UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

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

Commission File Number: 000-30681

DENDREON CORPORATION

DELAWARE		22-3203193
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
3005 FIRST AVENUE		98121
SEATTLE, WASHINGTON		(Zip Code)
(Address of registrant’s principal executive offices)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): o Yes No þ

     The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of April 28, 2011 was 145,832,004.

 

 

DENDREON CORPORATION

INDEX

		PAGE NO.
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010			3
Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)			4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)			5
Notes to Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION			30
Item 1. Legal Proceedings			30
Item 6. Exhibits			31
SIGNATURES			32
EXHIBIT INDEX			33
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

DENDREON CORPORATION

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	555,297			$	132,995
Short-term investments			157,094				121,796
Trade accounts receivable			16,864				12,679
Inventory			38,872				30,928
Prepaid antigen costs			24,325				17,656
Prepaid expenses and other current assets			21,925				14,340
Total current assets			814,377				330,394
Property and equipment, net			244,206				246,889
Long-term investments			66,630				22,505
Other assets			5,475				4,165
Total assets		$	1,130,688			$	603,953
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	11,980			$	7,847
Accrued liabilities			21,355				19,842
Accrued compensation			15,727				17,410
Convertible senior notes due 2016			491,424				—
Current portion of capital lease obligations			3,818				4,045
Current portion of facility lease obligations			948				935
Total current liabilities			545,252				50,079
Long-term accrued liabilities			6,840				6,760
Capital lease obligations, less current portion			5,124				7,099
Facility lease obligations, less current portion			19,336				19,556
Convertible senior subordinated notes due 2014			27,685				27,685
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding			—				—
Common stock, $0.001 par value; 250,000,000 shares authorized, 145,699,241 and 145,233,948 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			145				145
Additional paid-in capital			1,861,000				1,715,522
Accumulated other comprehensive income			8				41
Accumulated deficit			(1,334,702	)			(1,222,934	)
Total stockholders’ equity			526,451				492,774
Total liabilities and stockholders’ equity		$	1,130,688			$	603,953

See accompanying notes

DENDREON CORPORATION

		Three Months Ended
		March 31,
		2011				2010
Revenue		$	28,061			$	21
Cost of revenue			18,338				—
Gross profit			9,723				21
Operating expenses:
Research and development			17,609				29,414
Selling, general and administrative			95,289				28,218
Total operating expenses			112,898				57,632
Loss from operations			(103,175	)			(57,611	)
Other income (expense):
Interest income			400				278
Interest expense			(8,993	)			(314	)
Loss from valuation of warrant liability			—				(68,083	)
Net loss		$	(111,768	)		$	(125,730	)
Basic and diluted net loss per share		$	(0.77	)		$	(0.96	)
Shares used in computation of basic and diluted net loss per share			145,494				131,456

See accompanying notes

DENDREON CORPORATION

		Three Months Ended March 31,
		2011				2010
Operating Activities:
Net loss		$	(111,768	)		$	(125,730	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			7,409				2,465
Non-cash stock-based compensation expense			14,676				7,070
Loss on valuation of warrant liability			—				68,083
Amortization of securities discount and premium			561				355
Amortization of convertible notes discount and debt issuance costs			4,756				107
Other			391				(20	)
Changes in operating assets and liabilities:
Trade accounts receivable			(4,185	)			—
Inventory			(4,680	)			(1,644	)
Prepaid antigen costs			(9,933	)			(1,346	)
Prepaid expenses and other assets			892				(861	)
Accounts payable			4,133				7,958
Accrued liabilities and compensation			(170	)			4,222
Net cash used in operating activities			(97,918	)			(39,341	)
Investing Activities:
Maturities and sales of investments			68,201				71,044
Purchases of investments			(146,289	)			(128,071	)
Purchases of property and equipment			(5,129	)			(37,923	)
Net cash used in investing activities			(83,217	)			(94,950	)
Financing Activities:
Net proceeds from issuance of convertible debt			607,129				—
Payments on facility lease obligations			(207	)			(145	)
Payments on capital lease obligations			(2,202	)			(369	)
Proceeds from release of security deposits			1,822				—
Payments on letters of credit			(3,789	)			—
Net proceeds from exercise of stock options and other			684				(462	)
Net cash provided by (used in) financing activities			603,437				(976	)
Net increase (decrease) in cash and cash equivalents			422,302				(135,267	)
Cash and cash equivalents at beginning of year			132,995				409,829
Cash and cash equivalents at end of period		$	555,297			$	274,562
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest		$	862			$	230
Assets acquired under facility and capital leases			—				6,663
Increase in asset retirement obligation			—				199

See accompanying notes

DENDREON CORPORATION

1. BUSINESS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

Business

     Dendreon Corporation (“Dendreon”, the “Company”, “we”, “us”, or “our”), a Delaware corporation, is a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that may significantly improve cancer treatment options for patients. Our product portfolio includes active cellular immunotherapy and small molecule product candidates to treat a wide range of cancers.

     On April 29, 2010 (the “Approval Date”), the U.S. Food and Drug Administration (“FDA”) licensed PROVENGE^® (sipuleucel-T), our first in class autologous cellular immunotherapy for the treatment of asymptomatic and minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer. Commercial sale of PROVENGE began in May 2010. Prostate cancer is the most common non-skin cancer among men in the United States, with over one million men currently diagnosed with the disease, and the second leading cause of cancer deaths in men in the United States. We own worldwide rights for PROVENGE.

Principles of Consolidation

     The consolidated financial statements for the three months ended March 31, 2011 include the accounts of Dendreon and its direct and indirect wholly-owned subsidiaries, Dendreon UK Ltd., Dendreon Holdings, LLC, Dendreon Distribution, LLC and Dendreon Manufacturing, LLC. Dendreon UK and Dendreon Holdings are wholly-owned subsidiaries of the Company, and Dendreon Distribution and Dendreon Manufacturing are wholly-owned subsidiaries of Dendreon Holdings.

     All material intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

     The accompanying unaudited financial statements reflect, in the opinion of management, all adjustments, consisting of only 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 U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles 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, 2010 (the “2010 Form 10-K”). The accompanying financial information as of December 31, 2010 has been derived from audited financial statements. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of future results that may be expected for the year ending December 31, 2011, or any other future period.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

     We recognize revenue primarily from the sale of PROVENGE and collaborative research agreements. Revenue from the sale of PROVENGE is recorded net of product returns and estimated healthcare provider contractual chargebacks. Revenue from sales of PROVENGE is recognized upon our confirmed product delivery to and issuance of the product release form to the physician site. As we executed a drop shipment agreement with a credit worthy third party wholesaler (the “Wholesaler”) to sell PROVENGE, the Wholesaler assumes all bad debt risk from the physician site or institution, and no allowance for bad debt is recorded. Due to the limited usable life of our product, actual returns are credited against sales in the month they are incurred. Healthcare provider contractual chargebacks are the result of contractual commitments by us to provide products to healthcare providers at specified prices or discounts pursuant to mandatory federal programs. Chargebacks occur when a contracted healthcare provider purchases our products through the Wholesaler at fixed contract prices that are lower than the price we charge the Wholesaler. The Wholesaler, in

turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the healthcare providers. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in product sales revenue, and are recorded as other accrued liabilities. For the three months ended March 31, 2011, we recorded chargebacks of approximately $0.4 million.

     We recognize collaborative research revenue from up-front payments, milestone payments, and personnel-supported research funding. We also recognize license revenue from intellectual property and technology agreements. The payments received under these research collaboration agreements are generally 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. Such revenue was insignificant for the three months ended March 31, 2011 and 2010.

Inventory

     Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. Inventories consisted of raw materials and finished goods at March 31, 2011, and raw materials at December 31, 2010, but we may also have work in process at any given time. We began capitalizing raw material inventory in mid-April 2009 in preparation for our PROVENGE product launch when the product was considered to have a high probability of regulatory approval and the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to mid-April 2009 have been recorded as research and development expense in our statement of operations. As a result, inventory balances and cost of revenue reflect a lower average per unit cost of materials.

Prepaid Antigen Costs

     The Company utilizes a third party supplier to manufacture and package the recombinant antigen used in the manufacture of PROVENGE. The Company takes title to this material when accepted from the third party supplier and stores it as raw material inventory for manufacturing and eventual sale. Upon successful manufacturing of the antigen, the prepaid costs of these materials are capitalized and transferred to inventory as antigen is received. As of March 31, 2011 and December 31, 2010, there were $24.3 million and $17.7 million, respectively, of prepaid costs associated with the purchase of the antigen used in the manufacture of PROVENGE, which Diosynth RTP, Inc. (“Diosynth”) is obligated to manufacture.

Research and Development Expenses

     Nonrefundable prepayments for research and development goods and services are deferred and recognized as the services are rendered. Research and development expenses include, but are not limited to, payroll and personnel expenses, lab expenses, clinical trial and related clinical manufacturing costs, facilities and related overhead costs.

Impairment of Long-Lived Assets

     Losses from impairment of long-lived assets used in operations are recognized when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered.

Convertible Senior Notes due 2016

     On January 14, 2011, we entered into an underwriting agreement with J.P. Morgan Securities LLC (the “Underwriter”) relating to the offer and sale of $540 million aggregate principal amount of our 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”). Under the terms of the underwriting agreement, we granted the Underwriter an option, exercisable within 30 days of the date of the agreement, to purchase up to an additional $80 million aggregate principal amount of 2016 Notes to cover overallotments, which was exercised in full, resulting in a total offering of $620 million. Net proceeds to us, after deducting underwriting fees and other offering expenses were approximately $607.1 million.

     The 2016 Notes are convertible at the option of the holder, and we may choose to satisfy the conversion in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares

of our common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $51.24 per share. The 2016 Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options.” Under ASC 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion. Amortization of the debt discount for the three months ended March 31, 2011 resulted in non-cash interest expense of $4.3 million.

Debt Issuance Costs

     We incurred debt issuance costs of approximately $12.9 million related to our 2016 Notes issued in January and February of 2011. In accordance with ASC 470-20, we allocated approximately $10.1 million of debt issuance costs to the liability component of the 2016 Notes, and are amortizing these costs to interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion. The remaining $2.8 million of debt issuance costs was allocated to the equity component of the 2016 Notes and recorded as an offset to additional paid-in capital upon issuance of the notes. Debt issuance costs of approximately $3.0 million related to our 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”) issued in June and July of 2007 are amortized over the life of the 2014 Notes.

     Amortization expense for the 2016 Notes and the 2014 Notes was approximately $0.5 million for the three months ended March 31, 2011, compared with amortization expense of $0.1 million related to the 2014 Notes for the three months ended March 31, 2010, and was reported as interest expense.

Warrant Liability

     On April 3, 2008, we issued 8.0 million shares (the “Shares”) of our common stock, and warrants (the “Warrants”) to purchase up to 8.0 million shares of common stock to an institutional investor (the “Investor”). The Investor purchased the Shares and Warrants for a negotiated price of $5.92 per share of common stock purchased. The Warrants were exercisable at any time prior to October 8, 2015, with an original exercise price of $20.00 per share of common stock and included a net exercise feature. On May 18, 2010 (the “Exercise Date”), we entered into an amendment (the “Amendment”) to the warrant agreement. Pursuant to the terms of the Amendment, the exercise price of the Warrants was amended from $20.00 to $8.92 per share, and the Investor concurrently exercised the warrant for 8,000,000 shares of common stock, resulting in aggregate cash proceeds to the Company of $71.4 million.

     The Warrants were recorded at fair value at issuance and were adjusted to fair value at each reporting period until the Exercise Date. Any change in fair value between reporting periods was recorded as other income (expense). The Warrants continued to be reported as a liability until they were exercised, at which time the Warrants were adjusted to fair value and reclassified from liabilities to stockholders’ equity. The fair value of the Warrants was estimated using the Black-Scholes-Merton (“BSM”) option pricing model. The fair value of the Warrants on the Exercise Date was $275.5 million. During the three months ended March 31, 2010, a loss of approximately $68.1 million was recognized from valuation of the warrant liability.

Fair Value

     We measure and report at fair value our cash equivalents and investment securities. We also measured and reported at fair value our warrant liability, prior to exercise of the Warrants in the second quarter of 2010. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

     Assets and liabilities typically recorded at fair value on a non-recurring basis include long-lived assets measured at fair value due to an impairment assessment under ASC 360-10, “Property, Plant and Equipment,” and asset retirement obligations initially measured under ASC 410-20, “Asset Retirement and Environmental Obligations.”

Accounting for Stock-Based Compensation

     Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized on the accelerated method as expense over the requisite service period. Compensation cost for all stock-based awards is measured at fair value as of the grant date. The fair value of our stock options is calculated using the BSM model. The BSM model requires various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period.

     We also grant restricted stock awards that generally vest and are expensed over a four year period. In December 2010 we granted restricted stock awards with certain performance conditions to certain executive officers. At each reporting date, we are required to evaluate whether achievement of the performance condition is probable. Compensation expense is recorded based upon our assessment of accomplishing each performance provision, over the appropriate service period. For the three months ended March 31, 2011, no expense was recognized related to these awards.

Net Loss Per Share

     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, as well as shares issuable in connection with the conversion of the 2014 Notes and the 2016 Notes and our Common Stock Purchase Agreement with Azimuth Opportunity Ltd. (the “Common Stock Purchase Agreement”) that expired during October 2010, from the calculation of diluted net loss per common share because all such securities are anti-dilutive to the computation of net loss per share. As of March 31, 2011 and 2010, shares excluded from the computation of net loss per share were 20,499,413 and 32,210,671, respectively.

3. INVESTMENTS

     Securities available-for-sale at cost or amortized cost and fair market value by contractual maturity were as follows:

		Cost or
		Amortized				Fair Market
		Cost				Value
		(In thousands)
March 31, 2011
Due in one year or less		$	157,069			$	157,094
Due after one year through two years			66,647				66,630
		$	223,716			$	223,724
December 31, 2010
Due in one year or less		$	121,756			$	121,796
Due after one year through two years			22,504				22,505
		$	144,260			$	144,301

     Our gross realized gains and losses on sales of available-for-sale securities were not material for the three months ended March 31, 2011 and 2010.

     Securities available-for-sale, short-term and long-term, consisted of the following:

		Cost or				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
March 31, 2011
Demand deposit		$	8,454			$	—			$	—			$	8,454
Corporate debt securities			138,897				25				(53	)			138,869
Government-sponsored enterprises			54,323				21				(1	)			54,343
U.S. Treasury Note			22,042				19				(3	)			22,058
		$	223,716			$	65			$	(57	)		$	223,724
December 31, 2010
Demand deposit		$	6,232			$	—			$	—			$	6,232
Corporate debt securities			59,778				21				(21	)			59,778
Government-sponsored enterprises			63,199				39				(8	)			63,230
U.S. Treasury Note			15,051				10				—				15,061
		$	144,260			$	70			$	(29	)		$	144,301

     None of our securities have been in a continuous unrealized loss position for more than 12 months at March 31, 2011.

     Market values were determined for each individual security in the investment portfolio. The declines in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. It is not likely that we will be required to sell these securities before the recovery of their amortized cost basis; therefore we do not consider these investments to be other-than-temporarily impaired as of March 31, 2011. See Note 4 for further discussion.

     We had $8.5 million and $6.2 million in secured deposits for various letters of credit as of March 31, 2011 and December 31, 2010, respectively, which are classified as long-term investments.

4. FAIR VALUE MEASUREMENTS

     We currently measure and report at fair value our cash equivalents and investment securities. We also measured and reported at fair value our warrant liability, prior to exercise of the Warrants in the second quarter of 2010. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy of fair value measurements is described below:

     Level 1 — Observable inputs for identical assets or liabilities such as quoted prices in active markets;

     Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

     Level 3 — Unobservable inputs in which little or no market data exists, therefore determined using estimates and assumptions developed by us, which reflect those that a market participant would use.

     The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis (in thousands):

						Quoted Prices
						in Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
						Assets (Level				Inputs (Level				Inputs (Level
Description		Balance				1)				2)				3)
						(In thousands)
March 31, 2011
Assets:
Money market		$	472,024			$	472,024			$	—			$	—
Commercial paper			47,998				—				47,998				—
Corporate debt securities			138,869				—				138,869				—
Government-sponsored enterprises			54,343				—				54,343				—
U.S. Treasury notes			22,058				—				22,058				—
Total financial assets		$	735,292			$	472,024			$	263,268			$	—
December 31, 2010
Money market		$	112,138			$	112,138			$	—			$	—
Commercial paper			9,997				—				9,997				—
Corporate debt securities			59,778				—				59,778				—
Government-sponsored enterprises			63,230				—				63,230				—
U.S. Treasury notes			15,061				—				15,061				—
Total financial assets		$	260,204			$	112,138			$	148,066			$	—

     Our fixed income investment securities are valued using the market approach.

     The fair value of the 2014 Notes and the 2016 Notes at March 31, 2011, was approximately $101.2 million and $655.7 million, respectively, based on the average trading prices of similar instruments at March 31, 2011 (a “Level 2” input).

     The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities approximate fair value due to their short term nature. In addition, our capital lease obligations approximate fair value based on current interest rates, which contain an element of default risk.

5. INVENTORY

Inventories, stated at the lower of cost or market, consisted of the following:

		March 31,				December 31,
		2011				2010
		(In thousands)
Raw materials		$	38,409			$	30,928
Finished goods			463				—
Total Inventories		$	38,872			$	30,928

6. PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

		March 31,				December 31,
		2011				2010
		(In thousands)
Furniture and office equipment		$	4,608			$	4,591
Laboratory and manufacturing equipment			20,990				15,653
Computer equipment and software			48,599				44,490
Leasehold improvements			139,025				118,102
Buildings			22,030				18,053
Construction in progress			63,288				93,033
		$	298,540			$	293,922
Less accumulated depreciation and amortization			(54,334	)			(47,033	)
		$	244,206			$	246,889

     In August, 2005, we entered into an agreement to lease approximately 158,000 square feet of commercial manufacturing space in Morris Plains, New Jersey (the “New Jersey Facility”). The lease term is seven years, and we have the option to extend the lease for two ten-year periods and one five-year period, with the same terms and conditions except for rent, which adjusts upon renewal to market rate. The aggregate rent payable under the initial lease term is $7.2 million.

     The New Jersey lease requires us to provide the landlord with a letter of credit. We provided Wells Fargo, the bank that issued the letter of credit on our behalf, a security deposit to guarantee the letter of credit. The deposit of $1.9 million is recorded as a long-term investment as of March 31, 2011 and December 31, 2010 on our consolidated balance sheets.

     As part of an agreement with the Township of Hanover relating to the permitting of the expansion of our New Jersey Facility, which was substantially completed in May 2010, we had $1.9 million in long-term investments being held as a security deposit to ensure completion of certain improvements at the property as of December 31, 2010. In March 2011, this security deposit was reduced to $0.3 million.

     In August 2009, we entered into a lease with Knickerbocker Properties, Inc. XLVI for existing building space totaling approximately 184,000 rentable square feet in Orange County, California (the “Orange County Facility”) for use by us as a manufacturing facility following build-out. The initial lease term is ten and a half years, with two renewal terms of five years each. The lease includes a one-time purchase option exercisable during the first three years of the lease term. The aggregate rent payable under the initial lease term is $13.6 million.

     In July 2009, we entered into a lease with Majestic Realty Co. for building space totaling approximately 160,000 square feet in Atlanta, Georgia (the “Atlanta Facility”) for use by us as a manufacturing facility following build-out. The lease commenced when we took possession of the building upon substantial completion of construction of the building shell in March 2010. The initial lease term is ten and a half years, with five renewal terms of five years each. The aggregate rent payable for the Atlanta Facility under the initial lease term is $6.7 million.

     The Orange County Facility and Atlanta Facility leases required us to provide the landlords with letters of credit in the total amount of $2.4 million as security deposits. The Atlanta Facility letter of credit totaling $222,000 was returned to us in May 2010. The Orange County Facility letter of credit was $2.2 million as of March 31, 2011 and December 31, 2010, and is secured by a deposit of $2.2 million. This deposit was recorded as a long-term investment on our consolidated balance sheets.

     The facility leases have provisions requiring that we restore the buildings to their original condition upon lease termination. Accordingly, we have accrued the estimated costs of dismantlement and restoration as these obligations accumulate. The following table is a roll forward of our asset retirement obligations:

		Three Months
		Ended				Year Ended
		March 31,				December 31,
Description (in thousands)		2011				2010
Beginning balance, January 1		$	6,610			$	1,322
Additions			—				5,157
Accretion			100				131
Ending balance		$	6,710			$	6,610

     In December 2010, we entered into an industrial revenue bond transaction related to our Atlanta Facility. Pursuant to the terms of the industrial revenue bonds, we transferred title to certain of our fixed assets with costs of $63.3 million, as of December 31, 2010, to a local governmental authority in the U.S. to receive a property tax abatement related to economic development. The title to these assets will revert back to us upon retirement or cancellation of the applicable bonds. These fixed assets are still recognized in our consolidated balance sheets as all risks and benefits remain with us.

     At March 31, 2011, construction in progress of $63.3 million included $26.9 million related to the build-out of the Orange County Facility, $24.3 million related to the build-out of the Atlanta Facility, $8.2 million of capitalized facility lease obligations, $1.4 million related to improvements for the newly leased office space, $1.2 million related to lab improvements and $1.3 million in software and other. At March 31, 2011, construction in progress included $1.4 million of capitalized interest, compared with $2.4 million at December 31, 2010. On February 28, 2011 and April 28, 2011, we submitted our requests to the FDA for licensure of the Orange County Facility and Atlanta Facility, respectively, to manufacture PROVENGE.

     Depreciation expense, including depreciation of assets acquired through capital leases, for the three months ended March 31, 2011 and 2010 was $7.4 million and $2.5 million, respectively.

7. ACCRUED LIABILITIES

     Accrued liabilities consisted of the following:

		March 31,				December 31,
		2011				2010
		(In thousands)
Deferred rent		$	1,106			$	1,187
Accrued property and equipment			1,303				4,454
Inventory receipts			2,621				3,022
Accrued consulting and other services			6,887				7,591
Accrued interest			3,899				105
Other accrued liabilities			5,539				3,483
		$	21,355			$	19,842

8. CONVERTIBLE NOTES

2016 Notes

     On January 14, 2011, we entered into an underwriting agreement with the Underwriter relating to the offer and sale of $540 million aggregate principal amount of our 2016 Notes. Under the terms of the underwriting agreement, we granted the Underwriter an option, exercisable within 30 days of the date of the agreement, to purchase up to an additional $80 million aggregate principal amount of 2016 Notes to cover overallotments. We issued $540 million in aggregate principal amount of the 2016 Notes upon the closing of the offering on January 20, 2011. Net proceeds to us, after payment of underwriting fees and estimated expenses, were approximately $528.8 million. On January 31, 2011, the Underwriter exercised the overallotment option in full, and we closed on the sale of the additional $80 million in principal amount of the 2016 Notes on February 3, 2011. Net proceeds to us from the exercise of the overallotment option, after deducting underwriting fees and other offering expenses, were approximately $78.3 million.

     On January 20, 2011, we entered into the First Supplemental Indenture (the “Supplemental Indenture”), dated as of January 20, 2011, with The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), to our existing Base Indenture (the “Base Indenture” and, together with the Supplemental Indenture, the “2016 Indenture”), dated as of March 16, 2007, with the Trustee. The 2016 Indenture sets forth the rights and provisions governing the 2016 Notes. Interest is payable on the 2016 Notes semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2011. Record dates for payment of interest on the 2016 Notes are each January 1 and July 1.

     The 2016 Notes are convertible at the option of the holder, and we may choose to satisfy the conversion in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of our common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $51.24 per share. The conversion rate will be increased under certain circumstances described in the 2016 Indenture; however, the number of shares of common stock issued upon conversion of a 2016 Note will not exceed 27.3224 per $1,000 principal amount of 2016 Notes, subject to adjustment in accordance with the 2016 Indenture.

     The offering of the 2016 Notes was made pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-163573), as amended by a post-effective amendment, including the related prospectus dated January 13, 2011 and the prospectus supplement dated January 14, 2011, each as filed with the Securities and Exchange Commission.

     The 2016 Notes are accounted for in accordance with ASC 470-20. Under ASC 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion.

     The application of ASC 470-20 resulted in the initial recognition of $132.9 million as the debt discount with a corresponding increase to additional paid-in capital, the equity component, for the 2016 Notes. At March 31, 2011, the net carrying amount of the liability component, which is recorded as a current liability in the consolidated balance sheet, and the remaining unamortized debt discount were as follows (in thousands):

		March 31,
		2011
Carrying amount of the equity component		$	132,876
Carrying amount of the liability component			491,424
Unamortized discount of the liability component			128,576

     Amortization of the debt discount and debt issuance costs for the three months ended March 31, 2011 resulted in non-cash interest expense of $4.7 million. In addition, interest expense for the three months ended March 31, 2011 was $3.4 million based on the

2.875% stated coupon rate. The fair value of the 2016 Notes at March 31, 2011, based on the average trading prices of similar instruments at March 31, 2011, was approximately $655.7 million.

     We have identified other embedded derivatives associated with the 2016 Notes and are accounting for these embedded derivatives accordingly. These embedded derivatives meet certain criteria and are therefore not required to be accounted for separately from the 2016 Notes.

2014 Notes

     In 2007, an aggregate of $85.3 million of the 2014 Notes were sold in a private placement to qualified institutional buyers. Proceeds from the offering, after deducting placement fees and our estimated expenses, were approximately $82.3 million. The 2014 Notes were issued at face principal amount and pay interest semi-annually in arrears on June 15 and December 15 of each year. Record dates for payment of interest on the 2014 Notes are each June 1st and December 1st. In certain circumstances, additional amounts may become due on the 2014 Notes as additional interest. We can elect that the sole remedy for an event of default for our failure to comply with the “reporting obligations” provisions of the indenture under which the 2014 Notes were issued (the “Indenture”), for the first 180 days after the occurrence of such event of default would be for the holders of the 2014 Notes to receive additional interest on the 2014 Notes at an annual rate equal to 1% of the outstanding principal amount of the 2014 Notes. We recorded interest expense, including the amortization of debt issuance costs, related to the 2014 Notes of $0.4 million and $0.7 million during the three months ended March 31, 2011 and 2010, respectively.

     The 2014 Notes are convertible into our common stock, initially at the conversion price of $10.28 per share, equal to a conversion rate of approximately 97.2644 shares per $1,000 principal amount of the 2014 Notes, subject to adjustment. There may be an increase in the conversion rate of the 2014 Notes under certain circumstances described in the Indenture; however, the number of shares of common stock issued will not exceed 114.2857 per $1,000 principal amount of the 2014 Notes. A holder that converts 2014 Notes in connection with a “fundamental change,” as defined in the Indenture, may in some circumstances be entitled to an increased conversion rate (i.e., a lower per share conversion price) as a make whole premium. If a fundamental change occurs, holders of the 2014 Notes may require us to repurchase all or a portion of their 2014 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2014 Notes to be repurchased, plus any accrued and unpaid interest and other amounts due thereon. The Indenture contains customary covenants.

     In April 2009, $11.5 million in principal amount of the 2014 Notes were converted by holders of the 2014 Notes, resulting in the issuance of approximately 1.1 million shares of common stock. In May 2009, we exchanged approximately 2.1 million shares of our common stock for $21.2 million principal face amount of the 2014 Notes. In December 2010, we exchanged approximately 2.5 million shares of common stock for $24.9 million principal face amount of the 2014 Notes, which included a premium of approximately 129,000 shares of common stock.

     We have identified embedded derivatives associated with the 2014 Notes. These embedded derivatives meet certain criteria and are therefore not required to be accounted for separately from the 2014 Notes.

     As of March 31, 2011 and December 31, 2010, the aggregate principal amount of the 2014 Notes outstanding was $27.7 million. The fair value of the 2014 Notes at March 31, 2011 and December 31, 2010, based on the average trading prices of similar instruments near each respective quarter-end, was approximately $101.2 million and $98.0 million, respectively.

9. STOCK-BASED COMPENSATION

     At March 31, 2011 and December 31, 2010, we had equity-based employee incentive plans, which are described more fully in Note 11 in the 2010 Form 10-K, and in the Definitive Proxy Statement for our 2011 Annual Meeting of Stockholders.

     Stock-based compensation expense for the three months ended March 31, 2011 and 2010 was as follows:

		Three Months Ended
		March 31,
		2011				2010
		(in millions)
Cost of revenue		$	1.0			$	—
Research and development			2.0				2.8
Selling, general and administrative			11.7				4.3
		$	14.7			$	7.1

     For the three months ended March 31, 2011 and 2010, tax deductions related to stock-based compensation expense were not recognized because of the availability of net operating losses, and therefore no such financing cash flows were reported.

     The fair value of stock-based awards was estimated at the date of grant using the BSM model with the following weighted average assumptions for the three months ended March 31:

		Employee Stock Options								Employee Stock Purchase Plan
		For the three months ended								For the three months ended
		March 31,								March 31,
		2011				2010				2011				2010
Weighted average estimated fair value		$	22.16			$	17.83			$	12.21			$	16.47
Weighted Average Assumptions
Dividend yield (A)			0.0	%			0.0	%			0.0	%			0.0	%
Expected volatility (B)			76	%			79	%			46	%			141	%
Risk-free interest rate (C)			2.24	%			2.08	%			0.05	%			0.45	%
Expected term (D)		5.0 years				4.4 years				1.2 years				1.0 years

     The following table summarizes our stock option activity during the three months ended March 31, 2011:

										Weighted-
						Weighted-				Average
						Average				Remaining
		Shares				Exercise				Contractual
		Under				Price per				Life (in				Aggregate
		Option				Share				years)				Intrinsic Value
Outstanding at January 1			2,672,972			$	23.78
Granted			564,033				35.65
Exercised			(144,750	)			9.16
Forfeited and expired			(76,568	)			36.42
Outstanding at March 31			3,015,687				26.38				8.29			$	34,905,646
Options exercisable at March 31			987,396				15.32				6.50			$	22,082,684

     As of March 31, 2011 we had approximately $24.9 million of unrecognized compensation expense related to our unvested stock options. We expect to recognize this compensation expense over a weighted-average period of approximately 1.6 years.

Restricted Stock Awards

     We also grant restricted stock awards that generally vest and are expensed over a four year period. In December 2010 we granted restricted stock awards with certain performance conditions to certain executive officers. At each reporting date, we are required to evaluate whether achievement of the performance condition is probable. Compensation expense is recorded based upon our assessment of accomplishing each performance provision, over the appropriate service period. For the three months ended March 31, 2011, no expense was recognized related to these awards.

     The following table summarizes our restricted stock award activity during the three months ended March 31, 2011 and 2010:

		2011								2010
						Weighted-
						Average								Weighted-
						Grant Date				Stock				Average Grant
		Stock Awards				Fair Value				Awards				Date Fair Value
Outstanding at January 1			2,214,260			$	21.79				2,360,138			$	7.71
Granted			891,847				35.18				725,079				29.39
Vested			(338,288	)			21.80				(361,742	)			6.45
Forfeited and expired			(76,778	)			24.60				(25,131	)			10.98
Outstanding at March 31			2,691,041			$	26.15				2,698,344			$	13.67

     As of March 31, 2011 we had approximately $48.8 million in total unrecognized compensation expense related to our restricted stock awards that is to be recognized over a weighted-average period of approximately 1.5 years.

10. COMMITMENTS AND CONTINGENCIES

     We have a supply agreement with Diosynth covering the commercial production of the recombinant antigen used in the manufacture of PROVENGE. On May 12, 2010, we entered into a Second Amendment to the supply agreement to extend the term of the agreement through December 31, 2018, and unless terminated, the agreement will renew automatically thereafter for additional 5-year terms. The agreement may be terminated upon written notice by us or Diosynth at least 24 months before the end of the initial term or a renewal term or by either party in the event of an uncured material breach or default by the other party

     We currently have a commitment with Diosynth to purchase antigen through 2011 for a total of $77.6 million related to two orders. As of March 31, 2011, we have paid $40.7 million toward the orders and have a remaining obligation of approximately $36.9 million. We began receiving shipments of the first order in the third quarter 2010 and expect delivery of the second order to commence in mid-2011. In addition, in 2010 we entered into commitments with Diosynth to purchase antigen in 2012 for a total of $41.5 million and in 2013 for a total of $43.8 million. As of March 31, 2011, we have paid $9.9 million related to these orders.

     In September 2010, we entered into a development and supply agreement with GlaxoSmithKline LLC. This agreement is intended to provide a second source for the commercial production and supply of the recombinant antigen used in the manufacture of PROVENGE. The term of the agreement is through December 31, 2015, unless earlier terminated pursuant to the terms of the agreement, and provides for one or more two-year extensions to the then expiring term. As of March 31, 2011, we have paid $11.4 million and have a remaining payment obligation for the transfer of the antigen production process of approximately $12.5 million payable in 2011. Upon execution of the agreement, we placed an initial order for approximately $8.3 million, with delivery of commercial orders to commence in 2012.

     On October 4, 2007, the United States District Court for the Western District of Washington consolidated four proposed securities class actions under the caption McGuire v. Dendreon Corporation, et al., Case No. C07-800-MJP, and designated a lead plaintiff. This action was purportedly brought on behalf of a class of persons and entities who purchased Dendreon common stock between March 1, 2007, and May 8, 2007, inclusive. Lead plaintiff filed an amended complaint on June 2, 2008, a second amended complaint on January 5, 2009, and a third amended complaint on June 8, 2009. The third amended complaint named Dendreon, Chief Executive Officer Mitchell Gold, and Senior Vice President and Chief Scientific Officer David Urdal as defendants, and alleged that defendants made false or misleading statements. It also included a claim for insider trading against Dr. Gold.

     On September 16, 2010, the parties agreed to settle McGuire v. Dendreon for a payment of $16.5 million to the class, with no admission of wrongdoing on the part of defendants. A ruling on defendants’ motion for partial summary judgment was pending at the time the parties notified the Court that they had arrived at a settlement. On October 25, 2010, lead plaintiff filed a motion for preliminary approval of the settlement, and a settlement hearing was held on December 17, 2010. On December 20, 2010, the Court filed orders granting lead plaintiff’s motions for approval of the settlement and for approval of attorneys’ fees and expenses. On February 17, 2011, the Court entered final judgment and dismissed the class action with prejudice.

     On January 7, 2011, a complaint was filed in the United States District Court for the Western District of Washington by a party that had opted out of the settlement made on behalf of the class in McGuire v. Dendreon. The complaint is captioned ORG Lluch Salvado, S.A. v. Dendreon Corporation, et al., and names the Company, Dr. Urdal, and Dr. Gold as defendants. Plaintiff is a Spanish company that purportedly purchased shares of Dendreon common stock between March 29, 2007 and May 8, 2007. The complaint makes similar factual and legal contentions as the third amended complaint in McGuire v. Dendreon. Defendants have not yet answered this complaint and no briefing schedule has been set.

     Management believes that final resolution of this matter will not have a material adverse effect on our financial position, our results of operations, or our cash flows. However, this matter is subject to inherent uncertainties and the actual cost, as well as the distraction from the conduct of our business, will depend upon many unknown factors and management’s view of these may change in the future.

11. COMPREHENSIVE LOSS

     Comprehensive loss includes charges and credits to stockholders’ equity that are not the result of transactions with stockholders. Our comprehensive loss consisted of net loss plus changes in unrealized gain or loss on investments as follows:

		Three Months Ended March 31,
		2011				2010
		(In thousands)
Net loss		$	(111,768	)		$	(125,730	)
Net unrealized gain (loss) on securities			(33	)			24
Comprehensive loss		$	(111,801	)		$	(125,706	)

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This quarterly 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 (the “Exchange Act”), 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 “believes,” “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 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 regarding the factors that affect our business, including without limitation the disclosures set forth in our Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”), including the audited financial statements and the notes thereto and disclosures made under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

OVERVIEW

     We are a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that may significantly improve cancer treatment options for patients. Our product portfolio includes active cellular immunotherapy and small molecule product candidates to treat a wide range of cancers.

     On April 29, 2010, the U.S. Food and Drug Administration (“FDA”) licensed PROVENGE^® (sipuleucel-T), our first in class autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer. Commercial sale of PROVENGE began in May 2010. In January 2011, we announced plans to seek marketing authorization for the sale of PROVENGE in Europe. Prostate cancer is the most common non-skin cancer among men in the United States, with over one million men currently diagnosed with the disease, and the second leading cause of cancer deaths in men in the United States. We own worldwide rights for PROVENGE.

     We have incurred significant losses since our inception. As of March 31, 2011, our accumulated deficit was $1.3 billion. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing and facility expenses, costs associated with the commercial launch of PROVENGE and general and administrative expenses in support of our operations and research efforts. We anticipate that near term we will continue to fund our ongoing research, development and general operations from available cash, including proceeds from our January 2011 convertible notes offering, and revenue generated from commercial sales of PROVENGE. Our available cash will allow us to continue to expand our operations including our manufacturing capabilities, continue our clinical trials, apply for regulatory approvals and build commercial infrastructure outside the U.S. and invest in research and product development. The majority of our resources continue to be used in support of the commercialization of PROVENGE. Even if we are able to successfully realize our commercialization goals for PROVENGE, because of the numerous risks and uncertainties associated with commercialization of a biologic, we are unable to predict when we will become profitable, if at all. Even if we do produce revenues and achieve profitability, we may not be able to maintain or increase profitability.

     Revenue generated from sales of PROVENGE since approval is $76.0 million, including $28.0 million in sales during the first quarter of 2011. During 2010, we supported commercial sale of PROVENGE from the available capacity at our manufacturing facility in Morris Plains, New Jersey (the “New Jersey Facility”). On March 10, 2011, the FDA approved the remainder of the New Jersey Facility for the commercial manufacture of PROVENGE, allowing us to significantly increase product availability. We anticipate our manufacturing capabilities will further increase during 2011 with the FDA licensure of our new facilities in Orange County, California (the “Orange County Facility”) and Atlanta, Georgia (the “Atlanta Facility”), which we anticipate to occur mid-year 2011. On February 28, 2011 and April 28, 2011, we submitted our requests to the FDA for licensure of the Orange County Facility and Atlanta

Facility, respectively, to manufacture PROVENGE. In addition, we expect to establish relationships with an additional 450 infusion sites during 2011 and support approximately 500 infusion sites by year end.

     Soon after PROVENGE was approved by the FDA, the National Comprehensive Cancer Network (“NCCN”) listed PROVENGE in the NCCN Clinical Practice Guidelines in Oncology for Prostate Cancer and NCCN Drugs & Biologics Compendium as a category 1 treatment recommendation for patients with castrate-resistant prostate cancer. A category 1 recommendation means that “the recommendation is based on high level evidence (e.g., randomized controlled trials) and there is uniform NCCN consensus.” With respect to reimbursement, all of the regional Medicare Administrative Contractors (“MACs”) have established coverage guidelines for on-label use of PROVENGE or have stated that they will process PROVENGE claims. In addition, a significant number of private payers including Aetna, CIGNA, Emblem Health, HealthNet, Humana, Kaiser, Regence of Washington, United Healthcare and WellPoint established local or national coverage. On June 30, 2010, the Centers for Medicare and Medicaid Services (“CMS”) opened a national coverage analysis for PROVENGE. In March 2011, the CMS issued a draft decision memorandum in which the CMS proposed that the evidence is adequate to conclude that the use of autologous cellular immunotherapy with PROVENGE improves health outcomes for Medicare beneficiaries with asymptomatic or minimally symptomatic metastatic, castrate-resistant (hormone-refractory) prostate cancer and thus is reasonable and necessary for that indication. The agency is expected to complete its national coverage analysis by June 30, 2011.

     Following a number of pre-submission meetings with European Union (“E.U.”) national agencies, we expect that data from our Phase 3 D9902B IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment) study, supported by data from our D9901 and D9902A studies, will be sufficient to seek regulatory approval for PROVENGE in the E.U. We plan to use the clinical data described in our U.S. Biologics License Application to file our marketing authorization application (“MAA”) to the European Medicines Agency (“EMA”) in late 2011 or early 2012. To accelerate the regulatory timeline, initially PROVENGE will be manufactured through a contract manufacturing organization while we concurrently build an immunotherapy manufacturing facility in Europe. We anticipate a regulatory decision from the E.U. in the first half of 2013.

     As of March 31, 2011, we had approximately 1,630 employees, of which our manufacturing operations employed approximately 975 individuals and our commercial team employed approximately 160 individuals in sales, marketing, and government affairs.

     Other potential product candidates we have under development include our investigational active cellular immunotherapy, DN24-02, directed against HER2/neu for the treatment of patients with bladder, breast, ovarian and other solid tumors expressing HER2/neu. In December 2010 we filed an Investigational New Drug application with the FDA for DN24-02 for the treatment of urothelial carcinoma, including bladder cancer, following surgical resection. Active cellular immunotherapies directed at carbonic anhydrase 9 (“CA-9”), an antigen highly expressed in renal cell carcinoma, and carcinoembryonic antigen (“CEA”), an antigen expressed in colorectal cancer, are in preclinical development. We are also developing an orally-available small molecule targeting TRPM8 that could be applicable to multiple types of cancer in advanced cancer patients. We commenced our Phase 1 clinical trial to evaluate TRPM8 in 2009 and the trial is ongoing.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     We make judgmental decisions and estimates with underlying assumptions when applying accounting principles to prepare our consolidated financial statements. Certain critical accounting policies requiring significant judgments, estimates, and assumptions are detailed below. We consider an accounting estimate to be critical if (1) it requires assumptions to be made that are uncertain at the time the estimate is made and (2) changes to the estimate or different estimates that could have reasonably been used would have materially changed our consolidated financial statements. The development and selection of these critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

     We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, should our actual experience differ from these assumptions and other considerations used in estimating these amounts, the impact of these differences could have a material impact on our consolidated financial statements.

Revenue Recognition

     We recognize revenue primarily from the sale of PROVENGE and collaborative research agreements. Revenue from the sale of PROVENGE is recorded net of product returns and estimated healthcare provider contractual chargebacks. Revenues from sales of PROVENGE are recognized upon our confirmed product delivery to and issuance of the product release form to the physician site. As

we executed a drop shipment agreement with a credit worthy third party wholesaler (the “Wholesaler”) to sell PROVENGE, the Wholesaler assumes all bad debt risk from the physician site or institution, and no allowance for bad debt is recorded. Due to the limited usable life of our product, actual returns are credited against sales in the month they are incurred. Healthcare provider contractual chargebacks are the result of contractual commitments by us to provide products to healthcare providers at specified prices or discounts pursuant to mandatory federal programs. Chargebacks occur when a contracted healthcare provider purchases our products through the Wholesaler at fixed contract prices that are lower than the price we charge the Wholesaler. The Wholesaler, in turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the healthcare providers. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in product sales revenue, and are recorded as other accrued liabilities. For the three months ended March 31, 2011, we recorded chargebacks of approximately $0.4 million.

     We recognize collaborative research revenue from up-front payments, milestone payments, and personnel-supported research funding. We also recognize license revenue from intellectual property and technology agreements. The payments received under these research collaboration agreements are generally 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. Such revenue was insignificant to us for the three months ended March 31, 2011 and 2010.

Inventory

     Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. Inventories consisted of raw materials and finished goods at March 31, 2011 and raw materials at December 31, 2010, but we may also have work in process at any given time. We began capitalizing raw material inventory in mid-April 2009 in preparation for our PROVENGE product launch when the product was considered to have a high probability of regulatory approval and the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to mid-April 2009 have been recorded as research and development expense in our statement of operations. As a result, inventory balances and cost of revenue reflect a lower average per unit cost of materials.

Convertible Senior Notes due 2016

     On January 14, 2011, we entered into an underwriting agreement with J.P. Morgan Securities LLC (the “Underwriter”) relating to the offer and sale of $540 million aggregate principal amount of our 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”). Under the terms of the underwriting agreement, we granted the Underwriter an option, exercisable within 30 days of the date of the agreement, to purchase up to an additional $80 million aggregate principal amount of 2016 Notes to cover overallotments, which was exercised in full, resulting in a total offering of $620 million. Net proceeds to us, after deducting underwriting fees and other offering expenses were approximately $607.1 million.

     The 2016 Notes are convertible at the option of the holder, and we may choose to satisfy the conversion in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of our common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $51.24 per share. The 2016 Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options.” Under ASC 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion.

Fair Value

     We measure and report at fair value our cash equivalents and investment securities. We also measured and reported at fair value our warrant liability, prior to exercise of the Warrants in the second quarter of 2010. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or

liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

     Assets and liabilities typically recorded at fair value on a non-recurring basis include long-lived assets measured at fair value due to an impairment assessment under ASC 360-10, “Property, Plant and Equipment,” and asset retirement obligations initially measured under ASC 410-20, “Asset Retirement and Environmental Obligations.”

Accounting for Stock-Based Compensation

     Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized on the accelerated method as expense over the requisite service period. Compensation cost for all stock-based awards is measured at fair value as of the grant date. The fair value of our stock options is calculated using the Black-Scholes-Merton (“BSM”) option pricing model. The BSM model requires various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period.

     We also grant restricted stock awards that generally vest and are expensed over a four year period. In December 2010 we granted restricted stock awards with certain performance conditions to certain executive officers. At each reporting date, we are required to evaluate whether achievement of the performance condition is probable. Compensation expense is recorded based upon our assessment of accomplishing each performance provision, over the appropriate service period. For the three months ended March 31, 2011, no expense was recognized related to these awards.

Recent Accounting Pronouncements

     No accounting pronouncements were released during the first quarter of 2011 that would impact our financial statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

Revenue

		Three Months Ended March 31,
		2011				2010
		(In thousands)
Product revenue		$	28,040			$	—
Collaborative revenue			21				21
Total revenue		$	28,061			$	21

     Product revenue of $28.0 million for the three months ended March 31, 2011 resulted from the commercial sale of PROVENGE. Revenue from the sale of PROVENGE is recorded net of product returns and estimated healthcare provider contractual chargebacks. For the three months ended March 31, 2011, we recorded chargebacks of approximately $0.4 million.

     Collaborative revenue for the three months ended March 31, 2011 and 2010 includes the recognition of deferred revenue related to a license agreement.

Cost of Revenue

     Cost of revenue was $18.3 million for the three months ended March 31, 2011. The cost of revenue includes the costs of manufacturing and distributing PROVENGE. Effective March 10, 2011, upon FDA approval of the remaining capacity of the New Jersey Facility for the commercial manufacture of PROVENGE, all manufacturing costs at the New Jersey Facility are included in cost of revenue. The costs related to the manufacture of PROVENGE for clinical patients are classified as research and development expense.

     Gross margins on new product introductions generally increase over the life of the product as utilization of capacity increases and manufacturing efforts on product cost reduction are successful. As we expand our product distribution, we anticipate cost of revenue as a percentage of product revenue will decline in future years.

     We incurred substantial costs associated with the portion of the New Jersey Facility that was not operational during the quarter, as well as at our Orange County and Atlanta Facilities. These costs were classified as selling, general and administrative expense. We expect that these expenses will continue to increase as we add additional headcount in anticipation of being licensed by the FDA to produce PROVENGE for commercial sale at our Orange County and Atlanta Facilities.

     We began capitalizing raw material inventory in mid-April 2009, in preparation for our PROVENGE product launch, when the product was considered to have a high probability of regulatory approval and the related costs were expected to be recoverable through the commercialization of the product. Such costs incurred prior to mid-April 2009 were recorded as research and development expense in our statement of operations. As a result, cost of revenues will reflect a lower average per unit cost of materials, which will be offset by higher per unit manufacturing overhead due to under utilization of plant capacity for the next few quarters.

Research and Development Expenses

     Research and development expenses decreased to $17.6 million for the three months ended March 31, 2011, from $29.4 million for the three months ended March 31, 2010. Research and development expenses in the first quarter of 2010 were primarily related to pre-commercialization scale up at the New Jersey facility. We continue to incur pre-operational costs at the Orange County and Atlanta Facilities, which were approximately $38.2 million in the first quarter of 2011, and have been classified as selling, general and administrative expense. Financial data related to our research and development activities is categorized as either costs associated with clinical programs, discovery research or developing second source suppliers. Our research and development expenses were as follows (in millions):

		Three Months Ended March 31,
		2011				2010
		(In millions)
Clinical programs:
Direct costs		$	3.1			$	2.6
Indirect costs			6.2				22.2
Total clinical programs			9.3				24.8
Second source supplier development expenses			5.4				2.9
Discovery research			2.9				1.7
Total research and development expense		$	17.6			$	29.4

     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 clinical programs. Indirect costs of our clinical program include wages, payroll taxes and other employee-related expenses, including stock-based compensation, rent, utilities and other facilities-related maintenance costs. Costs attributable to second source contract manufacturing expenses include technology transfer and process development costs related to developing second source suppliers. Costs attributable to our discovery research programs represent our efforts to develop and expand our product pipeline. The costs in each category may change in the future and new categories may be added.

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

•		the timeframe over which our product development programs are likely to be completed;
•		whether they will be completed;
•		if they are completed, whether they will provide therapeutic benefit or be approved for commercialization by the necessary regulatory agencies; or
•		whether, if approved, they will be scalable to meet commercial demand.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $95.3 million for the three months ended March 31, 2011, compared to $28.2 million for the three months ended March 31, 2010. Selling, general and administrative expenses primarily consisted of salaries and wages, stock-based compensation, consulting fees, sales and marketing fees and administrative costs to support our operations. In addition, as mentioned above, selling, general and administrative costs include the expenses associated with the portion of our New Jersey Facility which was not commercially operational during the first quarter of 2011, as well as at our Orange County and Atlanta Facilities, and related costs of personnel in training. The significant increase in selling, general and administrative expenses for the three months ended March 31, 2011 compared to 2010 was primarily attributable to higher payroll costs from increased headcount and commercial product launch activities, including non-operational manufacturing capacity.

     We are incurring pre-operational costs at the Orange County and Atlanta Facilities, both of which have filed for licensure with the FDA. These costs include facilities-related expenditures and expenses associated with additional headcount to support the build-out as well as to prepare for commercial production of PROVENGE. The costs related to these activities for the three months ended March 31, 2011 were approximately $38.2 million, and represent ongoing expenses at the New Jersey Facility prior to FDA approval of the additional capacity in March 2011, and at the Orange County and Atlanta Facilities, as well as one-time start up costs required to support the launch of PROVENGE and new facility start-up. These costs will be classified as cost of revenue when the related commercial operations commence. We expect that these types of expenditures will continue to increase until the facilities become fully operational.

Interest Income

     Interest income increased to $0.4 million for the three months ended March 31, 2011 from $0.3 million for the three months ended March 31, 2010. The increase was primarily due to increased holdings of cash and investments as a result of the net proceeds realized from the offering of our 2016 Notes, which resulted in net proceeds of $607.1 million in January and February 2011.

Interest Expense

     Interest expense increased to $9.0 million for the three months ended March 31, 2011, compared to $0.3 million for the three months ended March 31, 2010. The increase was primarily due to the issuance of our 2016 Notes in the first quarter of 2011, which resulted in non-cash interest expense of $4.7 million, related to amortization of the debt discount and debt issuance costs for the three months ended March 31, 2011, and interest expense of $3.4 million, based on the 2.875% stated coupon rate for the three months ended March 31, 2011. Refer to Liquidity and Capital Resources: Convertible Notes for further discussion of the accounting for our 2016 Notes.

     Interest expense was also recognized for the three months ended March 31, 2011 and 2010 related to our 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”). We capitalized interest expense of $0.6 million and $0.7 million for the three months ended March 31, 2011 and 2010, respectively.

Warrant Liability

     Non-operating loss associated with the increase in our warrant liability for the three months ended March 31, 2010 was $68.1 million. The fair value was calculated using the BSM model and was revalued at each reporting period and finally at the date of exercise. The warrant agreement was amended, and the warrants were immediately exercised in May 2010 and therefore the fair value of the warrants will have no future impact on our results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash Uses and Proceeds

     As of March 31, 2011, we had approximately $779.0 million in cash, cash equivalents and short-term and long-term investments. To date, we have financed our operations primarily through proceeds from the sale of debt and convertible securities, equity and cash receipts from collaborative agreements, interest income and, most recently, sales of PROVENGE.

     Net cash used in operating activities for the three months ended March 31, 2011 and 2010 was $97.9 million and $39.3 million, respectively. Expenditures related to operating activities in these periods were a result of costs associated with the commercial launch of PROVENGE, and research and development expenses, clinical trial costs, contract manufacturing costs and selling, general and administrative expenses in support of our operations. The increase in net cash used in operating activities in the first quarter of 2011, as compared to the first quarter of 2010, resulted from continuing expenses associated with the commercial launch of PROVENGE, including working capital needs to support increased inventory and increased selling, general and administrative expense, primarily as a result of an increase in personnel from approximately 620 as of March 31, 2010 to approximately 1,630 as of March 31, 2011.

     Net cash used in investing activities for the three months ended March 31, 2011 and 2010 was $83.2 million and $95.0 million, respectively. Expenditures related to investing activities for the three months ended March 31, 2011 consisted primarily of purchases of investments of $146.3 million and purchases of property and equipment, primarily facilities-related expenditures, of $5.1 million, offset by maturities and sales of investments of $68.2 million. The decrease in cash used in investing activities in the first quarter of 2011, as compared to the same period in 2010, is primarily related to a decrease in purchases of property and equipment due to the substantial completion of the manufacturing facility build-outs in 2010.

     Net cash provided by financing activities was $603.4 million for the three months ended March 31, 2011, compared with net cash used in financing activities of $1.0 million for the three months ended March 31, 2010. Cash provided by financing activities in the first quarter of 2011 was due to the offering of our 2016 Notes, from which we realized net proceeds of approximately $607.1 million.

     We believe that our current cash on hand as of March 31, 2011, together with revenue generated from commercial sales of PROVENGE, will be sufficient to meet our anticipated expenditures for at least the next 12 months as we expand our operations, including our manufacturing capabilities, continue our clinical trials, apply for regulatory approvals and build commercial infrastructure outside the U.S. and invest in research and product development. The majority of our resources continue to be used in support of the commercialization of PROVENGE. We expect revenue from PROVENGE product sales could be a significant source of cash. However, we may need to raise additional funds to meet potential additional long term liquidity needs for uses including:

	•		the development of marketing, manufacturing, information technology and other infrastructure and activities related to the commercialization of PROVENGE,
	•		working capital needs,
	•		increased personnel needs,
	•		continuing and expanding our internal research and development programs, and
	•		potentially engaging in clinical trials outside of the U.S., commercial infrastructure development and other investment in order to support the commercialization of PROVENGE in territories outside the United States.

Leases and Other Commitments

Office Leases

     In February 2011, we entered into a lease with Northwestern Mutual Life Insurance Company for office space of 179,656 rentable square feet in Seattle, Washington. The initial lease term is for five and a half years, with one renewal term of two and a half years. The aggregate rent payable under the initial lease term is approximately $22.5 million. Also in February 2011, we entered into a sublease with Zymogenetics, Inc. for laboratory and office space of 97,365 rentable square feet in Seattle, Washington. The initial lease term is

for eight years. The aggregate rent payable under the initial lease term is approximately $24.3 million. We plan to move our administrative, research and development activities to these buildings in 2011.

     Currently we lease approximately 71,000 square feet under an operating lease with Alexandria Real Estate Equities, Inc. (Econet, Inc.) through December 31, 2011. In addition, we lease 35,500 square feet with Selig Holdings Company, LLC under a lease which also expires in December 2011. In July 2009 we entered into a sublease agreement with Hearst Newspapers, LLC (the sublandlord to Legacy Partners II, the landlord) for office space in Seattle, Washington, comprising approximately 37,000 square feet. The term of the sublease is through April 2011. We plan on exiting these three facilities during 2011.

Manufacturing Facilities Leases

     In August 2005, we entered into an agreement to lease the New Jersey Facility, which represents approximately 158,000 square feet of commercial manufacturing space. The lease term is seven years, and we have the option to extend the lease for two ten-year periods and one five-year period, with the same terms and conditions except for rent, which adjusts upon renewal to market rate. The aggregate rent payable under the initial lease term is $7.2 million.

     The New Jersey Facility lease requires us to provide the landlord with a letter of credit. We provided Wells Fargo, the bank that issued the letter of credit on our behalf, a security deposit to guarantee the letter of credit. The deposit of $1.9 million is recorded as a long-term investment as of March 31, 2011 and December 31, 2010 on our consolidated balance sheets. As part of an agreement with the Township of Hanover relating to the permitting of the expansion of our New Jersey Facility, which was substantially completed in May 2010, we also had $1.9 million in long-term investments being held as a security deposit to ensure completion of certain improvements at the property as of December 31, 2010. In March 2011, this security deposit was reduced to $0.3 million.

     In August 2009, we entered into a lease with Knickerbocker Properties, Inc. XLVI for the Orange County Facility, for existing building space totaling approximately 184,000 rentable square feet for use by us as a manufacturing facility following build-out. The initial lease term is ten and a half years, with two renewal terms of five years each. The lease includes a one-time purchase option exercisable during the first three years of the lease term. The aggregate rent payable under the initial lease term is $13.6 million.

     In July 2009, we entered into a lease with Majestic Realty Co. for the Atlanta Facility, for approximately 160,000 square feet for use by us as a manufacturing facility following build-out. The lease commenced when we took possession of the building upon substantial completion of construction of the building shell in March 2010. The initial lease term is for ten and a half years, with five renewal terms of five years each. The aggregate rent payable for the Atlanta Facility under the initial lease term is $6.7 million.

     The Orange County Facility and Atlanta Facility leases required us to provide the landlords with letters of credit in the total amount of $2.4 million as security deposits. The Orange County Facility letter of credit was $2.2 million as of March 31, 2011 and December 31, 2010 and is secured by a deposit of $2.2 million, which is recorded as a long-term investment on our consolidated balance sheet. The Atlanta Facility letter of credit totaling $222,000 was returned to us in May 2010.

     The three manufacturing facility leases each have a provision requiring that we restore the building to its original condition upon lease termination. Accordingly, we have accrued the estimated costs of dismantlement and restoration as these obligations accumulate.

Production and Supply Expenses

     We have a supply agreement with Diosynth RTP, Inc. (“Diosynth”) covering the commercial production of the recombinant antigen used in the manufacture of PROVENGE. On May 12, 2010, we entered into a Second Amendment to the supply agreement to extend the term of the agreement through December 31, 2018, and unless terminated, the agreement will renew automatically thereafter for additional 5-year terms. The agreement may be terminated upon written notice by us or Diosynth at least 24 months before the end of the initial term or a renewal term or by either party in the event of an uncured material breach or default by the other party.

     We currently have a commitment with Diosynth to purchase antigen through 2011 for a total of $77.6 million related to two orders. As of March 31, 2011, we have paid $40.7 million toward the orders and have a remaining obligation of approximately $36.9 million. We began receiving shipments of the first order in the third quarter 2010 and expect delivery of the second order to

commence in mid-2011. In addition, in 2010 we entered into commitments with Diosynth to purchase antigen in 2012 for a total of $41.5 million and in 2013 for a total of $43.8 million. In February 2011, we paid $9.9 million toward the 2012 order.

     In September 2010, we entered into a development and supply agreement with GlaxoSmithKline LLC. This agreement is intended to provide a second source for the commercial production and supply of the recombinant antigen used in the manufacture of PROVENGE. The term of the agreement is through December 31, 2015, unless earlier terminated pursuant to the terms of the agreement, and provides for one or more two-year extensions to the then expiring term. At March 31, 2011, we have paid $11.4 million and we have a remaining payment obligation for the transfer of the antigen production process aggregating $12.5 million, payable in 2011. Upon execution of the agreement, we placed an initial order for approximately $8.3 million, with delivery of commercial orders to commence in 2012.

Financings from the Issuance of Convertible Notes

2016 Notes

     On January 14, 2011, we entered into an underwriting agreement with the Underwriter relating to the offer and sale of $540 million aggregate principal amount of our 2016 Notes. Under the terms of the underwriting agreement, we granted the Underwriter an option, exercisable within 30 days of the date of the agreement, to purchase up to an additional $80 million aggregate principal amount of 2016 Notes to cover overallotments. We issued $540 million in aggregate principal amount of the 2016 Notes upon the closing of the offering on January 20, 2011. Net proceeds to us, after payment of underwriting fees and estimated expenses, were approximately $528.8 million. On January 31, 2011, the Underwriter exercised the overallotment option in full, and we closed on the sale of the additional $80 million in principal amount of the 2016 Notes on February 3, 2011. Net proceeds to us from the exercise of the overallotment option, after deducting underwriting fees and other offering expenses, were approximately $78.3 million.

     On January 20, 2011, we entered into the First Supplemental Indenture (the “Supplemental Indenture”), dated as of January 20, 2011, with The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), to our existing Base Indenture (the “Base Indenture” and, together with the Supplemental Indenture, the “2016 Indenture”), dated as of March 16, 2007, with the Trustee. The 2016 Indenture sets forth the rights and provisions governing the 2016 Notes. Interest is payable on the 2016 Notes semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2011. Record dates for payment of interest on the 2016 Notes are each January 1 and July 1.

     The 2016 Notes are convertible at the option of the holder, and we may choose to satisfy the conversion in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of our common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $51.24 per share. The conversion rate will be increased under certain circumstances described in the 2016 Indenture; however, the number of shares of common stock issued upon conversion of a 2016 Note will not exceed 27.3224 per $1,000 principal amount of 2016 Notes, subject to adjustment in accordance with the 2016 Indenture.

     The offering of the 2016 Notes was made pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-163573), as amended by a post-effective amendment, including the related prospectus dated January 13, 2011 and the prospectus supplement dated January 14, 2011, each as filed with the Securities and Exchange Commission.

     The 2016 Notes are accounted for in accordance with ASC 470-20. Under ASC 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversion.

     The application of ASC 470-20 resulted in the initial recognition of $132.9 million as the debt discount with a corresponding increase to additional paid-in capital, the equity component, for the 2016 Notes. At March 31, 2011, the net carrying amount of the liability component was $491.4 million and is recorded as a current liability in the consolidated balance sheet, and the remaining

unamortized debt discount was $128.6 million. Amortization of the debt discount and debt issuance costs for the three months ended March 31, 2011 resulted in non-cash interest expense of $4.7 million. In addition, interest expense for the three months ended March 31, 2011 was $3.4 million based on the 2.875% stated coupon rate.

2014 Notes

     In 2007, an aggregate of $85.3 million of the 2014 Notes were sold in a private placement to qualified institutional buyers. Proceeds from the offering, after deducting placement fees and our estimated expenses, were approximately $82.3 million. The 2014 Notes were issued at face principal amount and pay interest of 4.75% semi-annually in arrears on June 15 and December 15 of each year. Record dates for payment of interest on the 2014 Notes are each June 1st and December 1st. In certain circumstances, additional amounts may become due on the 2014 Notes as additional interest. We can elect that the sole remedy for an event of default for our failure to comply with the “reporting obligations” provisions of the indenture under which the 2014 Notes were issued (the “Indenture”), for the first 180 days after the occurrence of such event of default would be for the holders of the 2014 Notes to receive additional interest on the 2014 Notes at an annual rate equal to 1% of the outstanding principal amount of the 2014 Notes. We recorded interest expense, including the amortization of debt issuance costs, related to the 2014 Notes of $0.4 million and $0.7 million during the three months ended March 31, 2011 and 2010, respectively.

     The 2014 Notes are convertible into our common stock, initially at the conversion price of $10.28 per share, equal to a conversion rate of approximately 97.2644 shares per $1,000 principal amount of the 2014 Notes, subject to adjustment. There may be an increase in the conversion rate of the 2014 Notes under certain circumstances described in the Indenture; however, the number of shares of common stock issued will not exceed 114.2857 per $1,000 principal amount of the 2014 Notes. A holder that converts 2014 Notes in connection with a “fundamental change,” as defined in the Indenture, may in some circumstances be entitled to an increased conversion rate (i.e., a lower per share conversion price) as a make whole premium. If a fundamental change occurs, holders of the 2014 Notes may require us to repurchase all or a portion of their 2014 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2014 Notes to be repurchased, plus any accrued and unpaid interest and other amounts due thereon. The Indenture contains customary covenants.

     In April 2009, $11.5 million in principal amount of the 2014 Notes were converted by holders of the 2014 Notes, resulting in the issuance of approximately 1.1 million shares of common stock. In May 2009, we exchanged approximately 2.1 million shares of our common stock for $21.2 million principal face amount of the 2014 Notes. In December 2010, we exchanged approximately 2.5 million shares of common stock for $24.9 million principal face amount of the 2014 Notes, which included a premium of approximately 129,000 shares of common stock. As of March 31, 2011 and December 31, 2010, the aggregate principal amount of the 2014 Notes outstanding was $27.7 million.

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our investment portfolio is maintained in accordance with our investment policy, which specifies credit quality standards, limits our credit exposure to any single issuer and defines allowable investments. Pursuant to our policy, auction rate or asset-backed securities without a guarantee by the U.S. government are not permitted to be purchased. The fair value of our cash equivalents and marketable securities is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ credit worthiness.

     As of March 31, 2011 and December 31, 2010, we had short-term investments of $157.1 million and $121.8 million, respectively, and long-term investments of $66.6 million and $22.5 million, respectively. 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-term and long-term investments at March 31, 2011, assuming a 100 basis point increase in market interest rates, would decrease by approximately $1.3 million, which would not materially impact our results of operations, cash flows or financial position. While changes in interest rates may affect the fair value of our investment portfolio, any gains or losses will not be recognized in our statement of operations until the investment is sold or if the reduction in fair value is determined to be an other-than-temporary impairment.

     We proactively monitor and manage our portfolio. If necessary, we believe we would be able to liquidate our investments within the next year without significant loss. We currently believe these securities are not significantly impaired, primarily due to the government and major corporate guarantees of the underlying securities; however, it could take until the final maturity of the underlying notes to realize our investments’ recorded values. Based on our expected operating cash flows and our other sources of

cash, we do not anticipate the potential lack of liquidity on these investments will affect our ability to execute our current business plan.

ITEM 4.		CONTROLS AND PROCEDURES

     (a) Disclosure controls and procedures.

     Our chief executive officer and our chief financial officer, based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     (b) Changes in internal control over financial reporting.

          There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.		LEGAL PROCEEDINGS

     On October 4, 2007, the United States District Court for the Western District of Washington consolidated four proposed securities class actions under the caption McGuire v. Dendreon Corporation, et al., Case No. C07-800-MJP, and designated a lead plaintiff. This action was purportedly brought on behalf of a class of persons and entities who purchased Dendreon common stock between March 1, 2007, and May 8, 2007, inclusive. Lead plaintiff filed an amended complaint on June 2, 2008, a second amended complaint on January 5, 2009, and a third amended complaint on June 8, 2009. The third amended complaint named Dendreon, Chief Executive Officer Mitchell Gold, and Senior Vice President and Chief Scientific Officer David Urdal as defendants, and alleged that defendants made false or misleading statements. It also included a claim for insider trading against Dr. Gold.

     On September 16, 2010, the parties agreed to settle McGuire v. Dendreon for a payment of $16.5 million to the class, with no admission of wrongdoing on the part of defendants. A ruling on defendants’ motion for partial summary judgment was pending at the time the parties notified the Court that they had arrived at a settlement. On October 25, 2010, lead plaintiff filed a motion for preliminary approval of the settlement, and a settlement hearing was held on December 17, 2010. On December 20, 2010, the Court filed orders granting lead plaintiff’s motions for approval of the settlement and for approval of attorneys’ fees and expenses. On February 17, 2011, the Court entered final judgment and dismissed the class action with prejudice.

     On January 7, 2011, a complaint was filed in the United States District Court for the Western District of Washington by a party that had opted out of the settlement made on behalf of the class in McGuire v. Dendreon. The complaint is captioned ORG Lluch Salvado, S.A. v. Dendreon Corporation, et al., and names the Company, Dr. Urdal, and Dr. Gold as defendants. Plaintiff is a Spanish company that purportedly purchased shares of Dendreon common stock between March 29, 2007 and May 8, 2007. The complaint makes similar factual and legal contentions as the third amended complaint in McGuire v. Dendreon. Defendants have not yet answered this complaint and no briefing schedule has been set.

     Management believes that final resolution of this matter will not have a material adverse effect on our financial position, our results of operations, or our cash flows. However, this matter is subject to inherent uncertainties and the actual cost, as well as the distraction from the conduct of our business, will depend upon many unknown factors and management’s view of these may change in the future.

ITEM 6.		EXHIBITS

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		INSTANCE DOCUMENT
101		SCHEMA DOCUMENT
101		CALCULATION LINKBASE DOCUMENT
101		LABELS LINKBASE DOCUMENT
101		PRESENTATION LINKBASE DOCUMENT

SIGNATURES

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

Date: May 2, 2011

		DENDREON CORPORATION
		By:		/s/ Mitchell H. Gold, M.D.   Mitchell H. Gold, M.D.
				President and Chief Executive Officer
		By:		/s/ Gregory T. Schiffman   Gregory T. Schiffman
				Executive Vice President,
				Chief Financial Officer and Treasurer
				(Principal Financial Officer)
		By:		/s/ Gregory R. Cox   Gregory R. Cox
				Vice President, Finance
				(Principal Accounting Officer)

EXHIBIT INDEX

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		INSTANCE DOCUMENT
101		SCHEMA DOCUMENT
101		CALCULATION LINKBASE DOCUMENT
101		LABELS LINKBASE DOCUMENT
101		PRESENTATION LINKBASE DOCUMENT