months ended March 31, 2004. There was no effect on loss from operations or net loss.

The accompanying statements of operations and of cash flows for the three-month period ended March 31, 2004, have been restated from originally reported in the Company’s March 31, 2004 Quarterly Report on Form 10-Q to record additional expense of approximately $1.9 million (0.03 net loss per share) as disclosed and reported in the 2004 Form 10-K. The $1.9 million included $149,000 of accrued payroll tax and $1.8 million of non cash stock based compensation. This restatement increased loss from operations and net loss for such period.

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Company management to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to

materiality. On an on-going basis, estimates are evaluated, including those related to revenue recognition, investments, fair values of acquired assets, financing activities, long-term service contracts and other contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

Basic and diluted net loss per share of common stock are presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“FAS 128”). Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding. Because we report a net loss, diluted net loss per share is the same as basic net loss per share. We have excluded all outstanding stock options, warrants and unvested restricted stock from the calculation of diluted net loss per common share because all such securities are antidilutive. Shares excluded from the computation of loss per share were 5,474,934 and 4,559,041 during the three months ended March 31, 2005 and 2004, respectively.

We account for income taxes in accordance with the provision of SFAS No. 109, “Accounting for Income Taxes.” SFAS 109 requires recognition of deferred taxes to provide for temporary differences between financial reporting and tax basis of assets and liabilities. Deferred taxes are measured using enacted tax rates expected to be in effect in the year in which the basis difference is expected to reverse. We continue to record a valuation allowance for the full amount of deferred income taxes, which would otherwise be recorded for tax benefits relating to operating loss and tax credit carryforwards, as realization of such deferred tax assets cannot be determined to be more likely than not.

In December 2004, the Financial Accounting Standards Board (“FASB”) enacted Statement of Financial Accounting Standards 123—revised 2004 (“SFAS 123R”), “Share-Based Payment” which replaces Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, (“APB No. 25”) “Accounting for Stock Issued to Employees.” SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of operations. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005. Accordingly, we would be required to adopt SFAS 123R in the fiscal quarter ending March 31, 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Although we have not yet determined whether the adoption of SFAS 123R will result in amounts that are similar to the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect adoption to have a significant impact on our consolidated statements of operations and net loss per share. There will be no impact on the Company’s working capital, stockholders’ equity or cash flows.

In December 2004, the FASB issued FAS 153, “Exchange of Nonmonetary Assets – an amendment of APB Opinion No. 29.” APB Opinion No. 29 (“APB 29”), “Accounting for Nonmonetary Transactions” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB 29, however, included certain exceptions to that principle. This amendment of APB 29 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption to have a significant impact on our consolidated statement of operations and net loss per share.

In March 2004, the FASB issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments” (“EITF 03-1”), which provided new guidance for assessing impairment losses on investments. Additionally, EITF 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF 03-1, however, the disclosure requirements remain effective for annual periods ending after June 15, 2004.

In December 2003, we announced the closure of our San Diego operations acquired through our acquisition of Corvas International, Inc. The closure allowed us to focus our resources on optimizing the value of key assets and to obtain future operating efficiencies. To efficiently manage on-going programs located in San Diego, we relocated essential San Diego activities and some personnel to our headquarters in Seattle and completed the closure of the San Diego facility in June 2004.

We incurred restructuring charges of $989,000 in 2003 for employee severance and outplacement costs, of which $815,000 was paid in the first quarter of 2004. In the first quarter of 2004, we incurred additional restructuring charges of approximately $2.8 million for the estimated fair value of the liability for ongoing lease commitment costs related to the San Diego facility of $2.6 million, other costs associated with the closure of $63,000 and accretion expense on the accrued restructuring charges of $90,000. The estimated fair value of the liability for the lease commitment costs was based on estimated sublease rentals and discounted at a rate of 8%. As of March 31, 2004 we had paid $308,000 of these costs. As of December 31, 2004, we had paid all such related costs, of which $1.5 million was a lump sum payment made to terminate the San Diego lease obligations. These charges had been included in the general and administration expense.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those long-lived assets might not be recoverable. During the quarter ended March 31, 2004, we completed the physical inventory of equipment and other fixed assets at Corvas International. We determined that the carrying amount of $689,000 of certain lab equipment, leasehold improvements and computer equipment was not recoverable and have included this expense in R&D expenses for the quarter ended March 31, 2004.

We have elected to follow APB No. 25, and related interpretations, in accounting for employee stock options, rather than the alternative fair value accounting allowed by SFAS No. 123. Under APB No. 25, compensation expense related to our employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123, amended by SFAS No. 148, (“SFAS No. 148”) “Accounting for Stock-Based Compensation – Transition and Disclosure,” requires companies that continue to follow APB No. 25 to provide pro forma disclosure of the impact of applying the fair value method of SFAS No. 123. We recognize compensation expense for options granted to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force consensus Issue 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” which require using a Black-Scholes option pricing model and re-measuring such stock options to the current fair market value as the underlying option vests.

Deferred stock-based compensation consists of amounts recorded when the exercise price of an option is lower than the fair value of the underlying common stock on the date of grant or modification. Deferred stock-based compensation is amortized over the vesting period of the underlying option using the graded vesting method.

Pro forma information regarding net loss is required by SFAS No. 123 and SFAS No. 148 as if we had accounted for our employee stock options under the fair value method. The fair value of our options was estimated at the date of grant using the minimum value method for periods prior to our initial public offering and the Black-Scholes method for subsequent periods, with the following assumptions for the three months ended March 31, 2005 and 2004: no dividend yields; expected lives of the options of 5.0 and 4.0 years; risk-free interest rates of 3.9% and 2.4%, and volatility of 96% and 93%, respectively. Because the determination of the fair value of our options is based on assumptions described above, and because additional option grants are expected to be made in future periods, this pro forma information is not likely to be representative of the pro forma effects on reported net income or loss for future periods. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The following table illustrates what net loss would have been had we accounted for our stock options under the provisions of SFAS 123.

We reported comprehensive loss in accordance with SFAS No. 130, “Reporting Comprehensive Income”, which establishes standards for reporting and displaying comprehensive income (loss) and its components in financial statements. Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with shareholders. Our comprehensive income (loss) consisted of net loss plus changes in unrealized gain or loss on securities as follows:

This report contains forward-looking statements concerning matters that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Words such as believe, expects, likely, may and plans are intended to identify forward-looking statements, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date hereof to conform such statements to actual results or to changes in our expectations.

The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. In addition, readers are urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors that affect our business, including without limitation the disclosures made under the caption, “Factors That May Affect Results of Operations and Financial Condition” set forth in this Form 10-Q, and the audited financial statements and the notes thereto and disclosures made under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission.

We are a biotechnology company focused on the discovery, development and commercialization of targeted therapies for cancer. Our portfolio of product candidates includes active immunotherapies, monoclonal antibodies and small molecules to treat a wide range of cancers. The product candidates most advanced in development are active immunotherapies designed to stimulate a patient’s immune system for the treatment of cancer. Our most advanced product candidate is Provenge, an active immunotherapy for the treatment of prostate cancer.

We have incurred significant losses since our inception. As of March 31, 2005, our accumulated deficit was $238.7 million. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing expenses, general and administrative expenses in support of our operations and marketing expenses. We anticipate incurring net losses over at least the next several years as we continue our clinical trials, apply for regulatory approvals, develop our technology, expand our operations and develop the infrastructure to support the commercialization of Provenge.

We anticipate that we will not generate revenue from the sale of our commercial therapeutic products for the next two years. Without revenue generated from commercial sales, we anticipate that we will continue to fund our ongoing research, development and general operations from our available cash resources, and with revenue, including license fees and milestone payments, received from our current or future collaborators. The timing and level of funding from our existing or future collaborations will fluctuate based upon the success of our research programs, our ability to meet milestones and receipt of approvals from government regulators. We expect research and development expenses to increase in the future as a result of increased research and clinical trial activity. Clinical trial costs may grow at a faster rate compared to research and other preclinical expenses as we continue our ongoing clinical trials and advance other potential products in clinical development.

Our first Phase 3 clinical trial for Provenge, D9901, was a double-blind placebo controlled clinical trial in men with metastatic androgen-independent prostate cancer. The trial was designed to measure a delay in time to disease progression. Time to the onset of disease related pain was a secondary endpoint that was to be evaluated in concert with the results from a second, identical companion trial, D9902. Patients were given the option to receive salvage therapy on a separate open label study. Both protocols required patients to be followed for survival for three years after enrollment.

Trial D9901 approached, but did not meet its main objective of showing a statistically significant delay in the median time to disease progression in the overall patient population in the study. The trial results did, however, identify a group of patients, those with tumors that had been classified as Gleason score 7 or less, who appeared to benefit most significantly by treatment with Provenge compared to patients who received placebo. Gleason score is a common measure of the aggressiveness of a patient’s tumor and ranges in score from 2 to 10. In these men, Provenge appeared to delay disease progression. Our second Phase 3 trial, D9902, was still underway when the D9901 results on progression were obtained and the survival follow up was still ongoing. Based on discussions with the Food and Drug Administration (FDA), we amended D9902 to contain two parts: D9902 Part A (D9902A) includes those patients enrolled regardless of Gleason score, and Part B (D9902B) restricts enrollment to those patients most like the group of patients that appeared to benefit in D9901, those with Gleason scores of 7 or less. Trial D9902B has received a positive Special Protocol Assessment from the FDA.

More recently, we completed the planned three year follow-up for survival on the D9901 patients and disclosed that a significant survival advantage was seen in those patients who had been assigned to the Provenge arm compared to those who had been assigned to receive placebo. According to the final three year intent-to-treat analysis, patients receiving Provenge had a median survival of 25.9 months compared to 21.4 months for patients in the placebo arm, a 4.5 month improvement (p-value = 0.01, hazard ratio = 1.7). This hazard ratio implies that patients receiving placebo have a relative risk of dying that is 70 percent higher than those patients receiving Provenge. In addition, 34 percent of patients receiving Provenge were alive at 36 months compared to 11 percent of patients receiving placebo (p-value = 0.0046). The survival benefit seen with Provenge was independent of a patient’s Gleason score. As in previous studies, Provenge was generally well tolerated.

Final results from trial D9902A also did not achieve statistical significance for delaying the time to disease progression. A preliminary analysis of overall survival in the D9902A clinical trial indicated that both the survival rates and the median survival benefit compared to placebo show trends that are similar to the results observed in the final three-year survival analysis of the D9901 study. We plan to complete the final pre-specified, three year survival analysis of the D9902A study in the summer of 2005.

Provenge has Fast Track designation from the FDA for the treatment of men with Gleason score 7 or less with asymptomatic, metastatic androgen-independent prostate cancer. We are currently conducting a pivotal Phase 3 clinical trial

of Provenge, D9902B, in this indication. We are also completing a Phase 3 double-blind placebo controlled trial (P-11) in androgen-dependent prostate cancer. We own commercialization rights for Provenge worldwide.

If the final pre-specified three year survival analysis of D9902A is supportive to the data from D9901, we would anticipate submitting a biologics license application in 2006. Based on the results from D9901 and D9902A, we may amend the current D9902B protocol to enroll men regardless of their Gleason score. If D9902B is amended and is required for regulatory approval and is successful in meeting its specified endpoints, we would submit a biologics license application after 2006.

Neuvenge is our investigational immunotherapy for the treatment of patients with breast, ovarian and other solid tumors expressing HER2/neu. In December 2004, we announced results from two Phase 1 studies of Neuvenge indicating that Neuvenge stimulated an immune response and may provide clinical benefit in patients with advanced, metastatic HER2/neu positive breast cancer. The data indicates that Neuvenge stimulates a robust immune response and is well-tolerated. We are presently designing Phase 2 trials of Neuvenge in women with metastatic breast cancer.

In addition to other active immunotherapies in preclinical research and development, we have monoclonal antibody and small molecule product candidates in preclinical research and development programs. These include product candidates being developed with our collaborators.

Our collaboration with Genentech, Inc. targets the development of product candidates directed against trp-p8, a cancer-specific ion channel. We are currently engaged in discovering, evaluating and developing monoclonal antibodies and small molecule therapeutics that modify trp-p8 function.

Our collaboration with Abgenix, Inc. is focused on the discovery, development and commercialization of fully-human monoclonal antibodies against a membrane-bound serine protease. Under the terms of the collaboration, Abgenix, Inc. will use its human antibody technologies to generate and select antibodies against this serine protease. Both companies will have the right to co-develop and commercialize, or, if co-development is not elected, to solely develop and commercialize, any antibody product candidates discovered during the collaboration. The companies will share equally in the product development costs and any profits from sales of products successfully commercialized from co-development efforts.

We also are collaborating with Dyax Corp. to discover, develop and commercialize monoclonal antibody, small protein and peptide inhibitors for two endotheliase enzymes. Under the terms of this agreement, both companies will jointly develop any product candidates that may be identified and will share commercialization rights and will share profits, if any, from any marketed products.

We have a monoclonal antibody program that targets HLA-DR and the use of antibodies directed to this target to kill cancer cells.

We consider investments in highly liquid instruments purchased with a remaining maturity of 90 days or less to be cash equivalents. The amounts are recorded at cost, which approximate fair market value. Our cash equivalents, short- and long-term investments consist principally of commercial paper, money market securities, corporate bonds/notes and certificates of deposit.

We have classified our entire investment portfolio as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income. The amortized cost of investments is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Interest earned on securities is included in interest income. Gains are recognized when realized in our Consolidated Statements of Operations. Losses are recognized when we have determined that an other-than-temporary decline in fair value has occurred. We consider an investment with a maturity greater than twelve months as long-term and a maturity less than twelve months as short-term.

Substantially all of the revenue we receive is collaborative research revenue and license revenue. We recognize collaborative research revenues from up-front payments, milestone payments, and personnel-supported research funding. We recognize license revenue from intellectual property and technology agreements. The payments received under these research collaboration agreements are contractually not refundable even if the research effort is not successful. Performance under our collaborative agreements is measured by scientific progress, as mutually agreed upon by us and our collaborators.

Our 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 an objective and reliable evidence of the fair value of the undelivered items. The consideration we receive 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.

Up-front Payments: Up-front payments from our research collaborations include payments for technology transfer and access rights. Non-refundable, up-front payments received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term. When the research term is not specified in the agreement and instead the agreement specifies the completion or attainment of a particular development goal, an estimate is made of the time required to achieve that goal considering experience with similar projects, level of effort and the development stage of the project. The basis of the revenue recognition is reviewed and adjusted based on the status of the project against the estimated timeline as additional information becomes available.

Milestones: Payments for milestones that are based on the achievement of substantive and at risk-performance criteria are recognized in full at such time as the specified milestone has been achieved according to the terms of the agreement. When payments are not for substantive and at-risk milestones, revenue is recognized as if the payment was an up-front fee.

Personnel Supported Research Funding: Under these agreements, research and development activities are performed by designated full-time equivalent personnel (FTE) during a specified funding period. The FTE funding rate is an agreed upon rate comparable to other rates for similar research and development services. Payments received in advance of the research and development activities performed are deferred and recognized on a straight-line basis over the related funding period. Our performance is on a “best efforts” basis with no guarantee of either technological or commercial success.

License Fees: Non-refundable license fees where we have completed all future obligations are recognized as revenue in the period when persuasive evidence of an agreement exists, delivery has occurred, collectability is reasonably assured and the price is fixed and determinable.

Product Sales: Revenue from product supply agreements is recorded when the product is shipped, title and risk of loss has passed to the customer, amounts are deemed to be collectible and all other obligations under the agreements are met.

Grant Revenue: Revenue related to grant agreements is recognized as related research and development expenses are incurred.

Royalty Income: Royalties from licensees are based on reported sales of licensed products and revenues are calculated based on contract terms when reported sales are reliably measurable and collectability is reasonably assured.

The accompanying statements of operations and of cash flows for the three month period ended March 31, 2004, have been restated from as originally reported in the Company’s March 31, 2004 Quarterly Report on Form 10-Q to record additional stock-based compensation and payroll tax expenses of approximately $1.9 million as disclosed and reported in the 2004 Form 10-K. This restatement increased loss from operations and net loss.

We account for income taxes in accordance with the provision of SFAS No. 109, “Accounting for Income Taxes.” SFAS 109 requires recognition of deferred taxes to provide for temporary differences between financial reporting and tax basis of assets and liabilities. Deferred taxes are measured using enacted tax rates expected to be in effect in year in which the basis difference is expected to reverse. We continue to record a valuation allowance for the full amount of deferred income taxes, which would otherwise be recorded for tax benefits relating to operating loss and tax credit carryforwards, as realization of such deferred tax assets cannot be determined to be more likely than not.

Revenue was $57,000 and $4.7 million for the three months ended March 31, 2005 and 2004, respectively. The period over period decrease was due to revenue recognized during 2004 in connection with our license agreement with Nuvelo, Inc. for our novel anticoagulant, recombinant nematode anticoagulant protein c2 (rNAPc2) and all other rNAPc proteins. Revenues recognized in 2005 relate to previously deferred revenue and royalty income.

Research and development expenses increased to $15.9 million for the three months ended March 31, 2005, from $13.7 million for the three months ended March 31, 2004. The increase was primarily due to contract manufacturing to support the D9902B clinical trial and to prepare commercial level production runs, personnel related costs, clinical expense due to increased patients and other costs associated with the D9902B clinical trial.

Financial data from our research and development-related activities is compiled and managed by us as clinical programs and discovery research. Our research and development expenses for the three months ended March 31, 2005 and 2004 were as follows (in millions):

Direct research and development costs associated with our clinical programs include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support of the clinical programs. Indirect costs of our clinical program include wages, payroll taxes and other employee-related expenses including rent, utilities and other facilities-related maintenance. The costs in each category may change in the future and new categories may be added. Costs attributable to our discovery research programs represent our efforts to develop and expand our product pipeline. Due to the number of projects and our ability to utilize resources across several projects, our discovery research program costs are not assigned to specific projects.

The aggregate costs of our research and development collaborative agreements include discovery research and clinical efforts where drug technology is developed across our active immunotherapy, monoclonal antibody and small molecule technology platforms. Our collaborative partners enjoy the benefit from the discoveries and knowledge generated across these platforms. The majority of our collaborative agreements involve an exchange of potential rights in the territories and indications or field of science, as defined in the respective agreements, in exchange for cash payments. Our collaborative agreements track deliverables based on measures around scientific progress to which we and our partners agree on a periodic basis, primarily quarterly.

While we believe our clinical programs are promising, we do not know whether any commercially viable products will result from our research and development efforts. Due to the unpredictable nature of scientific research and product development, we cannot reasonably estimate:

We anticipate that we will not generate revenue from the sale of our commercial therapeutic products for the next two years. Without revenue generated from commercial sales, we anticipate that we will continue to fund our ongoing research, development and general operations with revenue received from collaborations, milestone payments and license fees from our current or future collaborators and our available cash resources. The timing and level of funding from our existing or future collaborations will fluctuate based upon the success of our research programs, our ability to meet milestones and receipts of approvals from government regulators. We expect research and development expenses to increase in the future as a result of increased contract manufacturing of antigen scale up and clinical trial activity.

In October 2004, we entered into a second amendment to our Bioprocessing Services Agreement originally dated March 16, 2001 with Diosynth RTP, Inc. Pursuant to this agreement, Diosynth has undertaken to produce antigen used in Provenge, our investigational therapeutic active immunotherapy for the treatment of prostate cancer, at commercial manufacturing levels to support a BLA filing. Pursuant to the second amendment, Diosynth will perform studies to verify the manufacturing process for the antigen and will manufacture the antigen at commercial scale to validate the manufacturing process. The total contract price payable by us for this work is $18.2 million. If we terminate the agreement without cause, or if Diosynth were to terminate in the event of our default, we would be obligated to pay Diosynth a cancellation fee equal to a portion of the remaining uninvoiced contract amount, which would not exceed $4.6 million as of March 31, 2005. In addition, we are obligated under the amended agreement to pay fees in the event of delays in our required performance.

General and administrative expenses decreased to $3.9 million for the three months ended March 31, 2005, from $6.1 million during the comparative prior year period. The decrease in 2005 was primarily due to cost associated with the closure of the San Diego facility of approximately $2.8 million in 2004, offset by increases in compensation and personnel-related costs due to increased headcount in 2005.

Marketing expenses increased to $846,000 for the three months ended March 31, 2005 from $218,000 during the comparative prior year period. The 2005 increase was primarily due to increased personnel-related costs, advertising costs associated with the development of marketing strategies relating to Provenge and recruiting efforts for the D9902B clinical trial, market research and medical education.

Interest income increased to $1.2 million during the three months ended March 31, 2005 from $851,000 during the comparative prior year period. The increase in 2005 was primarily due to higher average balances of cash, cash equivalents, short- and long- term investments and higher average interest rates, offset by a decrease in interest income earned on short- and long-term receivables.

Interest expense was $74,000 during the three months ended March 31, 2005 compared to $84,000 during the comparative prior year period. We expect interest expense to increase in the future as a result of additional financing of capital purchases.

Other expense of $290,000 for the three months ended March 31, 2004 was attributable to the realized loss on the sale of Nuvelo common stock. In February 2004, at the closing of the Nuvelo license agreement, we acquired 789,889 shares of Nuvelo stock with a fair value of $4.1 million. The originally negotiated value of the license agreement was $4.0 million ($500,000 cash and common stock valued at $3.5 million). At the time of closing, the value of the common stock had appreciated to $4.1 million. During the three months ended March 31, 2004, all shares of Nuvelo stock were liquidated for $3.8 million, resulting in a realized loss of $290,000, which was recognized as other expense.

We recorded stock-based compensation expense of $357,000 during the three months ended March 31, 2005, and approximately $1.9 million during the comparative prior year period. We recorded stock-based consulting expense of $76,000 and zero during the three months ended March 31, 2005 and 2004, respectively, related to grants to non-employees. We are currently evaluating the requirements under SFAS 123R and expect the adoption of the standard to have a significant impact on our consolidated statement of operations and net loss per share.

Stock-based compensation expense consists of the amortization of deferred stock-based compensation resulting from the grant of stock options at exercise prices less than the fair value of the common stock on the grant date and the issuance of stock options to non-employees in exchange for services and to stock option modifications. The Company granted stock purchase rights to employees hired after August 1, 2002, including those involved in the Corvas International acquisition, which were not qualified under the employee stock purchase plan and were considered as compensatory. We recognized stock-based compensation charges of approximately $1.8 million and $149,000 accrued payroll tax, when the rights were exercised, during the three months ended March 31, 2004. Of the $1.8 million non cash stock based compensation, $1.5 million was recorded as research and development expense and $249,000 as general and administrative expense. The company recorded an additional $392,000 in the quarter ended March 31, 2005, representing payroll and federal income tax payments made on behalf of the affected employees.

Cash, cash equivalents and short- and long-term investments were $175.0 million at March 31, 2005. We have financed our operations to date primarily through proceeds from the sale of our equity securities, cash receipts from collaboration arrangements, interest income earned, equipment lease financings and loan facilities. In connection with the 2003 acquisition of Corvas International we acquired $79.6 million of cash, cash equivalents and short- and long-term investments. We have received net proceeds of $180.7 million from the sale of our equity securities since January 1, 2003, of which $140.5 million resulted from our January 2004 follow-on offering. To date, inflation has not had a material effect on our business.

Net cash used in operating activities for the three months ended March 31, 2005 and 2004 was $19.6 million and $14.9 million, respectively. Expenditures were a result of research and development expenses, clinical trial costs, contract manufacturing costs, general and administrative expenses in support of our operations and marketing expenses. We expect net cash used in operating activities to increase in the future as a result of increased clinical trial and clinical manufacturing activity, and the ongoing development of a commercial infrastructure to support the commercialization of Provenge.

Since our inception, investing activities, other than purchases and maturities of short- and long-term investments, consist primarily of purchases of property and equipment. At March 31, 2005, our aggregate investment in equipment and leasehold improvements was $17.3 million, a substantial portion of which had been funded through capital lease lines. In 2005, we plan to continue to fund our capital equipment and leasehold improvements through financing facilities. We entered a $1.8 million capital and operating lease with Oracle Corporation to finance our Enterprise Resources Planning system. The capital lease has a term of 34 months and bears interest at 3% per year.

On January 6, 2003, we filed a “shelf” Registration Statement with the SEC to sell up to $75 million of our common stock from time to time. The SEC declared this Registration Statement (SEC File No. 333-102351) effective in January 2003. In June 2003, we sold 4.4 million shares of common stock at a price of $7.00 per share for gross proceeds of $30.75 million or $30.72 million net of offering costs. In October 2004, we and Diosynth RTP, Inc. entered into an amendment to our Bioprocessing Services Agreement dated March 16, 2001, under which Diosynth purchased 428,396 shares of our common stock registered under this Registration Statement, priced at $8.17 per share, the average closing price of our stock over the 10 trading days preceding the amendment. The total purchase price was $3.5 million. As of March 31, 2005, $40.75 million of common stock can be sold under this Registration Statement. Under this registration statement, we may sell our common stock directly to purchasers, to or through underwriters or dealers, through agents, or through a combination of such methods.

Pursuant to other registration statements, in January 2004, we sold 11.8 million shares of our common stock at a price of $12.75 per share for gross proceeds of $150 million or $140.5 million, net of underwriting discounts, commissions and other offering costs.

In the event that we offer our stock directly to purchasers or to purchasers through agents, the shares may be sold at a single closing and a single price, or at multiple closings and at multiple prices. We expect that the price for any such shares sold in such circumstances will reflect our negotiations with prospective investors, the market price of our common stock, recent trends in the market price of our common stock, other factors considered material by the prospective investors and, if applicable, consultation with any agent involved with the sale or sales.

As of March 31, 2005, we anticipate that our cash on hand, including our cash equivalents, short- and long-term investments, and cash generated from our collaboration arrangements will be sufficient to enable us to meet our anticipated expenditures for at least the next 21 months, including, among other things:

However, we may need additional financing prior to that time. Additional financing may not be available on favorable terms, or at all. If we are unable to raise additional funds through sales of our common stock under the shelf registration statement, should we need them, we may be required to delay, reduce or eliminate some of our development programs and some of our clinical trials.

We have a history of operating losses. We expect to continue to incur losses, and we may never become profitable.

As of March 31, 2005, we had an accumulated deficit of $238.7 million. We do not have any products that generate material revenue from product sales or royalties. Operating losses have resulted principally from costs incurred in research and development programs, clinical trials, contract manufacturing, general and administrative expenses in support of operations and marketing expenses. We do not expect to achieve significant product sales or royalty revenue for two years or more, and we may never do so. We expect to incur additional operating losses over the next several years, and these losses may increase significantly as we continue preclinical research and clinical trials, apply for regulatory approvals, develop our product candidates, expand our operations and develop the infrastructure to support commercialization of Provenge and our other potential products. These losses, among other things, have caused and may continue to cause, our stockholders’ equity and working capital to decrease. We may not be successful in obtaining regulatory approval and commercializing any of our product candidates, and our operations may not be profitable even if any of our product candidates are commercialized.

Our nearer-term prospects are highly dependent on Provenge, our lead product candidate. If we do not successfully submit a Biologics License Application on Provenge with the FDA, if the FDA fails to approve Provenge for commercialization or, if approved by the FDA, we fail to successfully commercialize Provenge, our business would be harmed and our stock price would likely fall.

Our most advanced product candidate is Provenge, an active immunotherapy for prostate cancer. Provenge has been and is currently being tested in several Phase 3 clinical trials. FDA approval of Provenge depends on, among other things, our successfully completing a Biologics License Application based on the data from our Phase 3 clinical trials with results that meet FDA requirements for approval. We might fail to complete or experience material delays in completing this application. In addition, the results from our Phase 3 trials and our other clinical trials of Provenge might not be sufficient to support approval by the FDA of Provenge or we may not be successful in meeting manufacturing or other requirements for approval of Provenge by the FDA. Although we are in discussions with the FDA about the final three-year survival analysis from D9901, those discussions may not improve our prospects for obtaining FDA approval for Provenge or change current projections for when we may obtain such approval. Even if we receive FDA approval, we might not be successful in

commercializing Provenge. If any of these things occur, our business would be harmed and the price of our common stock would likely fall.

If we fail to enter into collaboration agreements for our product candidates, if they are needed, we may be unable to commercialize them effectively or at all.

To successfully commercialize Provenge, our potential product most advanced in development, we will need substantial financial resources and we will need to develop or access expertise and physical resources and systems, including manufacturing facilities, a distribution network, an information technology platform and sales and marketing and other resources that we currently do not have. We may elect to develop some or all of these physical resources and systems and expertise ourselves or we may seek to collaborate with another biotechnology or pharmaceutical company that will provide some or all of such physical resources and systems as well as financial resources and expertise.

Collaborators may be able to provide us with financial and physical resources, systems and expertise for the commercialization of Provenge. Such collaborations are complex and any potential discussions may not result in a definitive agreement for many reasons. For example, whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of our Provenge clinical trials, the potential market for Provenge, the costs and complexities of manufacturing and delivering Provenge to patients, the potential of competing products, and industry and market conditions generally. If we were to determine that a collaboration for Provenge is necessary and were unable to enter into such a collaboration on acceptable terms, we might elect to delay or scale back the commercialization of Provenge in order to preserve our financial resources or to allow us adequate time to develop the required physical resources, and systems and expertise ourselves.

If we enter into a collaboration agreement we consider acceptable, the collaboration may not proceed as quickly, smoothly or successfully as we plan. The risks in a collaboration agreement for Provenge include the following:

The occurrence of any of these events could adversely affect the commercialization of Provenge and harm our business and stock price by delaying the date on which sales of the product may begin if it is approved by the FDA, by slowing the pace of growth of such sales, by reducing the profitability of the product or by adversely affecting the reputation of the product in the market. In addition, a collaborator for Provenge may have the right to terminate the collaboration at its discretion. Any termination may require us to seek a new collaborator, which we may not be able to do on a timely basis, if at all, or require us to delay or scale back the commercialization efforts.

We may choose to enter into collaboration agreements for one or more of our other product candidates. With respect to a collaboration for Provenge or any of our other product candidates, we are dependent on the success of our collaborators in performing their respective responsibilities and the continued cooperation of our collaborators. Our collaborators may not cooperate with us to perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. Disputes may arise between us and our collaborators that delay the development and commercialization of our product candidates. Problems with our collaborators, such as those mentioned above, could have an adverse effect on our business and stock price.

We have a collaboration with Genentech, Inc. for the research, development and commercialization of potential therapies targeting trp-p8. We also have collaborations with Abgenix, Inc. for the research, development and commercialization of monoclonal antibodies for a selected antigen from our portfolio of serine proteases, and Dyax Corp. for the research,

development and commercialization of cancer therapeutics focused on serine protease inhibitors. Each of these collaborations involve potential products that are at the preclinical stage of development, and we believe the risks described above that are associated with later stage products are less likely to materially impact us if they occur. To date, we have not experienced difficulties with these collaborations that have had a material negative effect on our business or research and product development efforts, and we have not been negatively affected by consolidations involving potential collaborators. However, it is possible that we could encounter difficulties with these collaborators in the future that could have a material adverse effect on our business.

We may require additional funding, and our future access to capital is uncertain.

It is expensive to develop and commercialize cancer vaccines, monoclonal antibodies, small molecules and other new products. We plan to continue to simultaneously conduct clinical trials and preclinical research for a number of product candidates, which is costly. Our product development efforts may not lead to commercial products, either because our product candidates fail to be found safe or effective in clinical trials or because we lack the necessary financial or other resources or relationships to pursue our programs through commercialization. Once commercialized, a product, including Provenge, may not achieve revenues that exceed the costs of producing and selling it. Our capital and future revenues may not be sufficient to support the expenses of our operations, the development of commercial infrastructure, the costs of sales, and the conduct of our clinical trials and preclinical research. We may need to raise additional capital to:

We believe that our cash on hand, including our cash equivalents and short-term investments and cash generated from our collaborative arrangements will be sufficient to meet our projected operating and capital requirements for at least the next 21 months. However, we may need additional financing within this time frame depending on a number of factors, including the following:

We may not be able to obtain additional financing on favorable terms or at all. If we are unable to raise additional funds, we may have to delay, reduce or eliminate our clinical trials and our development programs. If we raise additional funds by issuing equity securities, including pursuant to our shelf registration statement, further dilution to our existing stockholders will result.

We may take longer to complete our clinical trials than we project, or we may not be able to complete them at all.

A number of factors, including unexpected delays in the initiation of clinical sites, slower than projected enrollment, competition with ongoing clinical trials and scheduling conflicts with participating clinicians, regulatory requirements, limits on manufacturing capacity and failure of a product candidate to meet required standards for administration to humans may cause significant delays in the completion of our clinical trials. In addition, it may take longer than we project to achieve study endpoints, and complete data analysis for a trial. We may not complete our clinical trials of Provenge when or as projected or commence or complete clinical trials involving any of our other product candidates as projected or may not conduct them successfully.

We rely on academic institutions, physician practices and clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our product candidates. We have less control over the timing and other aspects of these clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or applicable regulations. We also rely on clinical research organizations to perform much of our data management and analysis. They may not provide these services as required or in a timely manner.

If we fail to complete our Phase 3 trials of Provenge, or if we experience material delays in completing those trials as currently planned, or we otherwise fail to commence or complete, or experience delays in, any of our other present or planned clinical trials, our ability to conduct our business as currently planned could materially suffer. Our development costs will increase if we experience any future delays in our clinical trials of Provenge or other potential products or if we need to perform more or larger clinical trials than we currently plan. If the delays or costs are significant, our financial results and our ability to commercialize Provenge or our other product candidates will be adversely affected.

In April 2002, the FDA placed our D9902A study of Provenge on partial clinical hold and required us to provide additional information regarding the identity and functionality of Provenge. We submitted additional information, and the FDA lifted the partial hold in October 2002. During this period we were permitted to continue treating patients already enrolled in the trial, but could not enroll new patients in D9902A.

If testing of a particular product candidate does not yield successful results, then we will be unable to commercialize that product.

Our product candidates in clinical trials must meet rigorous testing standards. We must demonstrate the safety and efficacy of our potential products in humans through extensive preclinical and clinical testing. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of Provenge or our other potential products, including the following:

D9901 and D9902A, our first Phase 3 clinical trials of Provenge, did not meet their main objective of showing a statistically significant delay in the median time to disease progression in the overall patient population in the study. Data from our clinical trials may not be sufficient to support approval by the FDA of Provenge or our other potential products. The clinical trials of Provenge or our other product candidates may not continue or be completed as or when planned, and the FDA may not approve any of our product candidates for commercial sale. If we fail to demonstrate the safety or efficacy of a product candidate to the satisfaction of the FDA, this will delay or prevent regulatory approval of that product candidate, which could prevent us from achieving profitability.

Commercialization of our product candidates in the United States requires FDA approval, which may not be granted, and foreign commercialization requires similar approvals.

The FDA can delay, limit or withhold approval of a product candidate for many reasons, including the following:

The FDA also may approve a product for fewer indications than are requested or may condition approval on the performance of post-approval clinical studies. Even if we receive FDA and other regulatory approvals, our products may later exhibit adverse effects that limit or prevent their widespread use or that force us to withdraw those products from the market. Any product and its manufacturer will continue to be subject to strict regulations after approval. Any problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market. The process of obtaining approvals in foreign countries is subject to delay and failure for many of the same reasons.

The process of obtaining required FDA and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Provenge and our other investigational active immunotherapies are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Provenge and our other active immunotherapy products under development.

To date, the FDA has not approved for commercial sale in the United States any cancer vaccine designed to stimulate the body’s immune system cells to kill cancer cells directly. Consequently, there is no precedent for the successful commercialization of products based on our technologies in this area. In addition, we have had only limited experience in filing and pursuing the applications necessary to gain regulatory approvals for marketing and commercial sale, which may impede our ability to obtain FDA approvals. We will not be able to commercialize any of our potential products until we obtain FDA approval. Therefore, any delay in obtaining, or inability to obtain, FDA approval of any of our product candidates could materially harm our business and reduce our stock price.

We must comply with extensive regulation, which is costly, time consuming and may subject us to unanticipated delays. Even if we obtain regulatory approval for the commercial sale of any of our product candidates, those product candidates may still face regulatory difficulties.

Our activities, including preclinical studies, clinical trials and manufacturing, are subject to extensive regulation by the FDA and comparable authorities outside the United States. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the efficacy and safety of a potential product. The FDA regulates preclinical studies under a series of regulations called the current Good Laboratory Practices. If we violate these regulations, the FDA, in some cases, may invalidate the studies and require that we replicate those studies.

An investigational new drug application, or IND, must become effective before human clinical trials may commence. The investigational new drug application is automatically effective 30 days after receipt by the FDA unless, before that time, the FDA requests an extension to review the application, or raises concerns or questions about the design of the trials as described in the application. In the latter case, any outstanding concerns must be resolved with the FDA before clinical trials can proceed. Thus, the submission of an IND may not result in FDA authorization to commence clinical trials in any given case. After authorization is received, the FDA retains authority to place the IND, and clinical trials under that IND, on clinical hold.

All of those involved in the preparation of a therapeutic drug for clinical trials or commercial sale, including contract manufacturers for Provenge or Neuvenge, and clinical trial investigators, are subject to extensive regulation by the FDA. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with a series of complex regulations called current Good Manufacturing Practices, or cGMP and/or the Quality Systems Regulations, or QSR. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of FDA approval of Provenge or any of our other potential products. In addition, the FDA may, at any time, audit our clinical trials or audit or inspect a manufacturing facility involved with the preparation of Provenge or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. The FDA also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulation occurs independent of such an inspection or audit, we or the FDA may require remedial measures that may be costly and/or time consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. The FDA may also disqualify a clinical trial in whole or in part from consideration in support of approval of a potential product for commercial sale or otherwise deny approval of that product. Any such remedial measures imposed upon us or third parties with whom we contract could harm our business.

If we make changes in our manufacturing processes for a product candidate, including the substitution of components of Provenge or the expansion of production capabilities to commercial scale, the FDA and corresponding foreign authorities may require us to demonstrate that the changes have not caused the product candidate to differ significantly from that previously produced. Also, we may want to rely on results of prior preclinical studies and clinical trials performed using the form of the product candidate produced using the prior method or at the prior scale. Depending upon the type and degree of differences between the newer and older product candidate, we may be required to conduct additional studies or clinical trials to demonstrate that the newly produced component or product candidate is sufficiently similar to the previously produced material. We have scaled up the antigen and other components used in the preparation of Provenge to commercial manufacturing levels and plan to construct manufacturing facilities capable of meeting anticipated commercial demand. In addition, we may make manufacturing changes to the components or to the manufacturing process. These changes could result in delays in the development or regulatory approval of Provenge or in reduction or interruption of commercial sales, if Provenge is approved, any of which could materially harm our business.

If we or our contract manufacturer are not in compliance with regulatory requirements at any stage, including post-marketing approval, we may be subject to criminal prosecution, fined, forced to remove a product from the market and/or experience other adverse consequences, including delays, which could materially harm our financial results. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of our products. We may also be required to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory, the FDA may withdraw marketing authorization or may condition continued marketing on commitments from us that may be expensive and/or time consuming to fulfill. In addition, 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 and reformulation of our products, additional clinical trials, changes in labeling of our products and additional marketing applications may be required.

Our competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner, which may diminish or eliminate the commercial success of any products we may commercialize.

Competition in the cancer therapeutics field is intense and is accentuated by the rapid pace of technological development. We anticipate that we will face increased competition in the future as new companies enter our markets. Research and discoveries by others may result in breakthroughs that render Provenge or our other potential products obsolete even before they begin to generate any revenue.

There are products currently under development by others that could compete with Provenge or other products that we are developing. For example, Cell Genesys, Inc. and Therion Biologics Corporation are developing prostate cancer vaccines that could potentially compete with Provenge. AVI BioPharma, Inc. and Therion Biologics Corporation are in Phase 2 clinical trials of their prostate cancer vaccines. Cell Genesys, Inc. has initiated Phase 3 clinical trials of its prostate cancer vaccine. Other products such as chemotherapeutics, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could potentially compete with Provenge and our other product candidates. A chemotherapeutic, Taxotere, was approved by the FDA in 2004 for the therapeutic treatment of metastatic androgen-independent prostate cancer.

Some of our competitors in the cancer therapeutics field have substantially greater research and development capabilities and manufacturing, marketing, financial and managerial resources than we do. If our products receive marketing approval, but cannot compete effectively in the marketplace, our profitability and financial position will suffer.

Even if Provenge or any of our other potential products are approved and sold, physicians may not ultimately use them or may use them only in applications more restricted than we expect. Physicians will only prescribe a product if they determine, based on experience, clinical data, side effect profiles and other factors, that it is beneficial and preferable to other products then in use. Many other factors influence the adoption of new products, including marketing and distribution restrictions, course of treatment, adverse publicity, product pricing, the views of thought leaders in the medical community, and reimbursement by government and private third party payers.

Failure to retain key personnel could impede our ability to develop our products and to obtain new collaborations or other sources of funding.

We depend, to a significant extent, on the efforts of our key employees, including senior management and senior scientific, clinical, regulatory and other personnel. The development of new therapeutic products requires expertise from a number of different disciplines, some of which are not widely available. We depend upon our scientific staff to discover new product candidates and to develop and conduct preclinical studies of those new potential products. Our clinical and regulatory staff is responsible for the design and execution of clinical trials in accordance with FDA requirements and for the advancement of our product candidates toward FDA approval. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their success in performing their responsibilities, may directly influence the success of our product development programs. In addition, our Chief Executive Officer and other executive officers are involved in a broad range of critical activities, including providing strategic and operational guidance. The loss of these individuals, or our inability to retain or recruit other key management and scientific, clinical, regulatory and other personnel, may delay or prevent us from achieving our business objectives. We face intense competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.

We must expand our operations to commercialize our products, which we may not be able to do.

We will need to expand and effectively manage our operations and facilities to successfully pursue and complete development of Provenge, develop the necessary commercial infrastructure, and pursue development of our other product candidates. We will need to add manufacturing capability, information technology systems, a distribution network, and personnel related to these functions. We will also need to add quality control, quality assurance, marketing and sales personnel, and personnel in all other areas of our operations, which may strain our existing managerial, operational, financial and other resources. To compete effectively and manage growth in our personnel and capabilities, we must, among other things:

We have no experience in commercial-scale manufacturing of Provenge, the installation and management of large-scale information technology systems, or the management of a large-scale distribution network. We also have no experience in

sales, marketing or distribution of Provenge or our other potential products. As we begin to build our sales capability in anticipation of the approval and commercial launch of Provenge, we may be unable to successfully recruit an adequate number of qualified sales representatives or retain a third party to provide sales, marketing or distribution resources.

If we fail to manage our growth effectively, recruit required personnel or expand our operations within our planned time and budget, our product development and commercialization efforts for Provenge or our other product candidates could be curtailed or delayed which could harm our business.

We have no commercial or other large-scale manufacturing experience and may rely on third party manufacturers, which will limit our ability to control the availability of, and manufacturing costs for, our product candidates.

To be successful, our product candidates must be capable of being manufactured in sufficient quantities, in compliance with regulatory requirements and at an acceptable cost. We have no commercial or other large-scale manufacturing experience. We rely on third parties for certain aspects of the commercial and clinical trial manufacture of Provenge, and its components and our other product candidates. A limited number of contract manufacturers are capable of manufacturing the components of Provenge or the final manufacture of Provenge. If we cannot contract for large-scale manufacturing capabilities that we require on acceptable terms, or if we encounter delays or difficulties with manufacturers and cannot manufacture the contracted components or product candidate ourselves, we may not be able to conduct clinical trials as planned or to meet demand for Provenge, if it is approved, any of which could harm our business.

It may be difficult or impossible to economically manufacture Provenge or our other product candidates on a commercial scale. Manufacturing and other costs for any or all of our product candidates may reduce or limit their profitability and impair or prevent us from successfully commercializing them.

We have contracted with Diosynth RTP, Inc. to assist us in the production of the antigen used in the preparation of Provenge. We currently do not have a long term contract for the commercial manufacture of the antigen used in the preparation of Provenge. While we plan to negotiate such a contract with a third party manufacturer, there is no assurance that we will be able to do so on acceptable terms or at all. Failure to successfully negotiate such an agreement could delay or impede the commercialization of Provenge.

We operate a manufacturing facility for the preparation of Provenge for our clinical trials. We also contract with third parties to provide these services. These facilities may not be sufficient to meet our needs for Provenge and other clinical trials. To manufacture Provenge in commercial quantities ourselves, we will need to invest substantial additional funds. We will also be required to hire and train a significant number of employees and comply with applicable regulations for these facilities, which are extensive. We may not be able to develop manufacturing facilities that both meet regulatory requirements and are sufficient for commercial use.

We also will rely upon contract manufacturers for components of Provenge for commercial sale, if Provenge is approved for sale. We have contracts with contract manufacturers for commercial level production for some, but not all of these components. While we plan to negotiate contracts for commercial level production with contract manufacturers for all components we do not produce ourselves, there is no assurance that we will be able to do so on acceptable terms or at all. Failure to negotiate such contracts could delay or prevent the successful commercialization of Provenge.

In addition, problems with any of our or our contract manufacturers’ facilities or processes could result in failure to produce or a delay in production of adequate supplies of antigen, components or finished Provenge. This could delay or reduce commercial sales and harm our business. Any prolonged interruption in the operations of our or our contract manufacturers’ facilities could result in cancellation of shipments, loss of components in the process of being manufactured or a shortfall in available inventory. A number of factors could cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters, changes in FDA regulatory requirements or standards that require modifications to our manufacturing processes, action by the FDA or by us that results in the halting or slowdown of production of components or finished product due to regulatory issues, a contract manufacturer going out of business or failing to produce product as contractually required or other similar factors. Because our manufacturing processes and those of our contractors are highly complex and are subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties or delays in our or our contract manufacturers’ manufacturing and supply of components or finished product could delay completion of our clinical trials, increase our costs, damage our reputation and, for Provenge, if it is approved for sale, cause us to lose revenue or market share.

We may also experience insufficient available capacity to manufacture or have manufactured for us components or finished product for others of our product candidates which could cause shortfalls of available inventory and an inability to supply our clinical trials for either a short period of time or an extended period of time.

We currently depend on single-source vendors for some of the components necessary for our active immunotherapy candidates, including Provenge. There are, in general, relatively few alternative sources of supply for these components. While these vendors have produced our active immunotherapy components with acceptable quality, quantity and cost in the past, they may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components could take a substantial amount of time and it may be difficult to establish replacement vendors who meet regulatory requirements. If we have to switch to a replacement vendor, the manufacture and delivery of Provenge or others of our active immunotherapy candidates could be interrupted for an extended period, adversely affecting our business.

If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.

We invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through numerous United States and foreign patent filings, trademarks and trade secrets that we own or license. Our patent applications are in various stages of prosecution. We expect that we will continue to file and prosecute patent applications and that our success depends in part on our ability to establish and defend our proprietary rights in the technologies that are the subject of issued patents and patent applications.

The fact that we have filed a patent application or that a patent has issued, however, does not ensure that we will have meaningful protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated or circumvented. In addition, our pending patent applications, those we may file in the future, or those we may license from third parties may not result in issued patents. Patents may not provide us with adequate proprietary protection or advantages against competitors with similar or competing technologies. Thus, any patent that we own or license from third parties may not provide adequate protection against competitors.

We are also subject to the risk of claims, whether meritorious or not, that our active immunotherapies infringe a patent owned by a third party. If a lawsuit making any such claims were brought against us, we would assert that the patent at issue is either invalid or not infringed. We may not be able to establish non-infringement, however, and we may not be able to establish invalidity of the other party’s patent. If we are found to infringe a valid patent, we could be required to seek a license or discontinue or delay commercialization of the affected products, and we could be required to pay substantial damages, which could materially harm our business.

Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated by very large companies may cause us to be at a disadvantage in defending our property rights. Even if we are able to defend our positions, the cost of doing so may adversely affect our profitability. We have not experienced significant patent litigation. This may reflect, however, the fact that we have not yet commercialized any products. We may be subject to such litigation and may not be able to protect our intellectual property at a reasonable cost, if such litigation is initiated.

We may collaborate with a pharmaceutical or biotechnology company in the commercialization, marketing and distribution of Provenge in the United States, and may collaborate with other companies in the development and commercialization of our other potential products. In some cases, we may develop a product candidate in collaboration with other companies in order to share the development risk, to gain access to complementary technologies or facilities or for other reasons. The existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, could impede our ability to enter into collaborative relationships on an advantageous basis or at all.

We also rely on trade secrets and unpatentable know-how that we seek to protect, in part, by using confidentiality agreements. Our policy is to require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing that all inventions conceived while rendering services to us shall

be assigned to us as our exclusive property. It is possible, however, that these parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible that our trade secrets or unpatentable know-how will otherwise become known to or be independently developed by competitors.

The availability and amount of reimbursement for our potential products and the manner in which government and private payers may reimburse for our potential products is uncertain; we may face challenges from government or private payers that adversely affect reimbursement for our potential products.

We expect that many of the patients who seek treatment with Provenge or any other products that are approved for marketing, will be eligible for Medicare benefits. Other patients may be covered by private health plans or uninsured. The application of existing Medicare regulations and interpretive rulings to newly approved products, especially novel products such as ours, is not certain, and those regulations and interpretive rulings are subject to change. The Medicare Prescription Drug Improvement and Modernization Act, enacted in December 2003, provides for a reduction in the Medicare reimbursement rates for many drugs, including oncology therapeutics, which may adversely affect reimbursement for Provenge, if it is approved for sale, or others of our product candidates. If we are unable to obtain or retain adequate levels of reimbursement from Medicare or from private health plans, our ability to sell Provenge and our other potential products will be adversely affected. Medicare regulations and interpretive rulings also may determine who may be reimbursed for certain services. This may adversely affect our ability to market or sell Provenge or our other potential products, if approved.

Federal, state and foreign governments continue to propose legislation designed to contain or reduce health care costs. Legislation and regulations affecting the pricing of products like our potential products may change further or be adopted before Provenge or any of our potential products are approved for marketing. Cost control initiatives by governments or third party payers could decrease the price that we receive for any one or all of our potential products or increase patient coinsurance to a level that makes Provenge and our other products under development unaffordable. In addition, government and private health plans persistently challenge the price and cost-effectiveness of therapeutic products. Accordingly, these third parties may ultimately not consider Provenge or any or all of our products under development to be cost-effective, which could result in products not being covered under their health plans or covered only at a lower price. Any of these initiatives or developments could prevent us from successfully marketing and selling any of our potential products. We are unable to predict what impact the Medicare Modernization Act or other future regulation or third party payer initiatives, if any, relating to reimbursement for Provenge or any of our other potential products will have on sales of Provenge or those other product candidates, if any of them are approved for sale.

We are exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future.

Our business exposes us to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of therapeutic products. We have clinical trial insurance coverage, and we intend to obtain product liability insurance coverage in the future. However, this insurance coverage may not be adequate to cover claims against us or available to us at an acceptable cost, if at all. Regardless of their merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.

We use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.

Our operations produce hazardous waste products, including chemicals and radioactive and biological materials. We are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such substances, and store our low level radioactive waste at our facilities until the materials are no longer considered radioactive. We may be required to incur further costs to comply with current or future environmental and safety regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result and any such liability could exceed our resources.

If we do not progress in our programs as anticipated, our stock price could decrease.

For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a certain product candidate will enter clinical development, when a clinical trial will be completed or when an application for

regulatory approval will be filed. Some of our estimates are included in this report. We base our estimates on present facts and a variety of assumptions. Many of the underlying assumptions are outside of our control. If milestones are not achieved when we expect them to be, investors could be disappointed, and our stock price may fall.

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.

Market volatility may affect our stock price, and the value of your investment in our common stock may be subject to sudden decreases.

The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends on number of factors, including the following, many of which are beyond our control:

In addition, the stock market has from time to time experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock. The high and low intraday prices per share of our common stock on the Nasdaq National Market were $10.50 and $1.26 respectively in 2002, $10.50 and $4.01 respectively in 2003, and $16.72 and $7.23 respectively in 2004, and $11.04 and $5.34 during the three months ended March 31, 2005. The average daily trading volume of our common stock on the Nasdaq National Market was 132,760 shares in 2002, 669,347 shares in 2003, and 1,344,235 shares in 2004, and 2,031,530 shares during the three months ended March 31, 2005. During periods of stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to their individual operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole.

Anti-takeover provisions in our charter documents and under Delaware law and our stockholders’ rights plan could make an acquisition of us, which may be beneficial to our stockholders, more difficult.

Provisions of our certificate of incorporation and bylaws will make it more difficult for a third party to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts. For example, our certificate of incorporation authorizes our board of directors to issue up to 10,000,000 shares of preferred stock, of which

1,000,000 shares have been designated as “Series A Junior Participating Preferred Stock,” and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of our common stock will be subject to, and may be harmed by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could reduce the voting power of the holders of our common stock and the likelihood that common stockholders will receive payments upon liquidation.

In addition, our certificate of incorporation divides our board of directors into three classes having staggered terms. This may delay any attempt to replace our board of directors. We have also implemented a stockholders’ rights plan, also called a poison pill, which would substantially reduce or eliminate the expected economic benefit to an acquirer from acquiring us in a manner or on terms not approved by our board of directors. These and other impediments to a third party acquisition or change of control could limit the price investors are willing to pay in the future for shares of our common stock. Our board of directors adopted a Change of Control Executive Severance Plan providing severance benefits for participants in the event that their employment terminates involuntarily without cause or for good reason within twelve months after a change of control by us. This plan could affect the terms of a third party acquisition.

We are also subject to provisions of Delaware law that could have the effect of delaying, deferring or preventing a change in control of our company. One of these provisions prevents us from engaging in a business combination with any interested stockholder for a period of three years from the date the person becomes an interested stockholder, unless specified conditions are satisfied.

If registration rights that we have previously granted are exercised, then our stock price may be negatively affected.

We have granted registration rights in connection with the issuance of our securities to a number of our stockholders and warrant holders. In the aggregate, as of March 31, 2005, these registration rights covered approximately 8,912,218 shares of our common stock which were then outstanding and an additional 28,384 shares of our common stock which may become outstanding upon the exercise of warrants that were then outstanding. If these registration rights, or similar registration rights that may apply to securities we may issue in the future, are exercised by the holders, it could result in additional sales of our common stock in the market, which may have an adverse effect on our stock price.

Our issuance of shares pursuant to existing or future collaborations or other agreements or under our shelf registration statement will dilute the equity ownership of our existing stockholders.

Under our agreement with Genentech, Inc., if a specified milestone relating to trp-p8 is achieved, Genentech, Inc. is obligated to purchase from us $2.5 million of our common stock at a price based on the average closing price of our stock over the 30 prior trading days.

An agreement between Abgenix, Inc., Inc. and Corvas International provides that in the event the parties elect to expand the research program covered by that agreement, Abgenix, Inc. would be obligated to purchase $5 million of Corvas International common stock. In our acquisition of Corvas International, our subsidiary, Dendreon San Diego LLC, succeeded to the rights and obligations of Corvas International under this agreement. In the event that the parties elect to expand the research program, we anticipate that the equity investment by Abgenix, Inc. would be made in exchange for shares of Dendreon common stock.

In connection with other collaborations that we may enter into in the future, we may issue additional shares of common stock or other equity securities, and the value of the securities issued may be substantial.

We may sell up to $40.75 million of our common stock under our outstanding shelf registration statement. Future sales under our shelf registration statement will depend primarily on the market price of our common stock, the interest in our company by institutional investors and our cash needs. In addition, we may register additional shares with the SEC for sale in the future. Each of our issuances of common stock to investors under our registration statements or otherwise will proportionately decrease our existing stockholders’ percentage ownership of our total outstanding equity interests and may reduce our stock price.

We do not intend to pay cash dividends on our common stock in the foreseeable future.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, we may become subject to contractual restrictions or prohibitions on the payment of dividends.

As of March 31, 2005, we had short-term investments of $93.4 million and long-term investments of $2.8 million. Our short-term and long-term investments are subject to interest rate risk and will decline in value if market interest rates increase. The estimated fair value of our short- and long-term investments, assuming a 100 basis point increase in market interest rates, would decrease by approximately $202,023, which would not materially impact our operations. We limit our exposure to adjustable interest rates on our lease line by capping the interest rate at a fixed amount. Our outstanding capital lease obligations are all at fixed interest rates and therefore have minimal exposure to changes in interest rates.

We evaluated the effectiveness of the design and operation 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, as of the end of the period covered by this report. Our principal executive and financial officers supervised and participated in the evaluation. Based on the evaluation, our principal executive and financial officers each concluded that, as of the date of the evaluation, our disclosure controls and procedures were effective in providing reasonable assurance that material information relating to Dendreon and our consolidated subsidiaries is made known to management, including during the period when we prepare our periodic SEC reports. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In 2002, we issued 60,000 warrants to purchase our common stock to certain employees of Shoreline Pacific, LLC in connection with a contract for financial advisory and consulting services. 30,000 warrants have an exercise price of $2.50 per share and 30,000 warrants have an exercise price equal to $6.25 per share. On January 12, 2005, a Shoreline warrant holder completed a cashless exercise of 3,000 warrants with an exercise price of $6.25 resulting in a net issuance of 1,161 shares of common stock.

As of March 31, 2005, 11,000 warrants remain outstanding and are exercisable at any time. The issuance of the warrants to Shoreline Pacific (and the issuance of common stock upon exercise thereof) was exempt from the registration provisions of the Securities Act under Section 4(2) thereof because of the nature of the transaction and the Shoreline warrant holders and the manner in which the offering was conducted.

We filed the following Current Reports on Form 8-K during the quarterly period ended March 31, 2005:

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.


DENDREON CORPORATION

By:		/s/ MARTIN A. SIMONETTI
		Martin A. Simonetti Senior Vice President, Finance Chief Financial Officer and Treasurer *(Principal Financial and Accounting Officer* *and Duly Authorized Officer)*


DELAWARE		22-3203193
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


		PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004	2
	Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 (unaudited)	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits and Reports on Form 8-K	28
SIGNATURES		29
EXHIBIT INDEX		30


	March 31, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	78,843		$	54,501
Short-term investments		93,396			122,559
Accounts receivable		5,757			5,652
Prepaid and other current assets		3,014			3,743

Total current assets		181,010			186,455
Property and equipment, net		8,960			6,298
Long-term investments		2,806			18,670
Receivable, net of current portion		5,298			5,195
Deposits and other assets		735			735

Total assets	$	198,809		$	217,353

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,065		$	532
Accrued liabilities		9,270			9,903
Accrued compensation		2,293			3,998
Current portion of deferred revenue		93			93
Current portion of capital lease obligations		1,987			1,194

Total current liabilities		14,708			15,720
Deferred revenue, less current portion		615			639
Capital lease obligations, less current portion		3,115			2,429

Total liabilities		18,438			18,788

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.001 par value; 80,000,000 shares authorized, 59,232,195 and 59,051,775 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively		59			59
Additional paid-in capital		420,027			418,929
Deferred stock-based compensation		(481	)		(663	)
Accumulated other comprehensive loss		(537	)		(564	)
Accumulated deficit		(238,697	)		(219,196	)

Total stockholders’ equity		180,371			198,565

Total liabilities and stockholders’ equity	$	198,809		$	217,353


	Three Months Ended March 31,
	2005			2004
				(restated)
Revenue	$	57		$	4,679
Operating expenses:
Research and development		15,889			13,698
General and administrative		3,926			6,110
Marketing		846			218

Total operating expenses		20,661			20,026

Loss from operations		(20,604	)		(15,347	)
Interest income		1,177			851
Interest expense		(74	)		(84	)
Other expense		—			(290	)

Loss before income taxes		(19,501	)		(14,870	)
Foreign income tax expense		—			(30	)

Net loss	$	(19,501	)	$	(14,900	)

Basic and diluted net loss per share	$	(0.33	)	$	(0.28	)

Shares used in computation of basic and diluted net loss per share		59,136			53,541


	Three Months Ended March 31,
	2005			2004
				(restated)
Operating Activities:
Net loss	$	(19,501	)	$	(14,900	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		759			663
Non-cash stock-based compensation expense		357			1,864
Non-cash stock-based consulting expense		76			—
Non-cash interest expense		—			4
Impairment of fixed assets		—			744
Changes in operating assets and liabilities:
Accounts receivable		(208	)		(319	)
Other current assets		729			(772	)
Deposits and other assets		—			6
Deferred revenue		(24	)		(26	)
Accounts payable		533			(869	)
Accrued liabilities and compensation		(2,338	)		(1,286	)

Net cash used in operating activities		(19,617	)		(14,891	)

Investing Activities:
Purchases of investments		—			(126,249	)
Maturities of investments		45,054			36,773
Purchases of property and equipment		(1,688	)		(400	)

Net cash provided by (used in) investing activities		43,366			(89,876	)

Financing Activities:
Proceeds from sale-leaseback financing agreement		—			748
Payments on capital lease obligations		(254	)		(342	)
Proceeds from sale of equity securities, net of issuing costs		—			140,488
Proceeds from exercise of stock options and warrants		178			4,017
Issuance of common stock under the Employee Stock Purchase Plan		669			625

Net cash provided by financing activities		593			145,536

Net increase in cash and cash equivalents		24,342			40,769
Cash and cash equivalents at beginning of year		54,501			44,349

Cash and cash equivalents at end of period	$	78,843		$	85,118

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	74		$	77

Capital expenditures financed through capital lease	$	1,733		$	—

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	Three months ended March 31,
(in thousands, except per share data)	2005			2004
Net loss, as reported	$	(19,501	)	$	(14,900	)
Add: stock based employee compensation expense included in reported net loss		357			1,864
Deduct: pro forma expense determined based on the fair value method of FAS 123		(2,056	)		(3,409	)

Pro forma net loss	$	(21,200	)	$	(16,445	)

Basic and diluted net loss per share as reported	$	(0.33	)	$	(0.28	)

Pro forma and basic and diluted net loss per share	$	(0.36	)	$	(0.31	)


	Three months ended March 31,
	2004			2003
Net loss	$	(19,501	)	$	(14,900	)
Net unrealized gain on securities		27			41

Comprehensive loss	$	(19,474	)	$	(14,859	)


	2005		2004
Clinical programs:
Cancer	$	5.5	$	3.1
Indirect costs		8.6		8.6

Total clinical programs		14.1		11.7
Discovery research		1.8		2.0

Total research and development expense	$	15.9	$	13.7


Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation (1)

3.2		Amended and Restated Bylaws (2)

4.1		Specimen Common Stock certificate (3)

4.2		Rights Agreement dated as of September 18, 2002 between Dendreon Corporation and Mellon Investor Services LLC (including the exhibits thereto) (4)

4.3		Dendreon Corporation Certificate of Designation of Series A Junior Participating Preferred Stock (4)

4.4		Form of Right Certificate (4)

31.1		Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer

32		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer